Golden Years?

Via Pension Pulse.

Ronald Brownstein reports in the National Journal, Golden Years?:

One
big reason public employees are under siege in Wisconsin and other
states is because they now enjoy more secure retirement benefits than
most private-sector workers. The question is whether the right way to
close that gap is by reducing security for government employees or
increasing it for everyone else.

For private-sector workers,
retirement security is unmistakably eroding. The change is rooted in the
shift from “defined benefit” pensions, under which employers guarantee
their workers a fixed payment after retirement, to “defined
contribution” pensions, such as 401(k) plans, under which employers
commit only to contributing a fixed amount that employees must invest on
their own.

In 1985, about four in five workers at medium- and
large-sized private firms received a defined-benefit pension, according
to federal statistics. Today, less than one-third are covered under
such plans. Instead, most workers at large and medium private companies
who receive pension benefits at all obtain them in the form of defined
contributions. In small companies, defined-benefit plans are virtually
extinct—and only about one-third of those workers receive even a
defined-contribution retirement benefit.

This
replacement of traditional pensions with 401(k)-type plans amounts to a
massive shift of risk from employers to individuals. Under
defined-benefit programs, employers bear the primary financial risk:
They are obligated to provide the benefits regardless of how their
investments perform. Under defined-contribution programs, workers
invest their own money and suffer if the markets tank, as anyone with a
401(k) discovered in the 2008 meltdown.

But
one group of workers has largely avoided this shifting of risk: public
employees. Defined-benefit plans still cover fully 87 percent of
public employees (compared with the one-third of private-sector workers
at larger companies). In fact, the share of public-sector workers with
traditional pensions now substantially exceeds the two-thirds of
private-sector workers at bigger companies with access to either a defined-benefit or defined-contribution plan.

That
advantage creates understandable resentment among workers who have
lost such certainty. “The taxpayer who is hurting does not have a
defined-benefit pension and is saying, ‘Why should my taxes go up so
this other group can have this very generous retirement?’ ” says John
Rother, executive vice president of policy at AARP, the giant seniors’
lobby.

Some of the pension benefits that public employees have
negotiated are indefensible (particularly those allowing excessively
early retirement). And over time, it’s unsustainable for public
employees to enjoy so much more retirement security than most of the
taxpayers who fund their benefits. But the escalating conflict over
whether public employees have won too much retirement security is obscuring the larger issue of whether everyone else has lost
too much. “The question is, should we bring everyone down to what
we’ve done in the private sector where the level of insecurity is
[rising]?” says Alicia Munnell, director of the Center for Retirement
Research at Boston College.

Using
conservative assumptions, and including all potential sources of income
(including Social Security, traditional pensions, home equity, and
401(k) plans), the Center for Retirement Research calculates that fully
half of Americans will fail to generate enough postretirement income
to approach their preretirement standard of living. The vulnerability
is greater for younger than older baby boomers and greater still for
Generation X. Those who rely on defined-contribution plans are
substantially more exposed than the dwindling number with access to
traditional pensions. The overall level of risk, Munnell warns, “is
shockingly high.”

The 401(k) has several virtues: flexibility,
portability, autonomy. For the vast majority of workers, however, it is
not producing enough assets for a secure retirement—either because
they didn’t invest enough, made bad investment choices, or simply
suffered from market volatility. In all, workers who retire during the
next 20 years can expect to replace only about two-thirds of their
preretirement income, compared with about four-fifths for their
parents’ generation, the liberal-leaning think-tank Demos calculated in
a recent study. “It’s a tougher future than we’re expecting; it’s a
tougher future than our parents had; and I think it’s going to be
demoralizing,” Munnell says.

Public
employees need to accept reasonable concessions as states confront big
budget deficits. But the impulse to take government workers down a peg
might be better channeled toward increasing retirement security for
everyone else in fiscally responsible ways.

Most Americans will
need to contribute by working somewhat longer. Beyond that, one option
is to provide bigger Social Security benefits for lower-income retirees
by restraining them for the affluent. Another, as President Obama has
proposed, is to establish automatic retirement-savings accounts for
workers without pension plans, with matching federal contributions for
lower-income savers. These contributions could be funded by limiting the
tax break for 401(k) plans, because those deductions most benefit the
wealthy (and are projected to cost $360 billion in lost federal revenue
through 2015).

Public pensions may be attracting the headlines,
but the unraveling of private-sector pension security poses a much
greater long-term challenge, even if it lacks a pyrotechnic
confrontation to galvanize the media.

Let's
be clear on something, taxpayers are not footing the bill for public
sector pensions, at least not yet. Workers contribute to their pensions
and funds invest these monies on their behalf to be able to pay future
liabilities. But because public pensions are guaranteed, if the state
doesn't have the funds to make up any shortfall, then taxpayers could be
on the hook.

One thing that should be done away with is early
retirement. I was talking to a senior federal government employee in
Ottawa who told me that he knows of people retiring at 55 after 30 year
service and collecting a pension of $100,000 a year. That's a pension
for the rest of their life! Alright, these are exceptional cases, but
it's ridiculous. If my 79 year old father can still work eight hour days
as a psychiatrist, which he fully enjoys, then why should government
workers be allowed to retire at 55? We need to instill some common sense
and realize that the system isn't going to be able to support these
benefits in the future.

As for private sector pension security,
Mr. Brownstein is right, it doesn't garner the media's attention but
this is what poses the real long-term challenge. If policymakers don't
address this problem, then pensions apartheid between public and private
sector workers will only get worse.

Comments

[poggi]

Pensions and retirements at ease are a relatively recent development.  My dad retired with a UMAW pension in the first wave of union pensioners with fully-funded pensions.  His parents never heard the word, but they saw rich foreigners in their "pensiones".  They worked until they died.  Pensions as we've known them in the past 1/2 century are exactly that, i.e. a historic artifact that will never be equaled because the underlying promise was based on wishful, risk-free assumtions.

[OldTrooper]

Bingo.  Too many people get away with saying, "It's always been that way" when talking about a post-New Deal/WWII phenomena.  Since when does 70 years - out of tens of thousands of years of human experience - equal "always"?

[StychoKiller]

It boils down to this, everyone palmed off THEIR responsibility for THEIR financial planning onto someone else -- now THEY are whining because the future has arrived and the golden goose was killed sometime in the past!

[I Ching]

Employers were fine with defined benefit when there was no risk to long term rates; they made money off the funds they held. Now that fiat money has made long term rates so volatile the employers' risk is too high. Better that the working classes should bear that risk.

[topcallingtroll]

Older members of generation x watched this happen.

The boomers realized their cushy retirement benefits were unsustainable, so they stopped them for anyone who wasnt a boomer.

Now we all have higher taxes and suppressed wage growth to support them.

[Zero Govt]

Leo Kockupalotis

"Let's be clear on something, taxpayers are not footing the bill for public sector pensions"

Er let's be crystal clear, where do you think (all) the money comes from for these over-genorous public pensions Einstein?

Here's a hint: it's private sector and begins with a 'tax' and ends with 'payers''

BTW Kock' were you actually born yesterday?

[Leo Kolivakis]

Err, they contribute money to their pensions, comes off their payckeck and funds invest it on their behalf, which is called investment returns! If pensions become chronically underfunded, then and only then are taxpayers at risk of being on the hook. But there are other options like increasing contribution rates, the retiremnt age, cutting the cost-of-living adjustments, and cutting benefits, all of which are being implemented right now. Please go get a grade school education and come back when you can exchange with some respect.

[Zero Govt]

You're still all fogged up aren't you?

And in good crony stylee you cannot answer a question straight. You want 'respect' for that?

The answer to the question is of course taxpayers are already "on the hook" for public pensions. Because the truth you're trying to fog is taxpayers already pay for 100% of all public pensions. Fact. The exact opposite of your crony statement

Now regards your next nonsense, "Please go get a grade school education and come back when you can exchange with some respect."

Firstly you don't get respect in school dimwit. You have to earn it.

Secondly you've earned zero respect from me because you've learnt nothing from coming out of kindergarden as exposed in your constant crony incompetence in every article i've read of yours. You haven't got a solution to pensions except for private people to bail out your public pensions and patch up yet another Govt managed tragedy.

Which, like bailing out crap banks and crap mortgages and crap pensions, is no solution at all. It's throwing good money after bad.

Which earns you, once again, fuk all respect from me but the constant contempt i hold for your endless crony, incompetent and error strewn writings (dribblings). Welcome to the private sector arsehole, you have to earn your respect out here, not ingratiate yourself with arse-licking which is the only 'skill' the public sector requires and the only 'skill' that's patent from your dribbling at ZH

[OldTrooper]

Why do I think the older folks are feeling like Flounder after the road trip?

http://www.youtube.com/watch?v=zOXtWxhlsUg&playnext=1&list=PL836B3B8092E53606

Anyway, perhaps it is time to set aside this brief experiment with pensions and retirement plans and schemes.  Perhaps it's time to recognize that nothing can replace prudence, planning, hard work, family and community.

Does anyone really think that getting the gubermint or wall street MORE involved in this going to help?  Lunacy.

[johnQpublic]

10 hours a week as a phsychiatrist is one thing, ten hours a week as a diesel mechanic is quite a different proposal

when is the last time you saw a 60 year old mechanic,mineworker,landscaper,trash collector or other seriously labor intensive blue collar worker?

hell, by 50 your body is so damaged working blue collar, that you are physically incapable of earning enuf to sustain yourself

[Leo Kolivakis]

True, I grant you that, but you're not going to retire with $100,000+ pension!

[Miss Expectations]

Where did you mention that many public pensions also include health/dental care for life for the retiree and his wife.  That's the deal for my neighbor...a retired Long Island detective:

Retired at 53

Pension: $103,000/year...full medical/dental

His pension is 2x my husband's income.

[Mercury]

I know for sure that in at least some municipalities you can hold an elected office for one term and get full boat, Obamacare-exempt medical for you and your family for life (and beyond). 

[Bruce Krasting]

I question the statement that 1/3 of all private workers now have a defined benefit plan. I think it is much lower than that. What company today offers new workers this option Leo? I can't think of one.

In a few years the whole concept of a defined payment plan will just go away. For both private and public sector workers.

These plans are at the heart of our problem. As Leo points out those that have these programs all have the incentive to retire early. I know dozens. Mostly teachers, some government workers. If you work 25 years you can retire with full benefits. This is why they take these jobs. They can retire early, live a nice life or get another job and collect two paychecks.

What's not to like about that? And that is why it has to go.

[Mercury]

If they didn't have such a great deal, public sector workers wouldn't have a much lower quit rate than private sector workers - about 1/3 lower (mostly non-union) Fed workers, probably much lower for muni employees - sure seems that way in my neck of the woods.

[Leo Kolivakis]

Bruce,

Must admit that 1/3 figure seems high -- must be legacy funds like GM, oil companies, etc. And you are right, early retirement is a perk that society cannot afford which is why they will do away with it and raise the retirement age to reflect the fact that people are living longer.

[Leo Kolivakis]

***UPDATE***

Jack Dean of PensionTsunami.com sent me this comment:

It would appear that you are not following the headlines on PensionTsunami.  CalPERS is imposing rate increases on its participating employers over the next three years, and CalSTRS  -- which lacks the authority to raise rates in that manner -- is already lobbying the Legislature for a billion or two from the general fund to make up for its losses in the big meltdown.

Local governments throughout the state are in trouble financially, in large part due to increased retirement costs, and it's only going to get worse; read yesterday's stories about Costa Mesa laying off half of its employees.

And as for the union argument that we should REALLY be doing is trying to bring back DB plans in the private sector, well, that's just wishful thinking and a good propaganda line designed to blame greedy businesses for the situation. Unlike governments, businesses operate in the real world and have to respond to market forces and changes (like extended longevity) in order to survive. So DB plans just are not going to make a comeback in the private sector, and they need to be phased out in the public sector for all the same reasons and more.

I could keep making points, but I have to get working assembling today's headlines. I appreciate your work, but think you are not familiar with the political nitty gritty of public employee DB plans and how they truly are a rape of the taxpayers (see the stories this week about the 200 California government agencies that rushed to sweeten benefit formulas in spite of impending financial doom).

And Bill Tufts of Fair Pensions For All sent me David Johnston's article in the Montreal Gazette, Public-sector pensions a Canada-wide problem:

The pension-plan problems of Montreal Island municipalities reflect Canada-wide affordability issues with such public-sector plans that need urgent fixing, a Canadian pension reform advocate says.

Taxpayers can't afford current pension entitlements for public-sector workers, and governments need to pass special laws to reduce future accruals, says Bill Tufts, a Toronto human-resources consultant.

But to be fair to public-sector workers, says Tufts, who is writing a book on the public-sector pension challenge, Canadians must respect the vested entitlements that the workers have accrued to date.

Tufts is the founder and curator of a national blog titled Fair Pensions for All that is one of North America's leading aggregators of public-sector pension news in the developed world.

Among other things, he has been following recent political developments in the state of Wisconsin, where the legislature has been the target of demonstrations by public-sector workers fighting proposed remuneration rollbacks.

Tufts says the recent revelation by Westmount Mayor Peter Trent that he and Montreal Mayor Gérald Tremblay plan to go to Quebec City next month to ask Quebec for help to curtail municipal pension benefits is a sign that the issue is percolating north of the border, too.

"Taxpayers are starting to demand changes," Tufts said yesterday. "They see the injustice."

Two-thirds of Canadians don't have private pension plans of their own and resent paying high taxes to support rich public-sector pension plans that are damaging government balance sheets, he says.

Last week, Trent told The Gazette that he and Tremblay want Quebec to pass a special law to cut future pension costs. Trent said current municipal pensioners would not be affected, nor would current municipal employees see any retroactive cuts; however, Trent said current and future employees would see some sort of rollback from what current entitlements provide.

Tufts said the simplest way to proceed would be to introduce special laws that would impose lower future accrual rates on public-sector pensions. Generally, accrual rates in the public sector are about two per cent per annum. That is to say, workers accrue future pension earnings at a rate of two per cent of salary times number of years worked. These so-called defined-benefit pensions are guaranteed by governments, no matter their deficits or debts.

"We see a proposal whereby the accrual rates would be cut in half, so that rather than having a two-per-cent accrual rate, the public sector would see a one-per-cent accrual rate," said Tufts.

"Governments would continue to make the same contributions - and any excess over and above that one-per-cent accrual would go into a defined-contribution plan" - a plan where taxpayers and workers should share the risk of future shortfalls.

Next week, Los Angeles will vote on a ballot measure to trim pensions of police officers and firefighters. But public-sector workers are fighting back, too, and not just in Wisconsin. In Toronto, senior executives of Toronto Hydro are suing the OMERS pension fund, saying their bonuses should treated like salary to calculate their annual accruals.

Tufts said wages in the public sector have been rising two to three times faster than the inflation rate over the past decade, and this is creating new pension inflation for taxpayers - since accruals are based mainly on the average of one's last three years of earnings. In the 1980s, he said, pensions were calculated more on the basis of lifetime average earnings.

In 2007, before the economic downturn, U.S. investment guru Warren Buffett warned: "Whatever pension-cost surprises are in store for shareholders down the road, these jolts will be surpassed many times over by those experienced by taxpayers. Public-pension promises are huge and, in many cases, funding is woefully inadequate. Because the fuse on this time bomb is long, politicians flinch from inflicting tax pain, given that problems will only become apparent long after these officials have departed."

Bill is very concerned about the cost of public sector pensions and he's not alone. There hasn't been a comparable in-depth study in Canada to "The Trillion Dollar Gap," but I'm sure the cost of public sector pensions has ballooned here over the past decade, underscoring the need to introduce pension reforms in Canada as well.

[snowball777]

Let's call pensions, public and private, what they are: subsidized gambling regimes designed to incentivize investment over saving. Cui bono? Leo and the rest of the fee-collecting white shoe brigade. We've made our tax base, golden years, and real estate dependent on the banksters by pushing money into the increasingly speculative market only to find that the load-bearing supports of that manipulated charade aren't up to the task. When the ugly underneath is revealed and pensioners, 401k account holders, and the IRS wake up to find that their piggy banks have come up light, we justify the Bernank doing "whatever it takes" to keep the illusion projected lest those golden years turn out to be golden showers, those 401ks turn out to be worth $401, and the revenues that came in during the boom turn to dust during the bust.

We'll give you a tax break or golden parachute, but only if you play in our casino; Vegas comps for a reason.

[tired1]

I perceive that much of the destruction taking place now by the banksters is to raid what liquidity is available in the pension (SS and private) before the unfunded overloads kick in within a few years. It's the smart move to steal what can be stolen before the ENTIRE unfunded baby-boomer crap explodes the system.

[Sathington Willougby]

So all these retirees will be living in the squalor of lcd tv's, visits to Luby's and yappy dogs in their apt?  What a ghastly standard of living.  Their mistake was to trust someone else with their money, then vote for people that think laws apply to everyone that can't hire a team of attorneys to seal all their documents.

Baby boomers insisted we redefine everything to the point that it makes no sense and now they're wondering why things don't work.  Ha ha.  I said ha ha. Next wonderful thing they get to deal with is the 20 yr olds that can't get employment.

[Winisk]

Forced automatic retirement-savings accounts...ugh. 

[apberusdisvet]

John Williams of Shadowstats notes that if the government hadn't obfuscated the inflation numbers since 1990, COLA on Social Security would have tripled the current benefit levels. That would mean an average check over $3000/mo.  Fixed income elderly could actually make do with this amount rather than living on cat food.

[topcallingtroll]

And the rest of us would be buying that catfood instead. Have you priced catfood? It aint cheap.

[slewie the pi-rat]

this whole little essay sounds like it was written by some stoolie from the Chamber of Commerce.  too many layers of error to waste time with, here.

slewie

[nmewn]

"Some of the pension benefits that public employees have negotiated are indefensible (particularly those allowing excessively early retirement)."

Again, they did not "negotiate" with those who pay the tab...the taxpayer. Two wolves and one sheep having a discussion over what's for dinner is not a "negotiation".

"And over time, it’s unsustainable for public employees to enjoy so much more retirement security than most of the taxpayers who fund their benefits."

Word.

"But the escalating conflict over whether public employees have won too much retirement security is obscuring the larger issue of whether everyone else has lost too much.

The main benefit of a public sector job that is not broached is job security.

It took a trillion dollar "shovel ready jobs stimulus bill" to reveal this simple fact to the public. But now they see it in all it's naked glory...fat rolls and all.

Billions spread across the land for tenured professors, state government workers salaries, state government budget gaps, NASA global warming models, Congressional pay raises and the remodeling of mosque minarets in foreign countries...just to name a few. The average cost to the taxpayer for any incidental private sector "job saved or created" by this boondoggle???

Around $222,000 per job.

 “The question is, should we bring everyone down to what we’ve done to the private sector where the level of insecurity is [rising]?” says Alicia Munnell, director of the Center for Retirement Research at Boston College."

There...fixed it for her.

The private sector worker has zero job security.

If the private enterprise starts operating at a loss, production changes occur or layoffs or even complete product changes happen to make it viable or it will go bankrupt.

There is not much point in remaining open and losing money Q after Q. 

Government has none of these concerns...the public sector worker knows this. Government is a loss leader...the taxpayer knows this all too well.

I have no problem with a middle aged school marm getting her breasts enlarged to make herself more attractive to her husband or her husband taking Viagra to prove his affection for her.

I just object to paying for it...nice "negotiation" ;-)

[StychoKiller]

The blind spot in everyone's argument vis-a-vis public employees is this:  Are these employees doing a job that could be better performed in the private sector?  To Gov. Walker:  SELL THE SCHOOLS!  Let someone else have all the headaches involved with dealing with recalcitrant unions.

[nmewn]

"Are these employees doing a job that could be better performed in the private sector?"

I'm sayin no, not a chance and the gravy train is comin to an end.

Hey!...I picked up three junks on that post instead of the normal timid one, payment has been made!...ROTFLMAO!!!

http://www.youtube.com/watch?v=cLRWme1pJfs

[Money Squid]

"But the impulse to take government workers down a peg might be better channeled toward increasing retirement security for everyone else in fiscally responsible ways." This is the key, stop fighting each other work together to improve retirement security for all. This includes fixing the banking sector to serve the people rather than steal from and control the population.

[freedmon]

Very true. Who even knows if the recession is inevitable, with so much wealth being siphoned off?

[freedmon]

What seems to be lost in the whole debate is the original reason for establishing things like social security plans, which was to guarantee some standard of living for retired labourers. If you depend on physical skills for your livelihood, then you obviously can't keep working forever. A psychiatrist can obviously work 10 hours a week until he himself starts to lose his marbles. A public-sector office worker likewise.

It's irrational to take a system really designed for a certain class of people and have tried to apply it to everyone, regardless of who they are. I suppose it was done for good reasons -- nobody wants to be poor when they're old -- but we need to reexamine our assumptions.

[MarketTruth]

Agree it needs to be looked at again, and frankly the US Gov should either give a total refund WITH INTEREST for those who have been forced to donate to So-So Security and Medicare/Aid. The 401 described above will probably be the next 'lowest hanging fruit' for the US Gov to steal during the next huge downturn. The next big leg down in the stock market will then give the Gov an opportunity, and never let a good crisis go to waste, and so your 401k will be 'protected' by the US Gov and appropriated into "Secure US Employee Bonds" or have some other feel-good name attached to it. The real premise is that the US Gov will be stealing your 401k and (ab)use those funds just as they are doing now with So-So Security.

[DeltaDawn]

Good concept for the next stimulus package: complete refund of all SS money paid in. We need a fire sale of federal land to citizens as well. Also now is a good time to tap the strategic reserve, 2 yr. supply, while we push for using only domestic energy within 5 years.

pull completely out all troups and equipment as well. Cannot afford it anymore.

[SilverRhino]

>> We need a fire sale of federal land to citizens as well.

If and ONLY if, corporations are banned from bidding, foreign interests are not allowed to bid, and a residency requirement is listed.

You want to buy national park land cheap, live on it.  

Otherwise you are setting the US up for the same issues that plagued 1990's Russia with the creation of the oligarchs after communism.