Sunday, August 03, 2008

The backdrop bonanza

Dan Bice at JSOnline reported earlier this week.
Randy Tylke, a former captain in the Milwaukee County Sheriff’s Department, received a lump-sum payment of $641,157 when he retired earlier this year, according to documents obtained recently. That amount comes on top of his annual pension of $59,007.

“I did what I had to do,” said Tylke, who retired after 34 years with the county.

His lump-sum payment appears to be the third-largest single payout by the county since the backdrop provision went into effect more than seven years ago. A former assistant administrator at the Mental Health Complex collected $684,000 when he exited, and veteran county prosecutor Bob Donohoo received a little more than $650,000 in 2006.

Out of curiosity, I calculated how much money someone would have to invest each year for 34 years to amass a retirement portfolio of $641,000. Based on differing rates of return, the annual investments are approximately as follows.

Percent Return Annual Investment
6% $6,100
8% $4,000
10% $2,600

These annual amounts are unrealistic for several reasons.

  1. Taxes are not considered and IRA's & 401(k)'s were not around in 1974.
  2. Payments in early years would have been substantially lower (we made less money then) and higher payments would be needed later on to make up for it. That's the reason the IRS has "catch-up" rules for older taxpayers.
  3. It is hard to invest successfully. Too many people take too little risk or too much risk. We are inconsistent in our investment strategies and often in the wrong investments at the wrong times. Sales loads and other fees also eat up returns.
  4. The first 6 years of Mr. Tylke's work life were during the Ford and Carter administrations. The stock market was stagnant during that period meaning he would have had an even slower start.

So $2600 to $6100 is the magnitude of the amount of money that people outside of government would of had to invest for 34 years in order to begin to think about retiring. But if you put your time in (work was obviously optional) on the payroll of Milwaukee County, you get this lump sum as well as a fully funded pension and benefits.

In fact, Mr. Tylke's $59,000 pension would require the current amount shown below to be invested for various constant rates of return assuming Mr. Tylke lives for 25 years of retirement.

Percent Return Present Value
4% $923,000
6% $754,000
8% $630,000

These current values do not include any provision for cost of living adjustments, so the actual amount required to fund Mr. Tylke is substantially more.

The entire idea behind the backdrop scheme was that the Milwaukee County Pension System was "over-funded" in the late 1990's due to the runaway stock market. The prudent thing to do was to leave this money in the pension fund for future periods of slower market returns. Instead, the "excess" funds were disbursed to county workers who made no investment in the system and took no risk. The people taking the risk, Milwaukee County taxpayers, have been forced to make up for the excess payments made to Mr. Tylke and other county employees.

We all know how difficult investing for our retirements can be in these turbulent markets. In Milwaukee County, the pot of gold is just handed to employees. Twice.

Elsewhere, also from Bice.
What’s more, Tylke joked that he deserved his pension dollars after his time working for Sheriff David A. Clarke Jr.
Applying the standard of The One, Tylke is clearly a racist and a hater. He is eager to take the money from poor black taxpayers of Milwaukee County, he just isn't willing to work for a black man.

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