Monday, January 6, 2014
State of the Pension Plans?
State of the Pension Plans?
Any thoughts on the states of the pension plans for both TCP1 and for UC (for those who took TCP2 at the transition)? I assume that both are looking much better after the last year's booming stock market despite the fact that interest rates remain low, which affects the valuations of the holdings of the pension plans.
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To the extent the pension funds are invested in stocks, assets have gone up nicely. Equally important, as interest rates rise, the present worth of future liabilities decreases. So things should look better at this time. Not that we'll get a report until 12 months from now.
I now yield the floor to one of the usual haters claiming anyone that stuck with TCP-1 is an imbecile and deserves the negative fate sure to await.
Enjoy it. You're the last workers to ever see a defined pension program. From now on it a work for life slave labor one world order workforce where you can be released at any time without cause. You get what you allow.
It's early, and if you're retired or soon to retire you're probaby ok. But with a shrinking pool, the folks coming later will probably get screwed. Bit like a Ponzi scheme.
Boeing workers decided to give up pensions for "job security". Starting in 2016, their pensions will freeze and be replaced with a 401k. TCP1 folks should be situationally aware of our pension fund management to include fund contribution sleight of hand.
LLNS will continue to rewrite employment policy and modify benefits/contributions to its betterment. We have SHRM Leader Art Wong to shepherd us through these future challenges.
I'm a TCP-1 member...but what's wrong with the 401(k) approach that seems to be the standard "best practice" these days?
Years ago, everybody was worried about how much they had to contribute to their defined benefit plans. It was usually assumed that the plans were inefficient, poorly managed, ripe for curruption, and generally a bad idea (except for UC which was always recognized as an unusually high performer). I think that most people thought they could do better at investing their own pension monies. Plus, DB plans made it hard to consider changing employers (losing years of service).
Basically, DB plans were defeated in the marketplace by the basic idea of "give me my retirement money, and I'll manage it."
As usual, the grass wasn't quite as green as expected, but people do now have direct responsibility for their retirement, the funds are portable, and it's pretty easy to compare the value of different 401(k) offerings. What's not to like?
In our case, UC was a great fund manager, so we managed to get the benefits without contributing to them for a long time. That was pretty nice. But funds weren't designed to make the benficiaries rich, rather to give them back what was promised.
Also, I have to say that I probably would not have started saving nearly as early or continued to save so regularly if I had been required to manage it myself. So that was pretty helpful. But my lack of discipline is really my problem.
So what's so wrong with today's standard approach? It seems like just what we all asking for 20 years ago.
"TCP1 folks should be situationally aware of our pension fund management to include fund contribution sleight of hand."
1) The sleight of hand already happened when LLNL used one pension calculation to justify forcing employees to pay in and then used an entirely different calculation (via MAP21 change lobbyist got put in) to justify LLNL NOT paying their portion -- in direct contradiction of the slides LLNL management had presented the employees.
2) It's pretty much impossible to be situationally aware of our pension fund management...when we have no visibility into how our pension is being managed, what it's current state is, decisions being made, etc.
1. First thought. TCP1 at both LLNL and LANL should be up about 15% for the year. The funds are roughly allocated to 60% equities and 40% fixed income. Equities are up roughly 32% for the year and fixed income -2%.
2. 2nd thought, the liabilities grow about 5% per year.
3. So both should be about 10% better funded than last year.
4. This is above and beyond the $20M that the employees of each lab contributed due to significant salary reductions.
5. NNSA did not contribute the matching $20M to LLNLs TCP1 in spite of an agreement to do so.
6. I believe it did make a significant contribution to LANLs TCP1 which is about 20% less well funded, due to the happenstance of being established one year before LLNLs, when the market was less favorable.
7. I believe NNSA also contributed to UC again to keep those who froze in UCRS at an agreed on funding level.
So LANL TCP1 should be over 90% funded, LLNL TCP1 about 110% funded and the Lab portions of UCRS about 100% funded as of the end of 2013.
This summary is from memory. Freely correct the errors.
We'll see if either Bret or Charlie attempt to present the info in the months to come in such a clear way to you, the stakeholders.
As an afterthought, a worker who saves and invests 15% of his yearly compensation will have sufficient funds at retirement to support current expenditures for another 30 years. The combination of Lab contributions, employee contributions and matching gives TCP2 participants about the say outcome as a TCP1 pension. Both can do better by putting the maximum in the 403b. You can retire a millionaire. This is advice I gave to all new hires and to my children. It does not apply exclusively to Lab employees.
In a Frontline peice years back, the original designer of the 401(k)stated that it was designed as a saving vehicle supplement to defined benefit plans not a substitute.
It is a poor substitute for 4 reasons, he outlined.
1. Not all members contribute to their retirement.
2. Some Members do not take sufficient risk to earn adequate returns.
3. Some Members take out their contributions before retirment.
4. Some members take a lump-sum cash out at retirement, with devastating tax consequences.
Traditional professionally managed DB plans avoid all of these pitfalls, no matter what the contribution level. Their real weakness was that some DB managers did not contribute fully as liabilities were incurred, rather committing future earnings, a situation in many states and municipalities today, something UC managers did not allow DOE to do. So TCP1 at both labs is nearly fully funded.
Frontline continued that Ohio ran a social experiment from the 70s allowing state employees to get the same contribution in a DB or DC program. It stopped the DC 401(k) like program after many years because a sad significant fraction of retirees in those programs were doing poorly because they mismanaged their pensions, even though adequate funding was provided by the state. This couldn't happen in the DB program that was separate and professionally managed.
Interesting stuff. Much to ponder soberly.
Both LANL and LLNL need an voting employee and a retiree representative on the management board of each retirement fund that has access to all information.
It is worthwhile to note also, that the ERISA mandated discount factor is the expected return on long-term investment-grade corporate bonds, currently 4.45%. This is used to discount the liability stream present value. It is a historically very low number. Even with a slow (10 year) unwinding of the current TARP stimulus, it is unlikely 20-30 year average yearly investment returns will ever drop this low.
This low (I assert) value makes the PV of the liability stream high, an unlikely outcome over the 40 - 60 year life of TCP1.
If this speculation turns out to be true, the funding situation of both TCP1 will improve.
This is not true with STRS, PERS or UCRS that use a 7.25% discount factor. A much less conservative model.
In short, I assert, it is unlikely that LLNL TCP1 members need to contribute to their plan, and that their contributions will be returned to the goverment when the plan is closed as the last member dies.
This is differant than California STRS, UCRS and PERS retirees, whose plans are funded much differantly and which are managed much less conservatively.
Parney didn't tell you this did he, when he said you needed to contribute like UCRS.
I STRONGLY CONCUR with this.
"Both LANL and LLNL need an voting employee and a retiree representative on the management board of each retirement fund that has access to all information."
This is what I was STRONGLY CONCURRING with.
It is really important to have the most capable team members directly supporting the Director, especially where stakeholders like employees vital interests are being decided. This TCP1 contributions blunder is only one example of poor staff decisions.
It is unlikely Parney even today knows who the most capable lab employees in this matter are. Bret probably does based on his savvy and long history here, but he is an interegnum caretaker.
It is imperative that new Director's are selected from within the labs. There is not time for them to learn who is capable and who is a charlatan.
Outside managers are not cognizant of lab-specific details, nor selecting staff adequate to the task. Nor are they aware of the complex interplay of demands that need to be satisfied for continued success.
Also: all of these comparisons with UCRS conveniently leave out the fact that UC employees contribute pre-tax, whereas we contribute post-tax.
So, to be equivalent we should be contributing roughly half of what they contribute.
...not to mention the fact that the LLNL pension is in far better fiscal shape than UCRS.
Lack of organization specific knowledge is one of the main reasons Bechtel and other LLNS-partner employees have been ineffective here, or had only negative impacts (Russo, Soderstrom) and have mostly been marginalized by their own irrelevance.
The pre- and after tax discussion occurred after I retired. It befuddles me. It seems incredibly important to employees and poorly managed by Parney's staff.
Another example of not having the right person and horsepower in the right place.
For those of you thinking of contributing to this blog. The selection process for LLNL Director and Engineering manager is ongoing.
It is likely savvy candidates will review this un-editted mountpeice. This is your chance to influence the future.
First point. Ignore selection committee member Bodman. He is evil. Follow Mara's lead.
Public pensions are allowed to use a different discount factor than private pensions. Employee contributions to public pensions are pre-tax, but are taxable for private pensions. The payouts are of course the opposite. All this is law. Setting the employee contribution at the UC level was mandated by DOE. All of that was decided under George; Parney inherited the implementation. The fact that bond yields are rising creates an opportunity to back off on the lab contribution and also the employee contribution. Parney supposedly raised this idea before he left.
I appreciate the thoughtful comments in thread! And I really resonate with the theme about needing more participation by employees and retirees on the pension BOD.
What could be done to move in that direction? Does this require a lawsuit, or just a polite request to Brett?
Here's a very interesting report
http://www.nirsonline.org/storage/nirs/documents/Retirement%20Savings%20Crisis/retirementsavingscrisis_final.pdf
The Retirement Savings Crisis: Is It Worse Than We Think? (June 2013) uses the Federal Reserve’s Survey of Consumer Finances to analyze retirement plan participation, savings, and overall assets of all U.S. households. The research finds retirement savings are dangerously low.
Of note - "Most people do not have a clear idea of how much they need to save to have enough income—including Social Security—to maintain their standard of living in retirement. For instance, a $200,000 retirement account balance may seem high, but is less than half of the minimum amount that a couple with $60,000 in combined annual income will need, according to conservative estimates. The financial services provider Fidelity Investments recommends a minimum of 8 times income in retirement savings for retirement at age 67... Aon Hewitt, a large human resources consulting firm, estimates that 11 times salary is needed in retirement assets in order to retire at age 65. Both models include a target replacement rate of 85 percent of pre-retirement income. Significantly, given the current median Social Security claiming age of approximately 62, high long-term unemployment among older adults, and large disparities in life expectancy and health status by income, delaying retirement until age 67 may not be realistic for a significant share of workers"
I will assure you as wages go down, taxes go up, the cost of living goes up very, very few people are going to make this goal if any.
Here's a very interesting report
http://www.nirsonline.org/storage/nirs/documents/Retirement%20Savings%20Crisis/retirementsavingscrisis_final.pdf
The Retirement Savings Crisis: Is It Worse Than We Think? (June 2013) uses the Federal Reserve’s Survey of Consumer Finances to analyze retirement plan participation, savings, and overall assets of all U.S. households. The research finds retirement savings are dangerously low.
Of note - "Most people do not have a clear idea of how much they need to save to have enough income—including Social Security—to maintain their standard of living in retirement. For instance, a $200,000 retirement account balance may seem high, but is less than half of the minimum amount that a couple with $60,000 in combined annual income will need, according to conservative estimates. The financial services provider Fidelity Investments recommends a minimum of 8 times income in retirement savings for retirement at age 67... Aon Hewitt, a large human resources consulting firm, estimates that 11 times salary is needed in retirement assets in order to retire at age 65. Both models include a target replacement rate of 85 percent of pre-retirement income. Significantly, given the current median Social Security claiming age of approximately 62, high long-term unemployment among older adults, and large disparities in life expectancy and health status by income, delaying retirement until age 67 may not be realistic for a significant share of workers"
January 9, 2014 at 6:05 AM
Thank you. This is the best piece of information I have seen on this site since 2008.
January 9, 2014 at 6:05 AM
I have passed it along to as many as I can especially my son and I have asked all of them to do the same.
You people have already counted the chickens before they are hatched. All you mathematical geniuses can figure out that the amount of contributors will soon be less than the recipients. And what does that mean? Does it need to be spelled out!!!!! Get your money back from where ever the degree came from.
POS
The dbet will be paid with blood and property. There is no way around it. Keep eating the Sh@# they feed you because you must like it.
POS
"For instance, a $200,000 retirement account balance may seem high, but is less than half of the minimum amount that a couple with $60,000 in combined annual income will need, according to conservative estimates. "
I thought that the standard retirement withdrawl rule was 4% of assets annually, so one can withdraw about $8000 annually from a $200,000 retirement savings account. That's a lot less than $60,000.
Also, I find it interesting that the LLNL TCP1 pension plan is doing at least as well as the UC pension plan. I repeatedly heard the claim that TCP1 was at a severe disadvantage because UC could count on fresh blood from younger workers joining the plan, but apparently that's an oversimplification. It seems that all that matters is the ratio of assets versus liabilities, and there is no reason that a properly managed "closed" pension plan like TCP1 can't perform as well as an "open" one.
there is no reason that a properly managed "closed" pension plan like TCP1 can't perform as well as an "open" one.
January 13, 2014 at 8:39 AM
You are entirely correct. It is a matter of actuarial science. Don't pay any attention to POS; he just wants to be part of the "blood and property" solution he keeps predicting and even advocating.
UC is phasing out it's current pension plan (the one with the same formulas as ours) so that will make them a semi-closed or at least differently-open plan. The new terms are much less favorable to the employees. Should help their pension books balance.
"I thought that the standard retirement withdrawal rule was 4% of assets annually, so one can withdraw about $8000 annually from a $200,000 retirement savings account. That's a lot less than $60,000."
January 13, 2014 at 8:39 AM
Once you hit 59 1/2 there is no limit to how much you can withdraw annually from your 401k retirement account.
The 4% rule applied to how long the savings might last. From the NYTimes last year...
"ONE thing most retirees want to avoid is outliving their money. Since the mid-1990s many of them have relied on a staple of retirement planning known as the 4 percent rule to avoid that. Although the name says 4 percent, the rule is that if retirees withdraw 4.5 percent of their savings every year, adjusted for inflation, their nest egg should last 30 years, the length of time generally used for retirement planning.
That percentage was calculated at a time when portfolios were earning about 8 percent. Not so anymore. Today portfolios generally earn much less, about 3.5 percent to 4 percent, and stocks are high-priced, which is linked historically to below-average future performance. Many financial advisers are rejecting the 4 percent rule as out of touch with present realities.
The rule was created in 1993 by Bill Bengen, owner of Bengen Financial Services in San Diego, who examined every 30-year retirement period since 1926, reconstructing market conditions and inflation. He identified 1969 as the worst year for retirees because a combination of low returns and high inflation had eroded the value of savings. Using that as his worst case, Mr. Bengen tested different withdrawal percentages to see which one would allow savings to last 30 years. At first 4 percent worked, he says, based on a portfolio with a 60/40 split between large-cap stocks and intermediate-term government bonds. After research, Mr. Bengen decided to add small-cap stocks to the mix and revised his recommendation to 4.5 percent. The 4 percent name, however, stuck."
http://www.nytimes.com/2013/05/15/business/retirementspecial/the-4-rule-for-retirement-withdrawals-may-be-outdated.html
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