February 14, 2005Double-Dipping III asked State Treasurer Mike Coffman why leaving early and collecting PERA benefits made a difference to the state. It seemed to me that if you weren't accumulating seniority, you might start getting benefits early, but they'd be lower than if you waited. Turns out there are two cases where that's not true. A friend of mine pointed out that after 25 years, PERA benefits don't increase. Which means that someone double-dipping really is costing the system money. In the case Coffman cited to me, under PERA, you can buy years of benefits ahead of time. The problem is that until recently, the discount rate used to estimate the pre-payment was so high that it didn't cover the costs. If I pre-pay assuming that the government will make 8%, but it can only return 5%, the pension plan will be on the hook for the extra 3% in a defined-benefit plan. I should also point out that Coffman has bond immunized College Invest, a pre-paid college tuition plan that had fallen short of its projected needs. By buying bonds to match known outgoing cash flows, Coffman has made sure that the system can cover those flows. Presumably the fund managers will still have to work at rebalancing from time to time, but that's a much easier job that playing catch-up. Posted by joshuasharf at February 14, 2005 10:45 PM | TrackBack |
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