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How Safe Is Your Pension?

As a public employee, if your pension is underfunded because your employer won't contribute its share, you just might be out of luck.

October 17, 2011  |  by - Also by this author


You can't turn on the television these days without hearing about the economic crisis that's affecting not only the United States, but the entire world. So it stands to reason that many retirement funds are suffering as a result. Some public sector pension plans are relatively unaffected, while others were too fragile to weather the financial storm. Whether the safety of your retirement is in danger depends on the terms and stability of your pension fund, the health of your public employer's overall finances, and how long you have to make up any losses before you retire.

Chief Rob Bross of the Atwood (Ill.) Police Department is a part of a fully funded pension plan in Illinois, the Illinois Municipal Retirement Fund (IMRF). It's one of the reasons he left his previous job as chief at a much smaller Illinois police department that instead provided only a government-approved 401(k)-type plan for retirement that matched a small amount of contributions.

The man who was chief before Bross at that department lost $80,000 in the plan when the market took a dive during the Great Recession. He worked for a year and a half more than he'd intended to try to make it up, but it wasn't enough. Bross says the retired chief has now burned through most of his savings just paying his everyday bills. "With a guaranteed retirement such as IMRF, at least you're guaranteed you'll have x number of dollars every month," says Bross.

This is a good example of the two ends of the retirement spectrum right now in law enforcement. If you're vested in a well-funded defined benefit plan, your retirement is OK. If you don't have a defined benefit plan, or if yours is underfunded, the fate of your retirement is most likely up in the air right now as politicians, union reps, and financial experts develop a redesigned benefits package based on your public employer's current and projected finances.

The Blame Game

Monies for pension funds come from three sources: employee contributions, employer contributions, and return on investments. Employee contributions come out of your paycheck like clockwork. But anyone could tell you return on investments has been down since the Great Recession. And if an employer hasn't been paying its annual share, investments are no longer able to make up the difference as they had in the past. Therein lies the problem.

How did this happen, and who is being blamed? The list includes banks, small to large governments, unions, and police officers themselves.

Banks and other advisors that misled pension fund trustees have been sued by some funds. Wisconsin's Milwaukee County sued consulting company Mercer Inc. for $100 million in 2009 over what the county claims was bad advice regarding the amount of money lump sum "backdrop payments" to pensioners would cost. Out of a $45 million settlement, $13 million went to pay for attorneys' fees and $32 million was placed in the pension fund.

Similarly, the Police and Fire Retirement System of the City of Detroit sued Michigan real estate company Paramount Limited, LLC earlier this year over an alleged Ponzi scheme to recover funds owed from a defaulted $9.9 million loan.

Danger of such financial missteps is why James McNamee established the Illinois Public Pension Fund Association in 1983, while he was serving as a police officer with the Barrington (Ill.) Police Department. When he was elected to the Barrington Police Pension Board, he discovered there was no training or education for trustees of the fund like himself.

McNamee currently serves as president of the association he founded to provide training to its members, which has grown from 50 to 400 pension funds. He's also helped to establish standard pension board policies and procedures, and has helped implement legislative changes as well as help to review the performance of investment managers and consultants.

Comments (3)

Displaying 1 - 3 of 3

joe corey @ 6/8/2012 9:56 PM

I think this story strikes home for an awful lot of police officers,of which I am one. I live in R.I. which is mentioned in this article more than once. In fact the city of Pawtucket is now considering ways in which to cheat us out of our lawful pensionb.This plan was always paid into by the officers,but the city itself missed numerous years and is now trying to cheat us for their unlawful actions. Of course no one in the city goverement is now in office who was responsible for the fact,but is is very clear those in office knew about it.

Yardcop @ 6/10/2012 7:39 PM

I know my department has changed the contribution amounts for new hires from 3% @ 55 to 2.5% @ 55. Though it's not horrible, I have to wonder if the splitting of the union benefits between older and newer officers won't have a side effect in future union endevours to raise standards and unification.

Vincent Gabbeart @ 7/10/2012 8:43 AM

In less than two weeks, your time for assessing your options outlined in the General Motors Pension Buyout Plan will be over. The offer from GM, announced on June 1, presented you with three choices: to take a lump-sum payment, to continue a monthly benefit, or to take on a new sort of monthly benefit. From the start it has been strongly encouraged that you meet with a financial advisor experienced in the areas of retirement and investment planning. Additionally, you can watch this video which may help to shed some light on the three available options: You've had time to think about your pension options, now is the time to act.

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