How to Escape Pension Panic

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How to Escape Pension Panic

The main benefit of a pension is that employer guarantees that the employee receives a definite amount of benefit upon retirement. Scratch that. Nowadays, a guarantee is too strong of a commitment—especially for public employees. Pensions can be cut, and it’s happening more and more frequently.

For 71-year-old Patsy Jardin of Loyalton, California it’s happening now. For the first time in its 85-year history, the California Public Employees Retirement System (CalPERS) is drastically cutting benefits for public retirees. Starting January 1st, four retired City of Loyalton public employees will have their pensions cut 60 percent. For Patsy, that means her pension will drop from about $49,000 a year to a little more than $19,000.

Fellow Loyalton retiree John Cussins is also wondering how he’ll make it, since his pension will drop 60 percent, to $1,523 a month. John worked about 22 years for the City of Loyalton; Patsy worked there for 34 years. Both of them thought their pensions were safe when they retired since the city had always paid its CalPERS bills in full.

But 3 years ago, the City Council in Loyalton voted to leave CalPERS to save money. At that time, CalPERS informed the city its pension accounts were only 40 percent funded despite the fact Loyalton had paid all its previous bills.

“The City of Loyalton defaulted on their retirees,” CalPERS Deputy Executive Officer Brad Pacheco said. “They made a bad decision and those retirees are going to suffer for it.”

John and Patsy say CalPERS cares more about the 3,000-plus cities towns and municipal entities that pay into the fund than the people the pension fund is supposed to cover in retirement.

Like Loyalton, CalPERS is far from fully funded, only 65 percent. That means right now CalPERS has 65 cents for every dollar that it needs to provide pension benefits for almost two million people.

Some of them are still working and not yet receiving pension benefits. The rest are retired and drawing funds from CalPERS.

Pacheco, the CalPERS spokesperson, told FOX Business network the pension fund is healthy but in a negative cash flow position.

“We are paying out more in benefits than we are taking in in contributions,” he said.

CalPERS pension debt is roughly $164 billion and mostly likely will grow larger in coming years.

For several decades, CalPERS predicted its investments would earn a 7.5% return. Pension funds call that return on investment a “discount rate”. A higher “discount rate” like 7.5% allows politicians to avoid raising taxes or cut spending to meet their obligations to public employees.

A lower “discount rate” requires cities to pay more each year into the pension fund to keep it solvent. CalPERS is actually considering cutting its “discount rate” to just 6.4% to reflect what it expects to be smaller returns in the future. That will require cities, towns and other municipal entities in the CalPERS system to pay more money to cover their employees. Some may have to raise taxes to do it. Others may opt to leave CalPERS just as Loyalton did.

But those that leave may be shocked to learn their pensions are less than fully funded. That’s why Patsy Jardin thinks CalPERS is using her plight to send a message to other California public employees and cities that, despite tight budgets, dropping CalPERS may come with consequences.

She said: “I just think they are setting an example out of the four of us, I really do. I just think we are the ones who are going to pay for this, for all retirees.”

Source: CalPERS Cuts Retiree Benefits for First Time Ever, Fox Business

At their height in the 1980s, pension plans covered nearly half of all private sector workers. About 90% of public employees, and roughly 10% of private employees in the U.S. are covered by a pension plan today. It’s unsettling to think that so many people are at risk for not having the money they need during retirement. No longer can retirees bank on the same monthly check for the rest of their lives.

It’s a good idea to do a pension checkup by studying the summary plan description and annual benefit and funding notices, which your employer should send or make available to you. Also review your company’s financial strength, its position in the field, and the outlook for your industry overall.

You can also assess specific threats that may range widely depending on your age, how many years until your retirement, and exactly how your benefits are altered. For example, a so-called hard pension freeze, which stops benefit accruals based on job tenure and compensation growth is worse for mid-career workers, who are denied the added pension kick that late-tenure accruals tend to provide.

If you run into trouble collecting your pension from a former employer, get legal help from the Pension Counseling and Information Program of the U.S. Administration on Aging.

Be prepared for changes

If you’re counting on a traditional pension, there’s reason to create a back-up plan. We’ve got good news for you. Regardless of whether you’re still working and contributing or have retired and are depending on your pension, we can help with your financial strategy and retirement. It’s called the Perpetual Wealth Strategy and it’s backed by a 100-year history of success.

The idea behind The Perpetual Wealth Strategy is culled from a concept called Infinite Banking. This strategy calls for you to structure your life insurance policy in two unique ways—part whole life insurance with a cash addition. Let’s look at some of the plan’s benefits:

  • • Life insurance companies are private institutions and not influenced by the Federal Government but are regulated by the states.
  • • Mutual insurance company guarantees the financing against the accumulated balance at any time and for anything.
  • • You can borrow money from yourself to purchase items that otherwise would be financed by a bank.

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Budget, repairReference: http://money.usnews.com/money/personal-finance/slideshows/25-ways-to-fix-your-finances-fast?page=23

Paradigm Life

Paradigm Life (346 Posts)

Financial Services Company focusing on Infinite Banking and providing solutions to problems many American are currently facing. Located at 132 Pierpont Avenue, Suite 250, Salt Lake City, UT 84101.