Monday, March 20, 2006

Pension bill article in New York Times

Doug--
Your readers may want to be aware of this New York Times article:

BUSINESS | March 19, 2006
Major Changes Raise Concerns on Pension Bill
By MARY WILLIAMS WALSH
Lawmakers have modified the bill to the point of weakening the pension system rather than strengthening it.

Comments:
Just my opinion:

Lets face the truth people. Pensions in America are gone forever. The few of us that are going to retire shortly or within the next five to ten years are the last generation to ever receive one and for what time frame has yet to be defined. I personally don't expect to receive a check for long and if I do I expect that someday it will be 66% shorter then it was supposed to be. All indications are that the UC Regents / LANS anticipate a shortfall and that the pension plan will follow the path of United Airlines, especially if the government continues to bail out corporations. I hate to say it, but I have always thought that bail-outs were a mistake.

Realistically we have been taken for fools as have millions of others. We have given the best years of your life and dedication to service only in the end to have our employer renege on their promise. As usual the CEO's, directors and upper level management will walk away from the crime scene unscathed, but will receive severance pay mounting in the millions of dollars, so that "they" can live a lavish life at your expense; as the legal system paves the way for their escape.

So as the sacrificial lambs what have we learned from all of this and what valuable lesson can we pass on to our children?

My devastation is to be used as a training aid for my son and daughter in hopes that they will not fall into the same mouse trap that I did. My goal is to make it quite evident to them that there are no avenues to success other then the ones you make for yourself. One can never depend on the government or any agency thereof, nor the private sector to be there for you, even when the carrot looks good for the taking. It is just as my dad told me five decades ago, "nothing is for nothing and even when you think it is, it does not come without consequence". As we can see, promises were made to be broken as they're being done right in front of our eyes, and without remorse from their founders. I guess I should have listened harder and have heeded to his words of wisdom, but I did not. So I now will pay for my stupidity.

For me the only good that may come out of this is that my son and daughter will not be taken for a fool as I was. It is my hope that all of you are taking the time to educate your children too. The damage is done and all we can do at this time is to voice your opinion and seek legal aid in hopes to derail the UC Regents from jumping on the fast train to becoming liability free for all who were hired before July 1st, 2007.

Good luck to all.
 
This NY Times article mentions growing funding problems with the
US government's Pension Benefit Guaranty Corporation (PBGC). Note
that if LANS TCP1 pension should ever fail, your pension check
might be backed up by PBGC insurance. However, the most that
PBGC will pay out is about $45 K per year, and that is only for
people who retired after age 65. If you retire at 60 (like much
of the LANL staff), the PBGC caps your annual payment at around
$28 K per year.

Thus, if LANS TCP1 ever fails, most of the people who rely on TCP1
are going to be in the same camp as retired pilots of failing US
carriers. Pilots are forced to retire at age 60. Many of them
have lost their comfortable $100 K per year retirement and had
it replaced with PBGC's meager $28 K per year payments.

Also, regardless of what Tyler and the DOE may promise, TCP1 will
be a CORPORATE pension for which the DOE has no legal obligation
to rescue should it fail. The only true backup for a TCP1 pension
failure will be the PBGC. And unlike with UCRS, part of your
retirement assets will now go towards payment of the rapidly
increasing premiums which the PBGC desperately needs to keep
it afloat. Regardless of what DOE may say, the risks associated
with the TCP1 pension are far from "substantial equivalent" to
the risks associated with UCRS. DOE legal requirements to back
up shortfalls in UCRS-LANL will be much stronger than it will be
for the new LANS TCP1 pension.
 
Well, all we really need to do is buy ourselves a senator or a few congress-persons so we can get our own special amendment. Perhaps if we change our name to Smithfield Hams...
 
Thats why I'm taking the UC lump on June 2nd and rolling into LANS-TCP2 for the short remainder of my career. I'm cutting my losses now and at the same time eliminating the risk of double-jeopardy with LANS-TCP1 falling into PBGC hands.
 
Working the numbers recently has made it numerically clear to me how much I distrust DOE/LANS/LANL (etc). As a 55 year old staff member with about 25 years of service credit, my pension (calculated either monthly or by lump sum) would have increased by 50% over the next five years i.e. if I worked until age 60. This amounts to many hundreds of thousands of dollars.

I can keep all that seniority and "substantially equivalent" effect on pension benefits if I roll over into TCP1. But at retirement I wouldn't be able to lump sum out, and so would be tied to the monthly pension with a DOE/PBGC "guarantee". Will I do that?

No -- I currently plan to go inactive vested, lock-in the UC part (probably not lump-sum out but trust that the "cloning" issue will get resolved and keep the montly draw), and work for the next X years under TCP2. The cost of not trusting DOE/LANS/LANL TCP1? Many hundreds of thousands of dollars -- I figure it's worth it.
 
I am with Ted. Exact same circumstances for me but at least now if you choose inactive vested, transfer to TCP2 you will still receive retiree medical out of TCP1. Also the 401K empoyer contribution is the maximum of 5.5%. I figure on inactive vested, retire at 60 from UCRP since the annuity will not increase past that age. COntinue to work at LANS until I choose not to.
 
A cautionary note about Ted's advice to double-dip (which I think is essentially good advice, nevertheless, all things considered).

Just beware that X years of double-dipping may have the solution X=1, since the horrific cost of the transition may very well necessitate a RIF in 2007--AFTER the election in November 2006--of an estimated 1000 people. Maybe the thousand will be mostly support personnel, but $300 million => 1000 FTE's:
hence, double-dip 'til the RIF.
 
Most staff have received both their LANS employment offer and their
UC pension information in the mail. However, it seems to me that
LANS/DOE have giving out only the bare minimum of info to help LANL
staff decide their pension future. And even at this late date,
there are still plenty of critical questions that been given no
definitive answers by either UC, LANS, or DOE. A suspicious person
might wonder if they designed it to be this way.

Nevertheless, the May 15th "drop dead" date is approaching and
everyone must soon make up their minds. I thought it might be
helpful to post some important links and review some possible
risk/reward scenarios. For starters, get a copy of the UCRS
Benefits Percentage chart. This chart has years of Service Credit
along the Y-axis and years of Age Credit along the X-axis. I'm
amazed at the number of LANL staff who don't have a copy of this
chart. This critical chart should have been included in the
package which UC just mailed out. If you don't have one, here
is a link for obtaining this chart, plus some links to other
useful tools for performing some pension analysis:

-----------------------------------------------------------

***** UCRP Pension Benefits Table *****

http://www.hr.ucdavis.edu/benefits/2rs/001


***** UC Retirement Plan *****

http://atyourservice.ucop.edu/online_actions/ucrpcalc/estimator.html


***** Compound Interest Calculator *****

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

------------------------------------------------------------

With these tools in hand, let's have some fun! The first thing
you'll note about the Pension Percentage chart is that the percentage
for most employees goes up much faster with increasing age than it
does for years of service. This is because the chart is based on
actuarial tables that indicate your odds of death are going up
quickly as you approach the big "Six-O". Drats! I would rather
not know that.

Now, let's take a particularly case -- a poor fellow named Joe who
is a youngster at 55, but has 30 years of service credit with LANL.

Assume this fellow is a TSM who averages around $105 K per year and
he plans on walking out of LANL at the point at which Age Credit
stops increasing, which is age 60. If Joe truly believes that
the LANS TCP1 pension will always track the UC pension, he can
plan on leaving at age 60 with about 87% of his HAPC. This is
very, very enticing. However, the risks are not insignificant that
LANS may decides to reduce payouts rates in the next few years. I
conjecture that the odds of LANS doing so are much higher than the
odds are of UCRS taking this action. I base this on the fact that
the UCRS pool is huge and there would be strong political forces
which would counteract any desire for UCRS to take this action. The
same cannot be said for LANS. Therefore, by taking the LANS TCP1
route to achieve his goal, Joe has taken on greater risks but has
seen no increase in his rewards. (See DOE "substantial equivalent"
clause).

If Joe wants to minimize this particular risk he could decide to
lock-in his current UCRS assets by going inactive. By doing so,
he'll only get Age Credit for the next five years, but no build-up
of pension Service Credit. Thus, when he retires at age 60, he'll
get 75% of his HAPC, and not 87%. However, it is my understanding
that the UC COLA increases would be added to Joe's HAPC for the
intervening years between 55 to 60. Let's assume a 3% COLA figure.
Let's also assume that LANL raises will be at the same 3 % amount.
When Joe retires, his effective UC HAPC will then be about $122 K.
His UCRS lock-in of 75% will then buy him an annual payment of
$122 K x 75% = $ 91.5 K per year. If LANS keeps its TCP1 promise,
he would have been given $122 K x 87.5% = $106,750 per year. By
taking the inactive route, Joe has a shortfall of about $15 K/year.
Perhaps Joe can make this up with the TCP2 401K plan. Assuming
Joe is willing to take a drop in his current lifestyle by $10 K
per year and LANS matches this with a 9.5% match, he'll sock away
about $20 K per year into a retirement 401K. Assuming a reasonable
7% compounded return on this investment, he'll leave at age 60 with
an additional $123 K. If he invests this money after age 60 and
makes a more conservative 6 % return (after all, he's now in his
retirement years), he'll make an additional $7,380 per year during
his retirement. While this only covers for about half of the $15 K
shortfall, note that Joe has acquired access to $123 K in principal
from the 401K he now owns, and yet he only had to contribute $50 K
to this fund. The remaining $73 K was a "freebie" that came from
returns and the LANS matching cash. However, as with the TCP1 route,
Joe has taken on increasing risk via his 401K investments in the
markets, and yet has seen little in the way of additional rewards.
(See DOE "substantial equivalent" clause).

Another exercise that you might find interesting is to look at
calculations involving a UCRS lump-sum pay out. You can do these
calculations using the "UC Benefit Estimator" and the "Compound
Interest Calculator" links shown above. The primary advantages
of getting the lump-sum (which won't be available with TCP1)
include: (1) the ability to remove reliance on both a shrinking
pension pool and the investment acumen of the TCP1 trustees, and
(2) the chance to possibly pass on portions of your retirement
lump-sum to your kids. If you're worried about out-living your
lump-sum, you can always decide to use a portion of the lump-sum to
purchase an annuity. For an additional expense, you can also get
an inflation protected annuity and a spousal protected annuity.
Of course, if you take the lump-sum you'll pay a lot more for
medical coverage during your retirement years. Then again, LANS
may be playing us all for fools and suddenly decide to pull most
of the retiree medical benefits for all employees in the next
few years. It would not be unexpected, since this is what most
of corporate America has been doing to their retirees.


Other unknowns that can be thrown into this pension analysis are
as follows:

* LANS TCP1 staff may have to contribute significant amounts to the
new pension (say, around 5 % of salary?). Those who lock-in with
UCRS won't have to make any payments into a pension fund. They'll
no longer be UC employees and won't be members of the LANS pension.

* No one knows how much of our current assets in UCRS will be
transferred over to LANS TCP1. It is unlikely you'll know this
before the May 15th deadline. Thus, you'll have no information
on the *SINGLE MOST CRITICAL* data point in this whole analysis!!!

* Many people at LANL "game" the system by jacking up their HAPC
any way they can during the last few years of service. Since the
HAPC is a high 3 year average, taking on a Group Leader, Dep. Group
Leader, or other management positions can make a HUGE difference
in your retirement income. You don't even have to carry a manager
position very long to go this route. It's one of the reasons that
I think LANL has had such lousy managers over the years. People
who have no business being managers take this route simply to
"juice-up" their retirement benefits when they leave a few years
later. Those who have plans to play this game for a big, fat,
retirement income will probably be strongly inclined to follow the
TCP1 route.

* If LANS TCP1 pension is under-funded, there is a chance that
the TCP1 trustees will take the risky route of "juicing up" the
pension returns by turning over a portion of the pension assets
(say, 25%) to private equity management. The private equity
investment guys will promise high returns (like 20%), but it's
quickly becoming a fool's game. Many pension are going this route
to make up for short falls. For more info, check out the latest
issue of Forbes (Mar 13). It has a front cover with private equity
guys stealing wheel-barrows of cash from the pensions. Forbes
equates the shady actions of these guys with the type of things
the Mafia once did with pension funds. One of the biggest and
shadiest of the private equity managers is Carlyle Group (sound
familiar?). If you're interested in this subject, the Forbes
cover has the title "Bubble Buyout" and the article is entitled
"Private Inequity". It's a very interesting article. This is
a risk which I believe will be much greater for the LANS TCP1
pension than for the UCRS pension. The UCRS pension tends to
have lots of people who monitor its actions very closely.

Finally, I have heard some staff who seem to think that going
the TCP1 roll-over route, rather than the inactive route, will
somehow buy them some senority "brownie points" when we have a
future RIF. This is delusional thinking. When the RIF comes,
none of this will matter. Your most important protection during
the RIF will be to avoid being at the Wrong Place (ie, organization
or project) at the Wrong Time (ie, when your well-liked supervisor
has just left and the new supervisor doesn't know you or like
you very much). This is the lesson I learned after talking to
some of the people who got RIF'ed back in 1995. The fact that
you are a long-term LANL employee doesn't matter much in a RIF.
In fact, LANS may actually be more inclined to get rid of the
high cost, long term TCP1 staff, rather than the younger and
cheaper TCP2 staff. The only way that having a long-term record
with LANL will matter is in the area of severance pay. Current
UC severance policy is very generous to long-term LANL employees.
However, it remains to be seen how generous this policy will be
once LANS management takes over after June 1st.

In all of this analysis, it has become very apparent to me that
DOE is trying to shift future risks away from DOE and onto the
shoulders of the staff at LANL. However, even though we take on
increased risks, we don't seem to benefit from any chance of
increased rewards. LANL, and soon LLNL, are following a well
worn path that has become all too common throughout America.
Only those at the very top of the system seem to benefit from
this ugly process.
 
Any advice for those of us who are in our mid-30's with 5-10 yrs of service with UC? TCP-1 vs. TCP-2?
Most of these discussions center around folks in their 50's with 20+ years experience. Thanks.

p.s. leaving LANL is not an option at this point.
 
"p.s. leaving LANL is not an option at this point."

PS: Taking one up the wazoo is a huge option.

Stick it to me, please?
 
Hey Pu, Leaving LANL is probably your very best option at this point.
 
puslinger,

It's harder to see into the crystal ball for a retirement that might be 20 years away. However...

TCP2 is probably not a bad way to go if you're in your 30's with several years of service.

TCP1 is potentially more lucrative, but the risks are huge. The potential magnitude of the risks over 20 years should not be underestimated. The most obvious problem is that someone in their 30's will be at the tail end of that gravy train, and by then people will have forgotten all about TCP1 - except the TCP1 people left standing when the music stops.

Locking in with UCRP (as your base nest egg), and then dumping heavily into 401k's seems to be a safer. A previous poster already described how to estimate your UCRP pension if you go inactive-vested in May - you should do that calculation for yourself.

Back to TCP2: If you max out your 401k (think of it as a TCP1 mandatory contribution on steroids), and LANS provides 6%+4.5% (and later 6%+5.5%)matching contributions, then with relatively modest return rates (a few percent) over 20 years, you can get closer to what you probably would have received as a lump-sum from UCRP. The return rate I am using is extremely conservative, so it is possible to do better.

TCP2 will not be as lucrative, but it's much safer and the potential-cost versus potential-benefit analysis strongly favors it.

The medical benefit you receive under TCP2 will be less than that from TCP1, but you have 20 years to think your way out of that hole.
I don't know how much medical premiums cost for retirees, but $1000/month in today's $'s is probably a good planning point.

Caveat: I am not a professional financial advisor, and this advice is worth as much as you paid for it. However, I have pondered this problem for awhile.
 
EMP and Finknottle-

It's hard for 1 PhD chemist to find a job in private industry, let alone two. My husband and I aren't at the point of bailing out of LANL as we both have promising careers.

I've though about TCP 2 but my financial advisor did a calculation and each person would have to make up for a ~$1million deficit (over 35 years) that would need to come from post tax, out-of-pocket dollars. TCP1 is more lucrative but higher risk.

Anyway. just wondering what other people were thinking. I don't know what to do.
 
> A cautionary note about Ted's advice to double-dip
> (which I think is essentially good advice, nevertheless,
> all things considered).
Actually, I didn't advise either way on the double-dip part. Just mentioned that peace of mind is worth hundreds of thousands of dollars to me (and perhaps to others in my position) to forego TCP1 and its ties to DOE/LANS/LANL in the future, and instead do the inactive-vested/TCP2 route.
Issues:
1) medical: we do get medical (given the recent TCP2 revisions) and not just "access", even if retire early in TCP2, so that's no longer an issue
2) double dip: not clear to me, I'm asking a financial advisor for input. Personally, I don't need the cash-flow while working under TCP2, and anyway it'd get taxed as income (wouldn't it: retirement pension is taxed as income?). Maybe some of it can be sheltered by maxing out the 401K, perhaps even buying an annnuity -- I just dunno.
The issue is that if you have a lot of sick leave convertible to service credit, and want that on the UCRP side of things, then my understanding is you need to "retire" (draw down a monthly pension) within 120 days of separation (even though in this plan you're working at full salary under TCP2). Conceivably, it might be advantageous to forego the sick-leave converted to service credit if it means you don't have to start drawing the UCRP montly payment as taxable income within 120 days. Dunno, I'll be paying for some advice. But the sick-leave/service-credit "push" to double-dip is something I'd thought I mention as meriting some thought.
3) UCRP/LANL clone: we need to keep as much pressure on about this as possible (write to senators, Bodman, etc.). We were promised 60 days with full information, and this issue is not resolved. If it goes through, and UCRP-LANL becomes a stagnant pool of funds associated with ageing retired people who have no influence, then the differences between this and the TCP1 pool (both pools with no new employees, "guaranteed" by entities we don't trust) become small. TCP1 might look like a competitive option in that case: similar risk, but more lucrative.
 
Slinger, I'm guessing you haven't heard the pronouncements from several prominent sources that there is a shortage of scientists and engineers in the US?

Judging from what I hear many plan to do regarding the transition, there seems to be a definite fear that they will be unable to find jobs here or elsewhere. Appears to be a bit of disconnect.
 
Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?