Knee Jerk Reaction to the Market?

One gentle reader suggests that Sen. Liljenquist's SB63 is at least "slightly" half-baked

By: Dirk Youngberg

There some concerns on the part of the State and Cities and County government who pay into the retirement system for employees. If the contribution rates increase for the state and other entities where do they get the money to pay?

There are different systems in the retirement system. Contributory and non- contributory. The contributory which is the Firefighters system is funded by the employee, with the exception of some cities and counties who pay some of the cost through past negotiations where they agreed to pay a percentage of the retirement on behalf of the fire fighter rather than dole out a COLA and Merit to the employee. But the bottom line is that if the City or other entity stops paying on their behalf, the firefighter would assume total responsibility.

In Ogden, the negotiated benefit for Firefighters is set at 21.5%, if the cost goes above that the employee is on the hook, if the rates fall below that percentage, the balance goes into a 401 or investment similar.

The other system, which is all other employees in the system, police, teachers and other employees is a non-contributory, the employer pays 100% in the retirement for the employee. So, if the rates go up so do the contribution costs to the employer. I believe that the police cost in Ogden is in the high 30 percent range.

I feel that the pending reforms being introduced by Senator Liljenquist are a knee jerk reaction to the market. The losses are only a set back and the system has always recovered from other down turns. The senator has emphasized the worst case of scenarios and avoided the obvious solutions.

Most 401k investments are returning to their previous levels while contributions are made. I realize the Pension System has lost income from the lost amount, but the system was developed to allow smoothing for good and bad times. I also believe that the State funds are performing in the same manor as privately held 401k investments.

All of Senator Lilenjquist models represent returns of around 8% or less, however he fails to point out that the returns for the State Funds for last year (2009) were 13.5 %. I would be interested in knowing the balance of the Pension funds after the past year of contributions and the 13.5% return on the investments from last year.

I would much rather see a portion of contributions made by employees, than to see the Pension System changed to 401k or to reduce benefits.

I also believe that the Pension System contributions should be mandated to be funded at a level of 110% to allow for unexpected drops in investments.

If the pensions were modeled after the Firefighters Pension System (a contributory system), there would not be this knee jerk reaction, The Firefighter System is the only contributory system in the State Retirement System, it is funded by the employee who may or may not have negotiated for their employer to pay into the system on their behalf. If the cost goes up, the employee is responsible to pay the increased cost.

The average person who invests in 401k as a sole retirement vehicle is generally not savvy enough to make the kind if investment decisions as the State Pension investment team. On average a person who relies solely on a 401k for retirement, exhausts those funds in approximately 6 years after retiring, therefore adding a burden to the welfare system in the State.

At the present time the funding in the State Retirement System could fund 100% of those now enrolled in the system at 83%.

Another thing that I don’t think is being considered, is the fact that Cities, and public employers will have to start making Social Security contributions for employees if the proposed changes are made. I know that the Firefighter system and Police do not pay into Social Security.

I feel that changes should be made, but they need to be studied a little more carefully.

My personal feeling are that double dipping be eliminated, however there will be a lot of fall out in the teaching sector and the Police sector where teachers and police officers are seeing shortages of qualified employees.

I don’t think that the double dipping is fair as it is not available to all, only a select few, at least in Ogden that is the practice.