Nothing like enforced poverty in old age when the 401(k) runs out.
Good luck working until age 70 - if you live that long or still have a job.
11
Sue to enfoce our rights?? That avenue is closed due to the investor class and their buddies in government rigging the system to require binding arbitration! Good luck with that!
43
A few years ago in the Times comment section I used the term "investor class" and became the object of derision from a few of my fellow commenters - I suppose for being too pre-occupied by class.
If there is an upside to the relentless class war being waged against workers, it's that more people are becoming class conscious.
51
Rich people stealing the fruits of poor people’s labor is hardly a new thing: it lies at the heart of capitalism. Other than here, in the U.S., in the years immediately after WWII, the rich have always done their utmost to prevent workers from uniting to protect themselves from capitalist rapacity. Government almost always works on the side of the rich (who provide campaign money) to suppress worker rights. However, workers with a 401K actually have protections that a pension may not provide (when companies themselves collapse or go out of business). Unfortunately most workers have no understanding of investing and no one has the responsibility of helping them get the most out of 401K. The result is an increasingly pauperized and desperate electorate that actually believes a snake oil salesman like our current president will help them out of the mess they are in.
22
While there is a legitimate debate about 401(k) versus traditional pension plans, there is a widespread lack of financial literacy among some public employees. New York State offers a traditional pension plan for all employees based on salary, years of service and age. The state also offers a Deferred Compensation Plan which offers voluntary retirement savings plans that provides quality investment options. In other words, this plan offer the optionsto invest in several different mutual funds. Most employees choose to invest in "safe" investments which only holds fixed income and cash investments and do not own any stock market investments or auction rate securities. Generally, these investments return about 1.5% to 2% a year. The state employees ignore mutual stock funds which have averaged a ten year rate of return of about 10%, since they refuse to do some basic analysis on the value of stock mutual funds which should be included in a balanced portfolio of safe investments and stock mutual funds. And some employees don't keep track of their investments, even if they have chosen some stock mutual funds. Times readers regular criticize Trump for being willful ignorant. But how much confidence do they have in a civil servant who invests $8,000 a year in plans like the Deferred Compensation Plan but basically fails to analysis their investment returns or develop a financial plan for those investments? How competent will they be in providing services to the general public?
9
I quit my job and rolled over my 401k into an IRA. I invested it myself in a bunch of stocks and tried to get some diversification - but mostly avoided paying the fees. It did much better than any 401k that my friends had.
This whole thing is a scam to get us to pay fees. But as the author points out, it also reduces our political clout.
19
Calpers is a big hungry monster here in California. Year after year, individual cities and towns are seeing their required contributions skyrocket as the rules require this if the fund does not earn a set percentage in the market. Cities and towns must, by law, make up the difference. And one by one, you will see, without massive reform, these towns and cities go bankrupt under this insane scheme. So my super neighbors across the street, both Calpers retirees, whom I dearly love, will get their checks in the mail with annual cost of living increases. Yet my town’s services will collapse under this weight. Not their fault, but not mine either, and my check is definitely not in the mail.
25
The problem with company and government pensions is they handcuff people to jobs they dislike but can't bring themselves to leave, for years and years and years, ruining the culture for newer younger employees. I worked at one place that had them, hated the culture of lifers doing their time.
11
After considerable research, I took all my retirement money from my 401k, after yet another layoff, and put it all into Apple stock. That was back in January, 2005. Just use a regular discount broker. No annual fees, except when I buy more shares with what have been 401k money. Stellar gains dividends. Broke all the 'investing rules.' Still adding to and rolling that snowball long. So I missed employer matching funds, which were declining anyway. I have no regrets.
8
Evidently, despite my relative indolence, I'm more active with my fund managers than most 401(k) holders. Sheesh. Get with the program, folks. I was a poor kid from West Virginia who saw some of my relatives done out of their small pensions. Always do the math.
3
I couldn't agree more. 401(K) investments, the majority of which invest in managed funds, are so riddled with opaque fees and unfair restrictions, and siphon away so much profit from investors, that they out to be illegal. Period.
19
Private sector employees have zero job security. They are in competition not only with their fellow Americans but workers all over the world. The vast majority are have no company pension plan and if salaried have to work long hours for no additional pay.
Government and University workers on the other hand have virtual lifetime job security, never have to worry about being laid off or fired except for the most egregious reasons and with generous pensions can live out retirement with peace of mind.
Does this seem fair?
12
Agree with the question of fairness. It is totally unfair that corporate executives receive golden parachutes and stock options when workers do not. It is totally unfair that corporate-paid lobbyists fund legislators to block unionization, create "right to work" systems penalizing workers, and walk away well-compensated. It is not fair that hedge fund managers pay taxes at a lower rate than secretaries and janitors. Get off your duff, redecrete, and instead of whining about government employees organize your co-workers and seize your opportunities!
41
I, as a taxpayer, should not have to take on the market risk of public DB pensions when markets don’t do well. The only person who takes on market risk of my retirement in 401k is me, not others. The same should be the case for public employees.
12
I am disappointed that the author didn't address the efficiency of a pension - that due to mortality credits, a pension only requires 60% of the funds needed to provide a guarantied income to the age of 95. Pensions were a pretty good group annuity that is difficult to replace in a 401k. Thus another advantage to the financier is that 401ks require 70% more capital to be tied up in the fund for the same level of security in retirement.
21
I recall a conversation I once had with a strong democrat who was working in government. We were discussing pensions and the subject of defined benefit plans vs. defined contribution plans came up. "Oh we definitely want to support defined contributions, as much as possible," she said, among other things. I, having grown up in a white ethnic, union household was taken aback. I had always taken it to be orthodoxy that pensions were what the democratic party had to fight for, and that the decline of the unions, and their pensions, was a lamentable consequence of globalization and the death of workers' rights. I had not expected to encounter such enthusiasm for defined contributions from a democrat. I could accept them as a necessity, but not as something that I thought the party should be striving for, because I felt they were ultimately an attack on labor and the American working class, and in my mind the democratic party was always the working person's party. It was a real eye opener to find out that the top democrats sounded no different than republicans on the issue.
12
I get the point that it is important to hold the people holding our money accountable- whether they are pension fund managers or government officials with public pensions (and taxes) at their control.
7
Why not look at the money which is paid by all taxpayers to sustain public pensions and health care, instead of raising the bogeyman of the Kochs, bad as they can be? If the cost is thousands per taxpayer, and rising due to health care costs and demographics, take it to the citizens and say "Justice demands that you pay more taxes to fund our benefits."
2
Investors actuall love pensions. Rather than pay workers today, and have lower profits to give back as dividend. If I have a pension fund, I can underfund it, raising my profit/dividends. This attracts more investment. 20 years from now I can spinoff the pension funds into a soon to be bankrupt corporation, letting the tax payers pick up the tab.
How the heck do think the Detroit motor companies made money in the 50s/60s, it wasn't by building good cars.
16
401Ks are based on the myth of infinite growth.
21
In California, public pensions are a tremendous vehicle for what is basically theft.
For example, many pensions are based on the income received in the last twelve months, not the last salary, but the income received. So suppose a public employee has two months of vacation saved up when she retires. This gets paid out as a lump sum on her termination date, so she receives 14 months of salary in her last 12 months of service, and this is what her retirement benefit is based upon, not her annual salary. This pension "spiking" is now the norm in many California jurisdictions. I have never heard of this occurring in private industry.
This article completely omits any mention of the pension abuses perpetrated in California by public employee unions, the resulting cuts in other state spending to pay for said abuses (to higher education, for example) and the resulting jobs leaving the state. Unfortunate!
15
Not true. Spiking is now illegal and closely monitored.
11
I disagree. When I started working at a public accounting firm in the mid-80's, I was part of a team that audited some companies with pension plans. I remember being struck that while we were spending so much time making sure the numbers were "correct", we had to make seemingly wild assumptions about rates of return on investments, interest rates, and life spans in order to calculate the liability for the "defined benefit" and it would dwarf a lot of the other numbers.
It seemed crazy to me to me that any company would or could make these promises, and indeed, they've stopped and the Pension Guarantee Fund (their insurer) is on the ropes. On the government level, unfortunately, politicians (and voters) probably will always take the benefits now and foist the burden onto the kids and grandkids, and the assumptions I've seen on the expected rates of return are ludicrous. These types of commitments really can't be responsibly made.
"Loyalty" and the days of the job-for-life and of generations of families working for the same company are long gone. It built a large middle class, but I personally think this was an aberration resulting from our post-WWII economic world dominance. Global competition has killed it. Individuals are on their own in the marketplace now. Individuals have to take ownership of our financial presents and futures - certainly for the foreseeable future. The sooner people realize this, the better.
18
The 1% see a large pile of cash and they do what comes naturally to them - they try to take it for themselves.
I would have thought investors and the executive suite would love pensions. They can increase profits for themselves by under-funding the pension or through tax cuts in the case of government pensions.
I'm not fooled by the phrase "Right to work" - it really means "Right to fire."
The Jareds and Icahns of the world want everyone's savings in a 401k account so they can exploit these for their own gain - like taking insider information trading tips on Steel and Aluminum tariff edicts from the Donald himself - cheating the rest of us.
It is all about taking our money away from those with a fiduciary responsibility to us and transferring it to those who have a fiduciary interest only for themselves.
22
As someone who is vested in a PERS/SBS pension from the State of Alaska, I'm part of PERS 1. Current state employees are on PERS 4 which has lower benefits, lower match, this is in answer to the changes in revenue.
But those state revenues and the decline of them is directly related to the Alaska legislature, that makes hundreds of millions of dollars directly from the investments of the employees. When I was an employee, of the state, they recklessly invested in junk bonds, when that was all the rage. They lost millions of dollars and then wanted the employees to just absorb their reckless investing of our money. Thad didn't happen, mainly due to what the author of this article states, because we held the power, and we threatened to leverage us the employee, and our power as unionized employees, and get them voted out.
I put more than I needed to into my PERS/SBS accounts, because I didn't want to work forever, much less get chased by brown bears, which is what I did for Fish and Game, I took scale sample from salmon in the pouring rain. The obligations that states owe pensions is due to those elected officials inept robbing of those funds, while leaving an IOU, then saying we just don'
t have it. Well that's the people who participate in PERS, money. They should benefit from it being invested, the state does.
10
If someone could direct me to a source for instructions on how to intelligently follow investments (not a 401K), it would be greatly appreciated, keeping in mind that I am quite dim when it comes to finance and economics. The only thing I DO understand is that people like Mr. Arnold and the Koch brothers can never be rich enough.
10
The extremely wealthy have been financing campaigns to destroy public sector pensions for decades. They coined the dubious term "underfunded." Hundreds of millions of underfunded dollars sounds a lot worse than its converse, "fully funded for approximately 15 years before needing to cut benefits 5 or 10 percent, unless corrective measures are introduced." A few dark clouds is not a reason to panic. My impression, the desire to banish defined pensions is partly motivated by the profits from 401 plans but mainly to save business mogels serious money by reducing saleries they pay workers. Compensation is largely calculated based on the amount of money other companies pay their workers. So, business owners can profit, emensly, if generous pensions are eradicated. The public sector is the last battle before absolute victory.
14
Thank you for this column. In my opinion it's one of the most important finance stories published since companies and asset managers forced the 401(k) plan down our throats decades ago.
10
Several comments state that American employees vote against their own interest. Please tell me, whom I should vote for! BOTH parties were busy trying to dismantle Social Security and Medicare. As a matter of fact, during Democratic administrations we got the stingiest increases if any in our Social Security checks. Remember Obama's effort to change the formula determining increases for the worst? Both parties are willing toadies of Wall street. Republicans never pretended otherwise, while Democrats cloak themselves in the mantle of social conscience, even though they take contributions from the greatest enemies of the average citizens. As to pensions, Democrats promised the sky, but never tried to prevent the dismantling and under funding of public and private pension systems.
3
I remember when the 4 01(k) plans started and so many organizations, including nonprofits, thought they wee so great. I kept asking how people were going to have enough in retirement. Now every person had to manage their own money, a grotesque concept since so few know anything about investing sensibly, so they just invested in their own company (think Enron) and lost their shirts.
If a corporation has enough money to pay the current exorbitant executive salaries, bonuses, and all the rest, they have enough capital to fund pensions for their workers. Pensions gave so much security to retirees. The self-administered 401(k)s, not so much.
10
insightful and long overdue commentary on the decline of traditional pension plans. Should be compulsory reading. The author has it right when he compares the 'right to work' labor ethic as being the same ethic that is embodied in the 401 K concoction. Keep them weak and apart. The 401 K was supposed to supplement private and public fixed pension plans for those workers who did not have a fixed pension plan. ALEX and the Kochs are slowly but surely supplanting fixed pension plans with their own monstrosities. When the GOP privatizes Social Security and totally eliminates fixed pensions prepare to work until you drop!
14
Billionaires hoard money. They don't want to share, pensions are a form of sharing.
14
People complaining about the market cycles hurting 401ks don’t seem to understand that the same market funds the defined benefit plans. I also do not see any mention on what happens to people that do not work 30 years or more for the same employer. Those people typically get nothing. As for multi-employer plans that supposedly distribute risk, they are almost all headed over a financial cliff.
As noted earlier, nothing is intrinsically wrong with a defined benefit plan if you control the guarantees. Europe has many examples of simply managed government plans, run often by people without finance degrees, that operate at 100% assets. They simply do not allow any expansion of benefits that the assets cannot support. The retirees accept it because they know their benefits are rock solid. On this side of the Atlantic our incompetent politicians and supposedly expect civil service managers have not grasped this simple exercise.
Has there ever been a 401K plan that failed? I have not heard of one. You might complain about fees, lack of choice or nothing to backstop financially illiterate workers. I do not think any plans failed. Yet we hear again and again of corrupt and incompetent management of defined benefit plans. We in Dallas have our own recent example.
4
Any plan that fails to provide most people who've carefully followed it with modest but clearly sufficient retirement income has failed.
The article explains why ending defined-benefit pension plans and shifting all risk onto individuals with very small stakes will result in their having no "leverage," and thus no say, in what happens to their money. An individual with a million dollar stake has only 1/10 of one percent of a billion. By comparison, over $43 billion was the dollar volume of the trading on Wall Street this past Friday alone. The individual investor's influence is nil, but he bears all the responsibility for making sure he'll be all right -- and he cannot possibly predict what needs he or those he loves may have in the future.
4
True! just another example of rifling the pockets of the middle class. This horse though has pretty much left the barn. Even the feds, around the mid-1980s slashed pensions for future retirees and made the bulk of retirement savings dependent on contributions to a 401k. It is really shameful and quite the sleight of hand how the Kochs and Trumps and Ryans of this country transfer ever more $ to the wealthy and get the very folks who have gotten pummelled by these kleptocrats since at least the time of Reagan to make nary a whimper. It isn't the Russians that are subverting our democracy, that's for sure.
9
Real reason is, they can get their grimy, greedy hands on all our 401k money.
Wall Street does not like people saving money unless they get their cut.
7
Hoping for a quick, painless death in lieu of retirement.
9
CALPERS is a joke. Lack of transparency, huge fees paid to consultants and PE pigs at the trough. They are nowhere close to covering an S&P index fund level of returns. Of course the public is on the hook to cover all the wonderful social adventures they waste their time on.
3
You do realize that employees contribute to their pension each month? It’s generally more than the 8% contribution to SSI. Rather that experiencing “ pension envy,” I believe every worker should have a defined benefit plan. Our country is greedy when it comes to the “ general welfare” of it’s citizens.
Trump gave more to the Pentagon than they requested! We are going to have another generation living off their Social Security. It’ pathetic!
5
Great article.
1
401k's are like being forced to stay at the Vegas casino 24/7/365. Even when you're older, slowing and just wish to sit back and watch a good show.
The very LEAST that could be done to change the way they work is to raise the maximum distribution age. Keep the earliest at 59-1/2 (or even sooner, it's seems a weird number) ... but raise the outer limit to 72 or better yet, 75 years of age.
As people are living longer, and if they don't need the funds at 70-1/2, it would be better -- and fairer -- than being forced to take out the $$ every year, only to have to constantly re-invest them, and pay taxes on any gains over and over and over again until you croak.
5
You fellow taxpayers have waited 45 years for you to start paying taxes on your normally taxed investment gains. In many cases, you did not pay taxes on what you used for initial contributions. At 70, it is time to start paying taxes to reverse that 45 year deficit.
4
Many good points are made regarding the good work pensions do for all shareholders. Unfortunately, the math for public pensions stopped working for many states a long time ago. People live longer than ever imagined. States like Connecticut never had the political will to adjust their plans for this reality. It is also true they fell behind in their funding and overestimated their potential returns. Both actions just pushed the problem down the road and increased its intensity The disappearance of corporate pensions, and the relative rise of public compensation compared to corporate compensation, has understandably undercut support for public pensions. The truth is we, the tax-payer can't afford them as they are any longer. The mounting cost of these pensions just don't buy enough value for the rest of us who don't have one. They need to be renegotiated or states like Connecticut will continue to struggle and likely will collapse under their weight as anyone who can move will, to escape the ever rising taxes and reduction in services.
4
Americans need to ask themselves a question anytime any policy statement, who benefits? That question needs to be answered with rigor and specifics.
8
401Ks also changed the game by lowering payout standards. They’re totally underfunded for cost of living in US. Let’s say I max out 18,000USD per year ( the federal limit) and my employer doesn’t contribute. There is no way there will be enough money to retire with cost of living inflation. This is reason they got rid of pensions. Our society is too expensive and the any retirement strategy is likely underfunded. They want us to work into death. The pensions are actually the most responsible. It’s a looming crisis.
7
And here we have yet another potential winning policy for the Democratic party to win back the working class vote - but it will never happen because, the .1% love things the way they are, and the "new" Democratic party would never risk their ire by proposing a major overhaul of the ailing (for workers) pension system.
11
Defined benefit pension plan: the company or public entity has all risk for the retiree.
401k: the retiree has all the risk.
The companies, the 1% have been shedding all risk, in the continued consolidation of their wealth.
The fund owners and fund managers, wanting to expand this fee-based gravy train for themselves - seeks to advocate to private sector and public sector to shed all risk, and convert defined benefit plans to 401ks.
Unions are among last bastions to protect the workers.
Unions: protect the workers.
28
My husband works as a physician at a Veterans Hospital b/c he enjoys helping the Vets. He was offered a private practice job with a seemingly spectacular salary, but when we looked carefully at the pension and healthcare benefits offered at the Veterans Hospital, it was a wash. He stayed at the VA. My point is that pensions and healthcare ARE an incredible benefit, and I can see why the investor class would favor 401k plans. This day and age, I think people are wise to seek jobs that offer long-term security, rather than fatter salaries.
21
In this day and age, there is no long security.
1
Don't the elected vest in a short period of time in defined benefit pensions? Maybe put them into 401Ks and they won't sell out to remain in office forever. Oh, and that revolving door prohibition when they do get unelected or decide the money on the non elected side of the fence is greener? Yeah, right!
4
Traditional pensions like those negotiated by public officials and of the type which were abandoned by the automakers, big Pharma and other large corporations in the last decade are based upon life expectancy assumptions which were typical of the middle of the 20th century. People live much longer now. Coupled with COLA increases and health care, the resultant liabilities are not sustainable even for the most profitable. Public pensions are even more difficult to sustain, because the work of public employees does not directly drive a revenue stream to support the pensions, and increased taxation to improve the pension funds when needed, often works against economic growth. Those who work in the private sector and pay taxes know that for the most part, the benefit for retirement that they enjoy are paltry compared to public employees. And they know that their taxes support those pensions. States like Connecticut are going to have a serious reckoning to finally stabilize the fiscal house, and I expect that it will involve a further reset on public pensions, government costs and services, as well as taxes and fees. In the name of the common good, all will have to seriously contribute or all will seriously be harmed.
5
It is amusing to understand how the “investor class” undervalue/devalue the work of the public sector, such as teaching all children, protecting all residents of the country, shoring up/building infrastructure, as non-investments available to all, while decrying the ability of this invisible class for their longevity. How dare they live so long!
While contributions are steadily made under contract by the public sector to the employee with good faith, all goes well, no matter the age-range of retirees.
America should hope that jealous, crazed-sounding madmen bent on destroying the social contracts underpinning the public weal, turn instead to better ways to spend their surplus money. Instead of creating old paupers the Koch’s can dispense charity to, as they wish, let the old have security in whatever pocket of wisdom and sobriety still exist in our land. Deluded rich dunderheads are not reality-based leaders.
3
"...the resultant liabilities are not sustainable even for the most profitable"
Corporate America is awash in cash - they can sustain pensions. They just don't want to.
7
If I invested $10,000 in a 401k in 1990 in the S&P 500, and added to it modestly every month, today I would have in almost $1Million - which I do have. I am lucky enough to have a couple of pensions too.
The 401k is a great vehicle, unlike a pension, if i die tomorrow, the balance of the 401k goes to my heirs. The pension bet is that most of you won't live long enough to collect much. Do the math and the 401k wins unless you invest foolishly.
8
You would have to provide significantly more details concerning what you actually did to achieve that result in your 401(k).
Using only the vague information you've provided, the mathematics does not work out.
3
So the 1% don't even think about the rest of us, that is not new news. The fact that our government (Congress) now works for them not us took away our last line of defense. I take some form of absurd comfort in the fact that in sheer numbers we vastly outnumber these masters of the universe. As the ranks of those who are retired or should be continues to swell there will be a great political upheaval that will make the populist trump uprising look like a burp.
6
As a public employee soon to retire I constantly hear the refrain "my taxes are being used to pay your pension while I have no pension and that is not fair". For years public employees were paid less than private employees but in order to find people to work in the public sector they were promised decent benefits. Now compensation for private employees has been stagnant with sporadic bonuses taking the place of raises and their pensions have been turned into 401Ks or eliminated altogether. They should be angry. They should be furious, not at public employees, but at the corporations that have been using huge profits to buy back their stocks and reward their share holders and CEOs not their workers. The right has been effective in demonizing the public sector but we are not the problem. Decreasing unionization, lack of government support for workers, globalization and mechanization are the problems. Vote for unionization in your work place and vote for Democrats or Republicans (try to find one) who are pro worker and not beholden to the financiers, bankers and CEOs. Get your benefits back, taking mine away won't solve the problem.
50
"The right has been effective in demonizing the public sector but we are not the problem."
They demonize any workers who don't carry badges and guns.
3
401(k)s benefited the financial industry like a diet high in sugar benefits humans. Eliminating the voices of investors individually or collectively to keep the financial industry in check allowed too many abuses to occur without punishment. "Supine" investors may be an "ideal source of capital", but be careful what is wished for. The financial industry is now full of people who deny the risk of financial markets have for most individual investors.
The whining for a competitive edge from government comes from industries which have become lazy, entitled and always looking for the easy way for quick returns. Those tactics do not lead to healthy markets, healthy companies or healthy communities.
If the Kochs and the Arnolds want their legacy to be respected, looking beyond ensuring the prosperity of the .01% is the prudent course of action. Spending their billions to deny labor its share of prosperity by denying a living wage and denying those who live long enough to retire a secure retirement income and affordable health care is in the end treason against the US. American workers are earning their right to have an economic voice which is reality-based and represents their actual self-interests, not the myths they have been sold by the Murdochs, Trumps and the Republican party.
9
Yes, treason - common among the top 1%, 0.15 etc. And what is the traditional penalty for treason? As someone who opposes the physical death penalty, I suggest a financial death penalty for these treasonable acts.
It is a standard tactic of the government is the problem crowd to underfund a program and when the program then has problems to blame the goverment and the program for the problem even though the problem is the result of the underfunding they did.
3
The real reason the 'investor class' hates pensions is that providing lifetime income to past employees carries risks uncorrelated to the business. As I look back on my own career, a dozen of my former employers have either gone out of business or been merged away, with assorted effects on their defined pension plans. These results are not beneficial to employee or employer. That's why the only healthy plans mentioned in the article are public pensions, since a government has theoretically limitless taxing authority to backstop its pension obligation.
As for shareholder activism, the sort of proxy adventurism advocated here carries risks and costs. He complains about "high fees" in 401K plans (an assertion which would be can't be substantiated as a norm), yet looks for shareholder activism on the part of pension trustees. Activism costs money. Money for consultants, research, and physical presence at shareholder meetings. The positions taken by the board may or may not be shared by the participants and they may not be consistent with the best interest of the participants. The participant's one goal in retirement savings is to have as much money as possible for retirement. But once activism takes hold the goal may be some social goal which may be laudable, but doesn't add to pensioner wealth.
1
In so far as many if not all public pension systems include tax money in addition to employee contributions it stands to reason that tax cuts and low (historically) tax rates on the rich exacerbate pension shortfalls. Once again the wealthy turn their backs on the working people.
6
Pensions are Annuities and are just as expensive as an annuity purchased on the open market.
The investor classes do not hate pensions - especially public pensions - they just note that they are impossible bargains for the pensioners and because they are public - their costs will be borne by taxpayers.
If a public employee gets a $40K pension - how much do you think the equivalent Annuity purchased on the open market would cost to support that pension? That would be over $1 million. Do you think some clerk has paid over a million dollars into their retirement plan?
3
Public employees contribute to their pensions .
1
Good points about the advocacy that giant pension funds have provided. And it's true the real issue is disparity - but NOT between the 1% and everybody else, but between public employees covered by pension plans and private sector workers covered by 401ks. Why should taxpayers be the security backstop for pension plans far richer than their own 401ks? Why should public employees receive pension benefits so much greater -- as a percentage of their job earnings -- than the average private sector worker can produce with a 401k? Why should public employee pension benefit checks arrive like clockwork in the mail, requiring no red tape or ongoing involvement from the beneficiaries, while my 401k assets require me to pay close attention, supervise, make investment decisions or pay someone else to do this necessary work for me? No way can this be called equitable.
5
Let’s see, do I have this right? Instead of calling for better 401k’s, let’s gut public pensions. That way, we all can suffer.
1
Sounds like pension envy. Everyone should have a pension that is sustainable and reflects how many years on the job and their age at retirement. Public employees contribute to their pensions just like others contribute to SSI. The contribution is larger than the SSI percentage.
1
The next big social crisis in America will occur when millions of retirees realize they've outlived their 401K incomes and must live on social security alone, assuming that program hasn't been killed off too, and the people responsible for the crisis will have walked away rich. Politicians could change that if they wanted to, but too many have been bought by the same rich interests behind the demise of pensions and the myriad of other republican schemes to undermine the working class and, ultimately, to undermine our democracy itself. Things will reach a crisis point soon. Either normal Americans will demand an economic system and a government that works for every deserving citizen, or the grand american experiment will come to an ignominious end.
12
I don't see any way around blaming the ruling class, which is essentially congruent with "the rich" for the demise of the private-sector defined-benefit pension plan, as well as the demise of (free or heavily subsidized) corporate-retiree health insurance. I started work at a Fortune 500 company in 1990, when they offered both a defined-benefit plan and retirement health insurance. Within 5 years the first was gone, and the second soon followed. Once "the rich" realize, "Heck, we can just steal it all!", they are no longer content with just taking the biggest slice of everything that makes life liveable. Greed is good. And two, innovation in health care continues at a blinding pace, all that new technology is expensive, and too many of us Americans eat too much, smoke and drink too much, don't exercise, etc. Perfect storm.
10
Here in California we have many public sector retirees collecting HUGE pensions. The data is readily available on a publicly maintained website, transparentcalifornia.com.
We have multiple retired fire chiefs earnings over $300,000 a year. Too many public employees were given benefits by elected county and municipal officials who had little understanding of the power of compounding or the effects of the details of the contract allowing accrued sick days, vacation days, etc., to be used in calculating benefits due.
9
So can we agree that there are some folks who are receiving exorbitant pension payments but that the system is still essential and that we need to strengthen it to safeguard working and middle-class Americans' retirements? For the very few who are taking too much, we need to do a better job in the future limiting the monthly take home allowed to such top managers.
7
There are abusers on all sides. The Public Sector attack is most common here in California. These people are not abusers. Those pensions were bargained for and I do agree that they need to be modified. Paying 300K a year to someone who retires in their mid to late 50's probably isn't economically feasible. I retired from UPS last year after 30 years and thankfully have a Teamsters pension. Add to that a company matched 401K plan. It was well earned and based on my hours worked.
But lets be real here. The Federal Government spent over $700 million dollars bailing out Banks that admitted wrong doing. Corporate welfare far exceeds anything paid to pensions. The 401K plans dirty little secret is that it's an enormous capitol resource for Wall Street manipulation and by getting Americans to buy into them as a retirement plan releases Companies from having to set aside money to support pensions for their workforce when they retire.
6
And we need to check the figures on the "excessive" pension payouts. Right wingers have consistently exaggerated and/or lied about these numbers - there may be some but check the data and compare to the total number of pension recipients.
While we are eliminating pensions let's not forget to smother the public estate. Close those rest areas. Tear out all of those campgrounds built by the CCC. Sell the dams and the highways built by "the greatest generation." Tax cuts uber alles
Soon we will have little in common but our AR-15s.
21
When I retired from Hewlett Packard, I had a question about my retirement benefits. When I called HP, I was told I would have to contact Fidelity, they handle the retirement benefit plan. That is when the light bulb finally clicked on. "Oh! Fidelity does not work for my benefit, they work for HP and many other companies. No wonder they go along with outrageous compensation packages and many other outrages that disadvantage the share holders." I don't mean to pick on Fidelity. You could insert the name of any fund company and the story would likely be the same.
10
The loss of pensions is one of the many negative consequences of having a dominant Republican economic narrative pushed by a vibrant propaganda machine along with a hapless Democratic Party's increasing distance from working class voters.
For decades now, ever more right wing working class voters have been putting Republican majorities in government who are beholden not to their interests, but to those of the 1%.
Republican policies designed to redistribute wealth from the working class to the 1% have taken away Republican workers' job security, wages that are enough to live on, their unions, their pensions, produced recessions, and all with their cooperation.
As their economic woes increase, their retirement looks bleak, and the 1% laughs all the way to the bank, at least Republican working class voters can take pride in the knowledge that they really stuck it to those dastardly Democrats.
20
Yes we've known all along that 401K's were inferior, but the high priests of finance once again bribed our 'representatives' to foist it on us peasants anyway. It's America Baby! Yeah!
7
Pigs is pigs and they need a big trough which 401(k)s provide. No mystery here; simple greed. It won't last because it can't.
3
Invest your 401 k money in Berkshire Hathaway and have a spokesman
2
Because of its sheer size, BH is running out of effective investments, it is sitting on a pile of cash and it's retires have softened. At a certain point, it will be unable to maintain its past strategies.
1
In reply regarding Berkshire Hathaway: unfortunately, this investment strategy oftentimes sucks surplus cash from the companies owned, so that they are undermined.
In the 2000s, Karl Rove and President Bush were talking about expanding retirement opportunities under the rubric of the Ownership Society. However, when the Tea Party came to prominence in 2010, the focus shifted immediately from growing the pie to going after the few remaining segments of society who actually had defined benefit or defined contribution pensions. The GOP used to rail against the Dems' perceived politics of envy. Now the GOP is the party of envy. Except, instead of envying the billionaires, the GOP wants its base to envy the remaining working Americans who earn sixty thousand dollars but have some type of vestigial pension benefit. Is this the type of politics that Reagan would want? Avoid optimistic solutions and instead focus on negativity: looking into middle class Americans' legally-acquired benefits and steal them away?
3
The public employee pensions funds in Ohio differ from many of the other ones mentioned here. Investigate.
3
What makes it so special? Is it solvent? OK. That's not it. What makes Ohio's plan different?
1
"Ohio’s unfunded pension liability was an estimated $312 billion in fiscal year 2015" "Ohio’s pension plans would need an additional two and a half times their current stock of assets"
2
I'm no fan of public employees or their unions bit how much of these shortfalls ate due to under-funding. Sixty Minutes once asked Chris Cristie about the poor state of NJ's pensions funds. He said they were unsustainable due to billions dollar gaps between balances and obligations. The reporter asked him if that wasn't because the state had failed to fund them according to its own formulas for 19 of the last 20 years. Christie brushed off the question: "That's water under the bridge."
4
There needs to be a more equitable pension system for all. School pensions in NY State are astronomical on Long Island, going into the six figure range. Compare that to a working man, a laborer, who is paid by the job and not salaried. No wonder people are leaving states that have huge pensions promised to state and school workers. There is a definite divide that needs correcting.
7
The divide is caused by the wage theft of the 1%, few of whom pay taxes at the same rate as the "working man". Scarcity is an illusion, caused by lowering taxes and rampant offshoring of money.
1
I have a defined pension. It's the greatest thing that has happened to me, and I am now happily retired. The only advantage to a 401(k) is that you own and control your own principal, but the stock market is a casino. You're always going to leave with less than you brought in.
18
Piling on the Koch brothers is getting old. They reinvest a substantial portion of their profits in their business, create a large number of job openings for Americans and have a right to have their opinion heard as the op-ed author does.
Why not lambast liberal icon Warren Buffett who supports 3G partners which has slashed jobs at Kraft and Heinz?
4
Enough of the Koch propaganda. They offshore their money like parasites. They hate working people. They are the enemies of liberty and the American way.
3
Piling on Koch Brothers is justifiable and should be unrelenting! They have created a network of businesses, schools and political organizations to influence our society how to think, believe and act. Enough is Enough!
5
So does Apple, Microsoft, Google, General Electric, Pfizer, Seagate Technology, Ingersoll-Rand, Tyco Electronics, Chiquita Brands. It's not just the Koch's.
1
Start with laws that remove pensions of senators and congressmen. Put them under 401(k).
Let their guaranteed pensions move to private and fail. That is the only way you can ensure they rectify this.
42
While traditional pensions (which now only exist for public employees) are wonderful, we taxpayers cannot and should not afford them. Particularly when the rest of working America is excluded.
4
Instead of vilifying the public sector pensions, because it's not fair to the private sector...which has no pensions...
why not fight to get them back in the private sector? How is it that people have voted against their own interests, and then because they lost something important..they want you (public sector workers) to lose it, too.
Reclaim private sector pensions! It'll be a fight, but that's the way to go. Playing the 401k casino isn't a safe way to go at all...
12
Not all public employees still have pensions. The State of Michigan employees only have a pension if they started before 1997. I wonder why everyone still thinks all public employees do? A way to keep people willing to cut even more? Be careful, your ideas might not be true.
1
Public Sector is an easy target because they're in the crosshairs of the tired "socialism, unions are bad for america, platform that rots on conservative radio and some cable news programs. It's a myth created only for the purpose of pointing out an "it's not fair" narrative corporations are hid behind to break what's left of unions in this country.
1
Sigh.
The primary reason that pension funds are spectacularly underfunded is that people are living longer, which is causing the dependency ratio to plunge. Back in the ‘glory days’ for defined benefit pensions, you had ten... maybe even twenty active employees per pensioner, who maybe collected their pension for 10yrs. Now, you have maybe one or two active employee per pensioner, who is likely to collect their pension for 20-30yrs. It’s basic math, if you can actually do math, which most ‘progressive’ commentators on this subject cannot. Yes, the problem has been made much, much worse by union-backed politicians sweetening the pot that was due to spoil anyway. But the whole system was due to fail anyway, based simply on demographics. The fact that ANYone thinks they can retire for 30yrs after working for 30yrs is pure lunacy: what contribution rate would you need to make this math pencil? Seriously... ask yourself that... and then realize that the math doesn’t change just because you comingle benefits. It only worked because of a demographic dividend that NO LONGER EXISTS.
8
You make some good points here, but you're unfairly blaming "progressives" for this situation (no, we are no worse at math than conservatives). I'm pretty sure those on the right do not want to work until they're 80 either. Not to mention there are tons of careers for which this would simply be physically impossible. This is a difficult problem, one that is by no means solved by saying "you all need to work longer."
2
You left out one BIG thing. Corporate Tax accounted for about 33% of the Federal Budget in the 1950's. today it's at about 9%. The Corporate Tax rate went from 50% to 33% before the recent Tax Reform plan.
This isn't an age issue. It's a tax collection revenue problem. Do that math.
4
The attack on pensions, by the Koch brothers, via the Kochroach acolyte, Governor Walker acting on their behalf was in large part what the protest issues in Wisconsin, concerned a few years ago.
7
I don't believe that a professional financial adviser or broker even has by law a fiduciary duty to put his client's interest above his own. You may as well put your faith in a used car salesman.
7
I would propose that all employers be required to offer each employee the option to invest in an enhanced Social Security system- separate from the mandatory system and invested only in public debt. Not sexy for returns, but safe and free from being eaten up by the fees the fund managers and sellers tack on to your holdings.
The current Mutual Fund system is for the most part a racket tilted in favor of the firms making and selling the product. Not sure how holding onto a file entitles them to their excessive fees.
8
To paraphrase John Bogle on 401k's: They are the best retirement plan ever invented - for the companies that sponsor and manage them - employees contribute the majority of the funds, get to take all of the risks and if they're lucky, will get to enjoy perhaps 3/4's of any returns.
American capitalism at its finest!
9
Public sector labor looks at the value of the total package of compensation. Besides the salary and bonuses, non-monetary benefits such as better job security, sick leave, maternity leave and health insurance also figure into the equation. The pension certainty and amount also figure prominently. Consciously or unconsciously the net present values of the monetary and non-monetary benefit are compared with what is in the private sector. And often, at least at the entry level, public sector looks like a better proposition.
Many bright and hardworking people opt to work for the public sector because the defined pension is major part of their calculations. Many unions forego salary increase for the certainty of pensions. Cities, counties and state governments favor increase in pension over salary increases because of reduced burden on their current budgets while putting the responsibility on future administrations.
With the clamor for reducing or eliminating pension, the lure of public sector work is tarnished. Many young people will shun public sector and there will be very few competent people seeking public sector job. This will have impact the public services including availability of teachers, police, and firefighters etc. Lack of competent people to serve in these capacities will cost the society dearly. The quality of public schools deteriorates further and there will be no police or firefighter to rescue you. There is no free lunch.
15
Republicans are trying to destroy public school so they can turn education into a for profit business, hence the involvement of Betsy de Vos in government.
3
Some people here who are well-connected work for the city and retire with a great pension; they then move to the CTA or the the county or the state and get a second one. The pensions are generous and pensioners get raises. Teachers here used to be able to retire a year or so early and get even higher payments, using sick leave that should be used for sick leave, not as additional vacation time. There has been underpayment by legislators who didn't fulfill their responsibilities. What is the solution? We are $130 billion short and counting in IL -- should I give the state my IRA to retire the debt? It's a hot mess. We can argue about who, where, why it happened, but we cannot afford to support people on what are salaries for forty years.
9
Pension funds server a valuable role in corporate governance, but if they are calling up the board regarding every poor quarter, they are serving no one's interest but the short-term investor. Furthermore, their returns must cover the overhead of pension management. Pensions are generally active investors, who usually do worse than passive funds.
No, fundamental problem with 401K's is that people wind up much poorer, for
largely correctable reasons:
1. Pensions are better subsidized, generally at a 1 for 1 match to a high percentage.
2. Pensions contributions are mandatory, or minimally the default option. 401K's in most states require opt-in, and a variable level.
3. It's hard to take money out of a pension early. No one thinks of them as a fixed, accessible $ amount.
4. Pensions invest in higher return assets, rather than ramping down to safer, lower returns as retirement approaches, or even from the start.
One can leave the "advantage" of choice and control in a 401K while still providing similar levels of subsidies and default choices that steer naive investors toward better options.
No, the real reason for the popularity of shifting 401K's to pensions is to mask reducing the corporate or governmental subsidy.
9
You know that quote "small business is the backbone of america"?
I really do appreciate your wanting pensions, believe me. I really do.
What about the small business owner, and his employees, who do not have this option? They just try to make payroll. What do we do about them?
So, while I really feel for your pensions, what about those less fortunate? Those who will never have that opportunity? The ones who need it even more than you.
Just a thought!
3
Life is all about choices. I admire small business owners, but I liked the idea of a pension and like education , so I went into teaching. I feel bad for people who won’t have pensions, but that doesn’t mean they should resent those who do. Instead, people without pensions should be fighting like crazy to get a social security/retirement system for all that is similar to those certain Nordic countries. In those countries, a system is set up so that everyone is taken care of after retirement.
11
Pension plans are susceptible /vulnerable to high fees and schmoozing from mutual funds and hedge funds. By and large, their performance isn't that great. The answer is disciplined passive investment by 401-K owners, socking as much away every year as legally possible, in reasonable bond and equity portfolios, via low cost investment firms like Vanguard, Fidelity, and Schwab. The big hurdle is just getting people to invest in anything at all. Maxing out ones yearly contribution into a no-brainer 60/40 mix of SPY and investment grade bond funds over years can work miracles --- no middle men fees whatsoever.
6
Yes there is no question that the limitation and subsequent elimination of defined benefit pension plans starting with private companies, was a tremendous benefit to the companies and a bad deal for the average employee. The mega wealthy has been very successfully been running propaganda campaigns against all forms of pensions, including Social Security (which they have successfully rebranded an "entitlement" giving the impression it is paying people something for nothing). From a lot of discussions with persons without private pensions, they are often very resentful and angry with those who do receive pensions, despite the fact the recipients contributed to them for decades. I have never heard any of these people express anger or question that maybe they got a raw deal when they did not get the benefit of a pension system. Finance is, boring at best, but essential to understand. It is now a 401k world and all workers should max out their potential contribution. I saw in companies all highly paid employees would always max out their contributions while the lower paid workers contributed little because they were living paycheck to paycheck. Not to mention the issue of paying for health care. People should be entitled to a basic level of life as a fundamental human right. Even retired on a monthly income of 8-10k a month I often live in fear of going broke watching every penny. Our long and inhuman Darwinian experiment in enriching the upper 1% should be eliminated.
9
Capitol/investor economies of the world are contract based in every respect including worker pay & retirements. Contracts are made between workers & employers, which may include defined benefit retirement plans, 401k plans or no plans at all. Why?
Constitutions of the western economies developed before industrialization. Labor was human, animal, or water power. Workers were in ag. or trades supporting ag., E.g., blacksmith, wheelwright, carpenter, etc. Mfg. was weaving, tool making, glass blowing, etc.
Today, these workers are either hired or owners. Then the hired could also live off the land. This was true until land became a scarce commodity. Workers became serfs, apprentices, (exploited labor providers). Great migrations to America and the "free" western lands were the engine of American development.
Modern mechanization/industrialization of agriculture and the trades is now all there is. Contract arrangements remain the same as feudal times. Industrial serfdom today is a non-union worker, still selling labor in lopsided "contract" arrangements benefiting owners of production.
Communism in 1918 Russia and Unions in Europe/USA scared industrialists into offering benefits never before imagined. We now mourn the loss of these benefits in the wake of the collapse of Russian/Chinese Communism, & subsequent legal gutting of Unionism by a corporate dominated court. & government system, hell bent on returning to 19th century industrial feudalism run by captains of industry.
9
They promised to take care of you in your old age......they were lying....
5
I receive a pension from the Chicago Teachers Union. Our pension fund was created by the state in 1900, a long time before Social Security came on the scene. The pension fund was funded at 100% or better into the 1990s, with tax money going directly to the fund. In the 1990s politicians decided that the money was better sent directly to Chicago Public Schools (CPS), where it disappeared, never to be seen again. The only thing that CPS put into our pension was IOUs. Due to the lack of funding by CPS the our pension went down to 57%. Now the time is here to pay and everyone is screaming to the high heavens that “We can’t afford these pension plans!”, “They are too costly!”, “Let’s do a 403B”. Our pension plan has been very well managed and has earned an average of 8%a year over the last 35 years. Many people would like to get their hands on that money. The state tried and failed.
By the way, the average teacher’s pension is around $27,000 and they don’t receive Social Security. In this day and age that is not a great deal to live on.
8
You failed to mention what the Ogre Mayor Daley did to teachers and their pensions. When Mayor Daley got control of Chicago Public Schools he negotiated with the union and agreed that if teachers didn't get a pay raise that the City of Chicago would take care and pay for the teacher's annual contribution into their pension. So the teachers agreed to no pay increase, and the City agreed to pay their portion into the pension fund. What did Daley do? He DIDN'T FUND the annual pension!! He should have been thrown in jail. Even today, many Chicagoans love Mayor Daley. But they don't understand what he did to the teachers and to the City of Chicago. How does he sleep at night?
4
Professor Webber fails to mention that his employer, Boston University, offers a defined contribution plan. 401(k) plans are defined contribution plans.
In fact, most university professors nationally prefer defined contribution plans because of their portability. Even at public university where the default retirement plan is a traditional defined benefit plan, higher education employees typically have the right to opt into a defined contribution plan.
2
The change from pension to 401K is an absolute scam, designed only to limit the amount of money companies must pay for their employees' retirement.
7
Everywhere you turn the rich are milking this nation and have done so for several generations now. At some point the cow has no milk to give. I'm keenly interested in their plan for that eventuality.
11
Ask the workers in the railroad, steel & airlines about traditional pensions! All of them had their pensions stolen by management underfunding the employee pension funds while making sure the management pension funds were fully funded.
I much prefer to have my retirement money in a IRA or 401(k) in my name & SSN where it is beyond the greedy reach of the managers.
Just my $0.02
9
Many municipalities spiked pensions between 2002-2005. There are numerous public servants in my county who retired at 50-55 with 90-100% of their salaries (not including social security). That level of retirement payment was never, ever part of the national conversation and simply encourages workers to leave the workforce in their 50's with their full salary for the next 30 years. The rule of thumb was, for many years, 1/3 from retirement plan(s), 1/3 from social security, 1/3 from other savings.
2
Between this, led by the Kochs and their ilk, and the union-busting movement led by the Kochs and their ilk, American workers will soon be little more than serfs. This is the aim of Conservatives' economic agenda: to return to the 1890s and the days of the robber barons. The relentless attack comes from a well coordinated, all out assault on the masses. ALEC has been the weapon at the local level while Republicans such as Ryan and McConnell spearhead the federal aspect; and Fox News is their Ministry of Truth. If the population does not wake up soon all will be lost.
7
This article has so many distortions it should not have passed editorial review. Investment fees are a separate issue of concern that can be addressed apart from the traditional pension /401k debate. At their core, assuming both used low cost mutual funds or ETFs and professional management, the underlying net performance would not differ between the two structures. Even if traditional defined benefit pensions had not been underfunded, they retain a fatal flaw: someone other than the recipient is guaranteeing the payments - and in the public sector that is the taxpayer. Under defined contribution, once the negotiated match is paid, there is no further public liability. The private sector has understood this for some time. Its not a matter of politics. Bottom line, either reforms transition in an orderly way to "401k" (with a hopefully fairly negotiated match), or the pensions will in time fail leaving a fiscal crisis of one sort or another.
12
Dave S of NJ has the smooth sales approach down pat: all will go well, all player have good faith and perform flawlessly; and the percentages of “fees” are negligible, just let the public sector pensions slide effortlessly into the the grinning mouth of mammon. It will be easy, smooth—you won’t feel a thing.
Yep.
1
As someone who is relying on a 401K in the future, I have to ask where do members of the so-called financial class place their bets? Seems like this may be the way to go. A benefit of the defined contribution plan is that I call the shots.
2
As opposed to having a defined pension that you can rely upon, even in bad times?
1
Defined benefit pension is a valuable part of any retiremnent plan. My generous U.S. government pension is about $1100/month after health-care,10% beneficiery (wife) added, and taxes. I did only pay 1% of my pay, however also paid full social security. It is meant to be 1/3 of my retirement, 1/3 SS, and 1/3 401k (5% match). It's not great, but it is sustainable. Especially, having medical insurance until I reach 65, which is crucial to any retirement before being eligible for medicare.
2
In the 1980s, antitakover laws were enacted to deter 'corporate raiders' with the ostensible goal of protecting jobs and local communities. Neither jobs, nor local communities have fared so well. The primary beneficiaries of these laws, it turns out, have been corporate managers, who found themselves insulated from democratic forces.
I hadn't previously considered this, but it appears "defined contribution pensions" (rather than defined benefit) do the same thing. I thought they were raiding pension funds only to get the cash, but it turns out they had another goal--further insulation from workers.
The American corporation controls every facet of our lives: where we live, how we dress, how much time we spend with our families, who we speak to and what we say. Indeed, even what we believe. And the leaders of these organizations are further insulated from the opinion of those they rule than the monarchs of old Europe.
6
Greed. All made possible by saint Ronnie, the senile. I know many people that have had their pensions gutted by greedy CEOs. My friend that is soon to retire from HBO has lost at least a million dollars from his "promised" pension. That includes the money he has directly lost from his weekly contributions into the fund.
9
Thank you Mr Webber for the illuminating op-ed. I'd say the phrase "economic voter suppression" is much too benign. The political and economic elites on the right are all about hoarding as many elements of power as possible for their own good and the detriment of "The Other." Pension "reform," along with things like the latest tax "reform," are simply wedges to enhance the gap between the 1% and the rest. Banishing Dreamers -- ethnic cleansing in a thinly veiled disguise -- and travel bans on Muslims from foreign lands -- pre-emptive ethnic cleansing -- obviates any need to share anything with two very large minorities, one ethnic, the other religious. As equally symptomatic of the radical right's increasingly self-absorbed world-view are the proposed wall between the U.S. and Mexico and Trumps looming trade wars. The radical right's juggernaut of polarization and exclusion continues to wreak havoc. It will take decades to undo the damage already done in a very small fraction of that time.
5
I remember back when 401K plans were invented. The powers that be said 1) the money going into pensions could be better used by the companies to generate better returns and as such the workers would do better by buying stocks in the 401K and letting the company invest the money elsewhere; 2) that pension fund managers were ripping off the pensioners and that the pensioners could invest their money better by themselves.
Once the deed was done, the powers that be 1) used the money for executive compensation and stock buy backs which did not lead to the glorious returns of better investments and 2) said hey its too hard to invest by yourself, you need a money manager.
And after more than 40 years, the powerful are still chipping away at pensions and winning the battles.
The sad part for me is that it has been my generation that inflicted the damage (and continues to do so).
9
WJL-- I guess you are a boomer. If our generation "inflicted the damage," we have also suffered from the damage. Most boomers (by the numbers those born 1954 and after) have been the biggest losers. We have watched co-workers a few years older go off to glorious retirements, while we get the peanuts from 401K plans.
1
What will Chicago do when their pension debt is called? As state after state feels the crushing debt of unfunded pension obligations, this article feels wildly misleading. It's an attempt to enrage and rally a partisan base rather than a serious discussion of the pros and cons of pension programs.
Public debt is a concern of "working Americans", not "the 1 percent".
6
The great mystery to me is why the Kochs, men who've never had to worry about where their next meal is coming from, about how to pay a medical bill, about balancing a checkbook, about sending a child to college, about how to wear the military uniform, or about any of the myriad challenges the rest of us accept as part of a normal life, are obsessed with immiserating the lives of ordinary Americans.
49
Because they and the rest of the Robber Baron Class make more money if we "invest" in 401ks
If we invest in 401ks, more money is delivered to the Stock Market. The more money that goes to the Stock Market, the higher stock prices go (supply and demand). That class has by far the most of their money in those assets
3
It's an unfortunate fact that some people are greedy, some people are mean spirited, some mendacious, and some are downright evil. In today's America many are all four.
4
^^^^^This^^^^^^
As taxes are the cost of civilization, civilization is defined by how its treats its workers, respecting the work beyond the present, into the inevitable future. The propaganda mill run by the 1% has waged a war of words, spewed by men in suits and blonde women with ample salaries, to denigrate respect for the working person as pickpocketing the taxpayer. All well and good under the free market rubric- until we reach a society very rich in resources but poor in taking care of its own ( the elderly, the unwell, the unfortunate)-- This version of darwinism may pass muster in some GOP circles, but it really is a one way ticket to Palookaville where the desperate lives of others will not only reflect on us, but will be our own someday.
5
You can bet that if the Koch brothers are involved in destroying pensions (or anything else), that will harm the public in general while putting more money in their pockets.
6
Ever since the fall of the Soviet Union and the Socialistic system, it has left no competing doctrine of the free market based capitalistic system. It comes as no surprise that the wealthy and business class moved to eliminate unions and public pensions systems and to a more market based approach to individual retirement plans. Free Markets systems are great but they have their limitations and it doesn’t surprise me that the average American is not well educated enough to learn the complexities of investments and be dependent on financial advisors. As a country we will know within a couple of decades whether or not these retirement systems will have worked or not and future generations may have to step in and restructure a more state based pension system that guarantees everyone a decent retirement. Free Market folks believe in individual responsibility which I agree but I also know as a society how dependent we are upon one another. So even if you pulled yourself up by your bootstraps, somebody raised and harvested the crop you ate for breakfast this morning or the crew that brought in the oilwell so you could fill up your gas tank that makes those things possible for you to achieve everyday. Obama once said awkwardly “you didn’t build that” which he meant that it was only possible to build it together as a people and as a country.
5
That large pension funds have only their members’ interests at heart is not always true. Arizona’s retirement systems for most state employees provide a counterexample. The state constitution says “public retirement system benefits shall not be diminished or impaired.” But the legislature has reinterpreted this to refer only to the benefits’ nominal value. Cost of living adjustment has been replaced by a “permanent benefit increase” – which by law can only be granted after a statistically unlikely, decade-long period of outsized pension system investment returns. As a result, state retiree benefits have been frozen at 2005 levels, while inflation has eroded their purchasing power, by some 19% so far. Meanwhile, there is much public discussion of the un-affordability of the state pension system and the premise that it should provide only a “base level” of financial support, even for long-term state workers.
This situation originates in the tension between the distant interests of state employees for a secure retirement and the immediate interests of state taxpayers, especially corporations and wealthy individuals, to reduce tax outlays. In our historically conservative state, most legislators are more at risk from primary competitors’ campaign contributions than from general election competitors’ votes. Thus where they come down on issues like this is unsurprising.
3
We have also watch GOP sabotage of public pensions. In Pennsylvania, our state pension fund was not underfunded until Governor Ridge was reelected. Then, suddenly, the GOP voted to lower the years necessary to vest from ten to five (just long enough for Ridge's employees, BTW). He then reduced the contribution by a percent or more. State employees protested, knowing what it would do the fund. Now, surprise, the pension is underfunded. Keep in mind that those in power are beholden to the Koch Brothers and the corporate lobbiests.
13
The buying of the federal courts is of considerable influence. McConnell didn't steal the SC nominee because of right to life issues, as he and the right, would have you believe.
11
Hence the case they heard last week. Note how silent trump's nominee was. The whole point of this charade of a case was not only to weaken public unions, but to destroy the pension funds these employees depend upon-- by killing the voices that defend them.
1
Anyone who thinks they can do better than a defined benefit retirement program is delusional or too young to have watched their 401(k) money, saved money, their hard-earned money disappear into....somewhere...during the Great Recession of 2008-2009. Gone, baby, gone. Putting your money where it's "safe" is fine, except banks no longer need your stinkin' little savings, so the days of CD's paying 10% or even 5% are long over. More banks are charging fees for the privilege of keeping your funds with them, rather than stuffed in a mattress. The only option is to gamble in the stock market and hope for the best. Oh, and be super nice to your kids, if you have them: they won't be picking your nursing home (unaffordable!) someday when you retire at age 80, but may let you sleep on their couch.
7
The libertarian blood runs strong in the veins of the wealthy and the elite. Their power in the democratic process should not be underestimated.
Their ideological intentions are bringing us closer to a style of feudal capitalism (governance by for and of the rich) leaving the majority to scrabble in the dung heap of unregulated capitalism.
15
What it US companies were unburdened of having to give health insurance to their employees because we had universal healthcare? Could they then fund pensions again? Probably, but would elect not to, for shareholders to get more money.
9
I have said this before but it bares repeating. Move all of your 401K funds into an Index fund and let it ride. You will pay very little in fees and the returns are as good if not better than managed funds. Warren Buffett says this too. If you want to hear the explanation then watch Frontline's documentary called the Retirement Gamble. I am one of the 401 K investors who checked my returns at the very least weekly. I also look at fees and the 5 and 10 year performance of the funds. It is really not that difficult to understand. Now that this administration is anti worker and has gotten rid of Obama's fiduciary clause for fund managers you had better start paying attention again. They move your money to funds that benefit them the most, not you. I am fortunate enough to still have a traditional pension because I have worked at the same hospital for 40 years. New employees stopped getting the option years ago. Even though I have an amount I know I will get I still am watching my investments. What I can't understand is people who don't.
20
A little too simplified to be a good analysis. It ignores the combined facts of increasing longevity and lower than expected interest rates which have combined to make the true cost of funding pensions (or Social Security for that matter) much more expensive that the actuaries contemplated. The 401K or 403B can be an excellent alternatives for those who are capable of investing wisely, especially if the employer offers low cost options (index funds, Vanguard etc) and even more so if the employer provides reasonable contributions, but, Mr. Webber is right that they've proved to be poor alternatives for many people. The underlying retirement problem of increasing longevity will only get worse as the population continues to age and fewer worker people are contributing/being contributed for.
5
Replacing defined benefit pensions by individually managed 401k or 403B cannot be the solution. Large pension funds can afford the very best in investment management know how. No individual can compete. These funds have whole buildings full have investment experts or hire the very best.
4
Large pension funds also have access to investments and returns that 401k owners can only dream of.
1
It's been reported other places that Ted Benna invented the 401(k) plan. He did not. It was invented by Congress when it added Section 401(k) to the Internal Revenue Code under the Revenue Act of 1978 to replace looser "cash or deferred arrangements" rules that had been in effect prior to suspension under ERISA.
The important question is, "Who is responsible for the replacement of traditional defined benefit pension plans" with cash or deferred arrangements (a/k/a "401(k) plans") as the preferred employer retirement plan?
Employers and benefit plan consultants, of course, but also, in my view, and most significantly, financial institutions such as banks, insurance companies and mutual funds, which saw the "401(k) plan" as a great way to sell their investment products and administrative services.
For the typical employee, the 401(k) plan is a sorry (very sad) substitute for the traditional defined benefit pension plan, but so be it. Congress created the mess, and it can fix it if it wishes.
7
The North Carolina Teachers and State Employees Retirement System has been funded over many years by taking 6% of all employees pay and matching it with a like amount. It has been fairly conservatively invested. It pays nominally 55% of a retiree's highest four year period of gross compensation, including the value of state benefits. My wife and I both saved a fair amount while employed, but my pension, paid monthly, is a large part of our retirement and we are very pleased to have it.
6
More than twenty years ago, this is how it played out at a fortune 100 financial institution. Town Hall Meeting of employees.
Management to employees.
"You don't want a pension. And we hear you. So we're taking pensions away from our employees because you don't want one!" (Huh?)
The rational was none of you intend to work here for long. (Huh?)
The key to financial security and success is to look for a new job every couple of years. So why have a pension? (Huh?)
No. We have something better for you. Stock options. Portable. And when you retire those shares may be worth millions. Who wants a conservative guaranteed income in retirement. Not you. (Huh?)
You believe in individual responsibility and personal accountability. You don't need or want someone else providing security for you. You know better.
(Huh?) And we, management, have heard you. So we'll do as you wish, (Huh?) and not contribute anymore funds into an employee pension plan. We'll add that money to our bottom line. And give a a hefty bonus to management for saving the company millions every year.
You'll receive options instead.
Oh. The stock options? They are now worth ten cents on the dollar. The winners? Those who at the time pensions were discontinued were "grandfathered" in the old pension plan and receive a pension. The losers? Everyone else. Except the managers who decided to implement the scheme.
The same managers who's brilliant management ran the company off the cliff in 2008. Thanks.
25
Little discussion about what happened to the private pension system... Ellen Schultz wrote a book about it... The Retirement Heist. It is frightening... executives could load the pension fund with their massive salaries, declare the fund insolvent, and transfer the fund to the Pension Benefit Trust Corporation. And send out obscure letters to rank and file retirees which, if not returned promptly and precisely, resulted in big reductions in their pensions.
Funny how the lines in the Pentagon's budget that are now covering the vast unfunded liabilities in the Military DB pension system get zero, literally zero, notice by any media... including the NY Times. A report is issued each year... the Military Fund Audited Financial Report... the US Government digs into the deficit by about $100 billion each year to make up the unfunded liability and normal cost for Military DB... but exactly zero reporting on that issue. Meanwhile, lots of other public pension funds in the US teeter on bankruptcy.
8
401K plans were never intended as retirement vehicles. They were designed to help high income earners avoid taxes. Wall Street saw an opportunity to offer these as retirement vehicles and make a LOT of oney. Disgusting.
26
This drives every decision for decades. Just wait for when they take over social security.
7
We’ve gotten too few op eds on this over the years:
See “ Making the Most Out of Less
By STEVEN GREENHOUSE MARCH 2, 2011
He quotes from another NYTop ed by an expert on the retirement crisis:
“The baby boomers will be the first generation that will do worse in retirement than their parents,” said Teresa Ghilarducci, an economics professor and retirement specialist.
“And the next generation of retirees will do a lot worse; they fall off a cliff,” largely because so few of them will have the traditional pensions that many of their parents and grandparents had.
TV news talk shows aren't even dealing with it. We need Times columnists to focus on it.
42
There are two sides to this argument. Can 401(K) pension plans work well for employees - yes. Have defined benefit (DB) plans worked well for employees - yes. What has not worked is sufficient funding of the DB plans, either corporate or public.
I do not want my local and state governments offering retirement benefits without sufficient funding. And those governments are subject to market risks, just as the employee 401(K) type plan would be.
In a perfect world DB plans are fine, yet we're not living in a perfect world.
10
With a decades long horizon and the rule of seven they can make it work if they want/have to.
This is an equally one-sided op-ed.
Also worth considering is that Boomers have consistently voted to lower their own taxes, and defer their retirement payments into current benefits instead. And now they want to be bailed out.
Look, Mr. Webber makes some excellent points. But it cannot be gainsaid that allowing public pensions to remain in the hands of politicians, or allowing them to have a "guaranteed" return, is an unmitigated disaster. It's easy to preach all the good these pensions do, for their own pensioners. Which they do at the expense of younger generations, who are now being forced to pick up the tabs for healthcare costs, unfunded pension obligations, crumbling infrastructure - you name it. All because the current generation of pensioners wanted lower taxes and increased services instead of a livable retirement package.
5
In 1987-88 I received a Fulbright Grant to teach in England and was very surprised when some of my British colleagues told me that they "hated" the rich. I am now starting to understand how they could hold such views. Is there no end to the greed of the one per-cent and no limits on how well they are able to manipulate public opinion. I guess history tells us that rich and powerful elites have always ruled their societies. We are headed back to 1890. Heaven help us.
23
This is in direct contrast to a article which appeared last that said traditional pensions did not add up when you do the math and they needed to be converted to 401K plans.
1
Corporate investors aren't solely to blame for this swindle dating back at least to institutionalized union-busting under Reagan. In the all-out war on the middle class, many of the dead beats we've sent to Congress each term have also signed on with like-minded "reform" measures.
3
Why do the "investor class" view win/win scenarios as abhorrent? How much capital do the uber wealthy need? Study after study show that once you pass the 100k annual income level the pursuit of more capital\income becomes a game of diminishing returns. There is a place for pensions when well designed and run. 401ks work well when the lay investors has a basic understanding of their effective use. It is a shame that those who could well afford to devote some largesse to their fellow human being's welfare are so intent to instead apply it to corrupt the political system and further plunder, pilfer and pollute. What neurosis drives the Kochs and their ilk to such sociopathic behavior?
3
Apparently the corporate world believes that the only groups that are allowed to get together to lobby for their own interests are...corporations. They are allowed to form "trade associations" - essentially unions for corporations. Everyone else is supposed to be isolated and on their own - the better for corporate lawyers to pick them off like fish in a barrel, or ignore them altogether.
5
Just think your Social Security may go the way of the defined pension plan. Washington has tried for eons to privatize Social Security. Between Trump in the White House and a Republican controlled House and Senate it could happen very soon. That goes for Medicare as well.
13
With respect, this has been fairly obvious for a long time:
"pension reform" is about letting Wall Street gets its hands on our money, thru fees and other shenanigans
17
The problem rests with the guarantees. Consider:
venal politician wants to win the support of both public employees and taxpayers, so she hits upon a perfect solution: future pension/health promises. By assuming a high rate of return on the funds, present costs are kept low. And health benefits are simply left hanging.
Labor is happy; it gets a future benefit which would be politically impossible to secure if actually paid for during the term of the contract. The taxpayers are happy; they get services today without the tax hit. The politician is delighted; she gets easily reelected.
Then, the promises start coming due. The former taxpayer, the former pol, and the former worker are retired in adjoining condos in FL (which doesn't impose an income or death tax). The workers, taxpayers, and pols they left behind are getting clobbered.
Happily, there IS a solution: turn the pension funds over to the unions. Set an annual contribution level from the taxpayers and employees, and let the unions run the enterprise. You get the "benefits" of collective investing/activism, while the taxpayers avoid the risk.
No incentive for workers to make big demands. No incentive for politicians to make unfunded promises. No shafting the taxpayers (who pay for the services they want).
Just like in the private sector with carpenters, etc.
Simply put, we should not permit pols to buy votes with other people's money, especially our kids' money.
6
It’s not enough to say “a deal is a deal” when it comes to defined benefit public pensions. That deal needs to be politically defensible, fair to public employees and taxpayers alike.
State employees in Texas have a defined benefit pension with no cost of living increase, but social security does have a COLA and employees can also save (no employer match) in tax-advantaged retirement accounts. So state taxpayers are not on the hook for a COLA but employees still have some inflation protection. Fair and sound.
State employees and the state contribute each paycheck to the constitutionally protected pension fund. No kicking the can down the road. Sound and fair.
The growth in the number of state employees has lagged far behind the growth in population and the growth in the state’s economy. That affects the pension math. In response state employees pay a much larger percentage of their pay into the fund each month to keep the fund sound and to keep faith with the taxpayers. Benefits were trimmed a bit. Sound and fair.
But horror stories from states and cities that kicked the can down the road and sometimes did not even require public employee contributions to the pension fund poison the well of public opinion nationwide for the rest of us. A deal is a deal? Get your act together; some of us have plans that are fair to the taxpayer to defend.
1
Im a retired local government mid level front line AFSCME bureaucrat from a university town with 25 years of service. Highest salary last year of service, $56k, and healthcare into retirement. My pre tax retirement is $26k annual. My wife worked in corporate for 30 yrs, 1.5x my salary, had a 401k and stock investments. My monthly check is higher than hers.
24
As some contributors here suggest, you and your lavish pension are the problem.
Enron Arnold is coming for your $26k.
What is the modern pitchfork?
Another lopsided report. 401(k)s are a much better business practice because the business pays its employees while they are employees and does not have the lingering liability to pay retired employees. That is good for companies and good for employees who manage their 401(k) accounts effectively. There is no protection for careless management of an individual retirement account. If well managed, the 401(K) can provide good retirement income that does not stop when you die.
4
missing data alert: http://www.pensionrights.org/publications/statistic/income-pensions
So, a modest proposal: fund the underfunded pension obligations (and social security and Medicare) with progressively higher tax rates on high earners and restored higher corporate income tax rates (or even taxes on market capitalization). Don't be bashful - the high earners earned their income through restrained pension contributions and restraint on lower end wages. The corporations likewise benefited from these restraints (to the benefit of 401k holders and pension funds, yes it is a bit complicated). And, high earners, don't feel put upon - you made much of your money from this class maldistribution, and this accomplishes corrective income redistribution towards the working class almost better than any other solution.
7
Great: another way the haves can gut the have-nots and have-just-enoughs.
I had the great, brainless good luck to land a job in the CA system when I was young and broke. When much smarter friends urged me to put money away into a 403b--basically a 401 variant--I did that too, with the same earnest ignorance I used to get car insurance and all the other stuff people are supposed to have. Blind luck, good friends, and pig-ignorance: that's why I can retire.
I have almost no sense of how the markets work, and I'm well-educated and pretty aggressive about learning what I need to know. How is Mr & Mrs.Average supposed to learn enough about the intricacies of the capitalist economy, rigged by and for the rich with Byzantine webs of loopholes and back door cheats and fees, to DYI their retirement?
It's like telling every American they've got to learn how to do laparoscopic surgery on themselves.
10
The Wall Street 1% business model is figuring how to extract more and more money from the working class.
Now back to United Healthcare circle of hell claims department. $2B in annual profits based on NOT covering medical needs, US leaders have trashed healthcare, retirement and education, the very pillars of a healthy and decent society. Well done guys. Make sure to fly your helicopters over US favelas. Look down.
8
Wow.. The next thing that someone MUST propose is a state-run reitrement fund like 529Ks for education that are run by States. NYS's is supposed to be great. I am not sure that TIAA CREF reaches the general public.. it was started for educators from what I understand.
Let's hope the idiot GOP doesn't decide to privatize Soc. Security. In case no one has noticed the gov spends $4 however it wants -- gazillions wasted annualy on defense, hurricane clean-up, you name it... while certain programs and people starve and are cold.
TIME. (for the good people to get tog. and throw the bastards out...- Please stop running editorials that seem to encourage divisions... like the one on CEO activism -- ps as if anything has changed.. Is your writer too young to remember the grape boycott, to remember various Buy American campaigns?? It's not always about guns.. BTW. (PS I consider myself gemischet -- hate guns, love Cracker Barrel, too bady Stuckey's is gone.)
I entered public education because I wanted to make a difference, have a purpose in life. I did so as a master's level psychologist and took a 25% pay cut to leave the hospital where I worked. I had no inkling that a pension was part of the deal. It did not enter into my thinking until I completed my PhD, and the limits of working in a school system was causing my brain to atrophy. In my last years in public education I wrote grants, ran research to inform educational placement decisions, with no compensation on top of my regular job. I brought tens of thousands of dollars and equipment into the district out of my desire to make a positive difference. No one in the district even acknowledged my extra effort to go above and beyond. I left and took the pension because it was there. I serve schools at no cost to them, pro bono now in my role as a private practice psychologist. My career earnings would have been vastly higher had I stayed in the in-patient setting(s). No regrets. I believe that this is what motivates teachers, for the most part. The career field today is not anything I would advocate as a career option for my children.
3
This is one more example of the uncertainty faced by the middle class. The middle class is uncertain about the adequacy of their current income and whether they are saving enough for future needs. Market outcomes do not provide certainty. The uncertainty must be seen as a gamble - which leads to anxiety. Anxious citizens do not think long-term. Anxiety does not produce a well informed electorate but rather a reactive one.
The generation that instituted Social Security had both the safety net of Social Security and defined benefit plans. That generation built public schools (from primary to university systems), the interstate highway system, the global trading system and our energy infrastructure. Destroying defined benefit plans have greater consequences than the immediate human cost.
7
Simply put, corporations run by illusionists touting their ability to raise stock value and reward themselves for short-term cut-throat actions are not interested in the people who work for them. They are interested in minimizing what they pay for services, except their own.
You have no value to them unless they can profit from you. They'd rather you disappeared. Your health care, your benefits, your retirement, are an inconvenience.
Call them what they are: the looter class.
The wonderful innovations in the mid-20th century arising from valuing and encouraging workers and pricing corporate value based on consumers and labor have been replaced by all kinds of get-rich-quick schemes.
They do it because they can. Welcome back to the robber barons. Your lives don't matter to them. Trumpistan is the essence of glitter and exploitation. Kleptocrats don't care about you. You're a lot more convenient to them dead, once they've had your working life.
8
The 401(k) plan shifts all the risk to an individual. Good for the corporation, not so good for the individual who may have a limited degree of financial literacy. And there are thousands of so-called advisors out there, who are willing to take your money, against whom there is limited (arbitration) or no (I am not a fiduciary) recourse.
17
As with joining unions, employees in general are better served by combined their shared resources to leverage collective strength, whether in negotiating terms of employment or protecting their economic/pension needs. The Republicans, starting with Reagan's termination of air traffic controllers, have campaigned against collective actions by or on behalf of employees with all too much success. No unions, no raise in minimum wages, no defined benefit pensions, no mandatory coverage of healthcare issues by employers. And they have fundamentally worked on destroying the employment relationship. Today many workers are no longer considered employees, but now are "contractors." They have no employer provided benefits, but are on their own for healthcare, raises in wages and pensions. And now the Republicans want to remove even those protections - no ACA, no Medicaid, cut Medicare and de-stablize Social Security by cutting support for the administration of its benefits. Republicans sell this as "freedom" and the right to exercise individual control over your livelihood. Janis Joplin said it best - freedom just means nothing left to lose. And they are doing the same thing with our government. A significant majority of Americans want improvement in gun control, but Republicans will not allow that to happen. This is just one example. The solution? Form and join a union, vote Democrat.
11
Not so fast! The traditional pensions (Cal-pers included) have had a history of unscrupulous managers. They only continue to work as a sort of ponzi scheme reliant on the ongoing contributions of new employees. Doesn't anyone remember how many pension funds were invested with Bernie Madoff?
I have a pension and a 401k, and I much prefer the latter. I know exactly where my money is and what it's invested in. I have complete control over the investments. I had no problem advocating for low-fee Vanguard funds and we have a brokerage option as well. I can take it with me when I leave my job and don't have to wait five years to be vested. And I can avoid Bernie Madoff completely.
The larger issue is a lack of financial education. If people understood their 401ks and IRAs, they would realize how much better they are than traditional pensions, and how much flexibility they offer.
3
Well, you’ve certainly bought the party line about 401(k)s. The issue isn’t control over making investment decisions. It’s about the utter dependence of 401(k)s on the volatility of the stock market. I lost more than a third of the value of my 401(k) in the great meltdown of 2007-8, and I am of an age where I don’t have that long left in the workforce to make up what I lost. Therefore, I will be working until I die. 401(k) plans were never meant to be the lion’s share of a person’s retirement nest egg. They were designed as a tax haven for wealthy people - but now, what with union-busting and “right to work” laws, we’ve all been forced into participation in this scheme if we want any retirement source beyond Social Security - and, with the current administration, who knows how long we’ll have that?
4
Pensions are also invested in the stock market! In fact, pension managers have an estimated rate of return for the plans to stay solvent. Of course, they invest in bonds and other investments as well to smooth the ride, as we all can and should. I'm curious- what exactly did you think they were invested in? How did you think pension plans made money?
Yes, the markets fell. But now they are three times what they were at their nadir! Your logic makes no sense- had you left your investments alone in 2007-8, they would have more than doubled (and perhaps tripled, depending on your asset allocation). If you lost money, it was because you sold low. Why would anyone do this?
Rich people make money off their 401ks. So can everyone else. It's an issue, as I said, of financial education.
2
I am afraid that this article, though well-meaning, is misguided and inaccurate. The enemy of the pension system is not the Koch brothers, regardless of what they do. The problem is math. Too much money (pension benefits) has been promised to too many people. Not only do we have an aging society, with fewer workers to support each pensioner, but people are also living 20-30 years longer than when the pension system began. We are now at the tipping point where pension servicing costs will begin to rise exponentially. The only solutions possible are raising taxes, for workers to increase contributions, or cutting municipal and state services.
But you don't have to believe me, instead read what Warren Buffett wrote on page 20 of his 2013 Berkshire Hathaway letter, "Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn't afford. Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them. Unfortunately, pension mathematics today remain a mystery to most Americans."
8
You are correct. When pension plans are sustainable, they can fend off their critics as a healthy tree fends off bark beetles. I think CalPERS is able to do this because, contrary to received wisdom, it probably is sustainable, though not without challenges. "Reason" magazine regularly inveighs against defined-benefit pensions, but when pension systems are robust it doesn't matter that it does.
I am very grateful for my defined-benefit pension but recognize that, for the actuarial and political reasons you mention, I'm at the caboose of a train that extends a few decades long, and the next train to follow won't have similarly nice amenities for its passengers. Still, one hopes there will at least be a next train, in the public sector and among large private companies.
7
Great article? I have long waited for someone to break down the real purpose of those who wish to destroy defined benefit pensions. For example, one pension foe here in CA only ceased her attempts to destroy defined benefit pensions when she herself was arrested, charge, and sentenced to jail for worker's comp tax fraud against her own employees. The only reason these people want to gut real pension is to make a killing on fees, and drain the accounts with more fees.
6
I just wish they would raise the contribution limits on 401Ks.
5
Why?
Their is nothing stopping you from saving in other Investment Vehicles. The tax break for 401k is nice, but mostly it's a big win for top paid employees.
The current pre-tax deferral limit is $18,500. If you're over age 50 the limit is $6,000 higher -- $24,500.
Because there is ample asset protection for retirement plans, and not for taxable accounts.
Yes, Mr. Webber, your crucial point that deserves its own op ed---
“the problem is structural. We are to our investees and investment managers what nonunionized, “right to work” workers are to their employers: alone and devoid of leverage to negotiate. That stands in sharp contrast to traditional pensions, which, like unions, are collective and centrally managed.”
So, America now has big central govt supporting corporations, but small, weak govt for the citizen majority, leaving us unprotected--- for pensions, and many supports and rights that should be part of any modern democracy.
This goes to how our democracy is failing us. Corporations--pools of investors, are entities that are in effect well "unionized". They're collectivized into a body that exerts leverage, well organized and funded for maximum political influence on our laws.
But We the People are kept individualized, disorganized, thus powerless to compete for political representation. And we see the ongoing campaign to further weaken employee unions.
This is the pattern reinforced by legalized big money financing our elections. The public can’t afford to compete to have input for our interests. Thus we wait to see which nominees the megadonors will finance for us to vote on.
This affects all our lives, and our media must grapple with it and start publicizing it in their cable news gab fests. And our columnists must include this power imbalance as they lament the many problems plaguing our society.
7
I don't disagree with the author's premise as to how most 401kholders are as sheep to the slaughter in the minds of fund managers. That's a comment on the greed and moral vacuity of the fund managers, on the lack of options that most 401ks give their members, and on the bland idiocy of the investor.
But we shouldn't throw the baby out with the bathwater here. The portability and inherited vestedness of 401K (and 403b - I have both) are a huge benefit to people. I have collected "pension" payments in the form of 403b and 401k contributions from 7 different employers in my career, and all of that money, and the proceeds from it, are my family's in their entirety. It wasn't until I was over 60 that I actually became vested in a traditional defined-benefit plan, and even had they existed, I would have gotten very little from any of those earlier employers for my average 6 year tenure with them. The defined contribution benefits, on the other hand, I retained in their entirety.
As a consequence, my wife and I have a fully funded retirement, independent of the fates of those organizations I worked for (some of which no longer even exist).
5
I'm presently contributing to my 22nd year of a cooperative multi-employer defined-benefit pension and health plan. So far it seems to be working well.
In the last few years, when faced with a projected future-shortfall, our cooperative health & pension fund managers asked ALL the member-participants to provide feedback/priorities about which benefits the plan was considering cutting adjusting (i.e. vesting-requirements, percentage of payroll-deducted contributions, employer-matching of contributions, reductions in future benefit payments, adjusting the formulas for retirement-age vs. benefit amounts, etc.)
After receiving this prioritized feedback, reductions were made in the plans -specifically designed to be the least painful to our diverse group of participants, yet significant enough to effectively shore-up the plans.
If the projections of future financial shortfalls turned out to be overly pessimistic, participants were assured a reversal on some of the cutbacks.
****This kind of a logical, data-and-feedback-driven adjustment is more of what imperiled defined-benefit pension plans really need. NOT a wholesale throwing-the-baby-out-with the-bath water conversion to a 401-k style plan.
The wage-earning, tax-paying public is being sold -and has largely bought- the snake oil that the financial class has been selling.
Thanks for further illuminating the hidden motivations of this large-scale theft of our future's financial security.
3
In the ancient early times the tribe would make a yearly migration and cross the great river leaving the elderly behind to perish. With our crumbling bridges and infrastructure along with the death of pensions and any form of social safety net we at least have that old tradition to fall back on.
5
I worked for 20 years teaching in California and 20 years as head of a small company in Oregon. The difference between benefits of a Defined Benefit Plan vs. a 401K are dramatic and life changing.
Every year, with fellow teachers, I was invited to review our retirement funds, discuss any changes, and to preview our future. I had confidence in a system that cared for its employees. Normally, after 30 years, everyone was able to claim 60% or more of their salary for the rest of their life. Indeed, I assumed this was normal.
Little did I know that when I joined private industry to form my own company with five to eight employees full time and another 25 contractors, I entered a never-never land of constant bureaucratic challenges and taxes and hurdles. There was no helping hand out there, no soft landing, little help in reaching the so-called American Dream. I finally reached success after I hired corporate financial managers to do what was so easy under a public system. Most businesses fail, and it's easy to understand why.
It doesn't have to be like this. In fact, as with many European countries, Canada, Australia and New Zealand, there can be universal retirement, healthcare, and education, in private or public sector employment.
America is the last example of an extreme capitalist nation and it's not working. Our focus on war, guns , and concentration of wealth is not an answer to a successful country, life, or retirement.
8
We have a defined benefit pension which is adequate. We have it because we had a union that included 100% of the employees and those employees could not be done without. Look at the conservatives' efforts to defund, weaken and/or get rifd of the unions. Guess why!
Back to eating catfood for us if the republicans have their way
7
That's interesting. I check my 401k frequently, keeping track of its performance, investments offered, and fees charged. So does pretty much everyone I know.
I didn't realize we were the only ones.
7
Excellent article Dr Webber -- it illustrates why the NY Times OpEds are such an important voice for neglected issues and viewpoints.
I'm sure others have pointed this out, but it's worth repeating: The attack on pensions perfectly parallels the attack on unions, and the most important parallel is not the decline of wages/retirement pay, but the economic power inherent in the pensions/unions.
One can even argue that the attack on government -- according to Fox Cable News propaganda, everything bad in the USA can be blamed on the government -- is also most importantly a question of economic power. There is no way the little guy or little community can stand up to big corporations. But the government can, and we often forget how the government is a counter to the power of big corporations -- that was the primary achievement of Teddy Roosevelt and the original Progressive movement.
5
The passive attitude of the average 401K investor is why the average 401K investor should be be putting the majority of their investments in passive funds -- S&P 500 index funds, target retirement funds, etc - because they don't require average people to be brilliant investors, they generally have much lower fees than actively managed funds, and in the long run do better than all but the best actively managed investments
The most important thing with that strategy is to be patient, not brilliant, for long term success
3
The big lie is not that pensions are unsustainable but that 401 plans are suitable for retirement. It should be obvious that any pot of money that can be zeroed out by stock market fluctuation is not a retirment plan, period. As a supplement, a 401 or 457 is a fine idea but income that is not guaranteed is not retirement.
5
Umm.. pension funds are largely invested in the same stock funds as 401k and 457s. The main exception is when politics determines where pension funds are invested.
The great thing about 401ks is that the individual gets to choose where to invest their own money.
1
The bad thing about 401ks is that there is virtually no way most people could ever possibly save enough in a lifetime to get the same monthly amount out of them that a pension would pay.
Like most things conservatives hate, they work by sharing the benefits among a large group of people. For all the points against them, they're still the only way most people could hope to have a decent retirement income. Put simply, our pay is too low and our living costs are too high.
2
That's not a problem with 401ks per se, but with companies not matching. Definitely could and should be changed.
I hear what you are saying, but:
1. I like to be in control of my own finance/future
2. I have had several jobs and it would be a nightmare trying to keep track of all the pensions
3. You are not going to get a pension unless you have a union and those are few and far between.
4. You can get pension like 401K by choosing a blend of Index funds and annuities.
6
Yes, that's how their propaganda works---you are in 'control'....with a 'self directed' account. Same as--we'll lower your taxes so you have more change jingling in your pocket, so YOU decide how to spend your hard earned money, not the GOVT. But what does it buy?
It's a self serving scam by business and their hired lawmakers who get increased campaign donations. But if the stock market crashes just before you retire, can people recoup? And how can employees save enough for decent retirmement compared to a guaranteed pension?
See “ Making the Most Out of Less
By STEVEN GREENHOUSE MARCH 2, 2011 ( a long time ago)
He quotes from another NYTop ed by an expert on the retirement crisis:
“The baby boomers will be the first generation that will do worse in retirement than their parents,” said Teresa Ghilarducci, an economics professor and retirement specialist.
But they'll be flattered to 'direct' their own retirement.
3
Meredith, I do have a pension (so I know how they work) and I have 401K (roll over) and a 403b. My state pension would not support me in retirement. Pensions only pay off if you work your entire career at a place (or at least 20 years.). My retirement will be supported by by 401K/403B. I am invested in Index funds (mostly from Vanguard) and am solidly diverse in types of funds. With my pension, 401K/403b (and a Roth), and Social Security, I should be fine (more so than most Americans). I spent the time and effort (and got help) learning about personal finance so that I could make good decisions. I don't think I've been scammed; I think I took advantage of a good opportunity. Anybody could do what I did; most people don't.
2
SJS-
ITA. The issue with many folks is lack of financial education, not the 401k system, which is workable.
1
The "need" to "reform" pensions ebbs and flows with the ups and downs of the stock market. When the markets sag, the anti-pension voices say how the pensions are bust. But when the markets rise, they remain silent.
3
After 20 years of pension contributions at a Fortune 50 US company my pension is less than $500/month. With the half that I cashed in at the time I resigned, I put that into a separate IRA. That is now worth six times as much as the corporate pension.
Everyone has to watch their own money. A Union Pension Fund is the enemy of the one percent for two reasons. The prime one is that they are a political force for the working and middle class. These funds also manage the money closely.
But the fact remains that each of us must have a supplemental private pension funded by personal savings above and beyond any employer pension. Just do the numbers. It’s unescapable.
8
Another strength of pensions is shared risk.
Market volitility means that some people will retire when the markets are strong, others when the markets are weak. A pension can pay both the same, since the returns of the good years are averaged in for all. Pity the fellow who planned to retire on just his 401(K) if his timing is bad.
12
I'm lucky to be a beneficiary of a state defined-benefit pension plan. I might have been able to earn a lot more money in the private sector than I did with the state, but I preferred the security of the promised pension.
The way I look at it, having a defined-benefit pension is like being a homeowner, whereas having a 401(k) or no retirement plan at all is like being a renter. In the former case, you have equity in your job and build equity in it over time, just as you do in your residence. In the latter case, no matter how much you earn, you're renting your labor and have no equity in your job, just as tenants have no equity in their residences. I much prefer the former state of affairs.
Withal, my state's pension benefits were pared back for employees hired after January 1, 2013, and I understand that the kind of benefits I'm getting would be unsustainable if they were granted to newer hires. Indicative of a problem even for my pension is that my pension administrator anticipates an annual return on investment of something around 7.5 or 8 percent, which I suspect is now unrealistic, whether or not it was realistic in prior decades. I may someday have to take a haircut.
4
At age 55, I want to be able to stop working at 62 years. The opportunity to stop working did not come from a 401K, defined pension, or social security. It came from advice my father gave me in high school (during which I mowed lawns for money) -- "always save as much as you can, and always save something". And, that I did -- in tax deferred accounts as they evolved, in taxable tools like regular mutual funds, and in after tax funds like Roth.
I saved "off the top" so I would not have excessive free cash to spend. As age 62 approaches, a lifetime of savings and avoiding unnecessary spending (along with some free professional advice along the way) provides some level of security that I may not have to work unless I want to.
I tell all of my younger friends and family members the same thing my father told me. Always save as much as you can -- and always save something.
11
ridiculous, class-baiting garbage. Mainstream conservative thought pushes for 401Ks vs defined pensions. Trend won't stop.
Further, the writer doesn't mention how in some bankrupt cities, pension payments are sucking up nearly 20% of budgets.
So I ask the author, what percent of a city/county budget is too much....50, 75?
Over time, public employee pension payments rape the taxpayer.
4
Sounds like you'd be happier in Somalia. I hear taxes are super low there.
Or fir you paid attention to the article, you'd see there are countries that have much better solutions, provide absolutely needed services and pay people what they need to live and eventually retire. I'm am so sorry though that i do like a roof over my head and some food on my plate at the end of the day. It does seem to be a tremendous inconvenience. What's the word you used, "rape"?
I'm sure all us public employees deserve that term though.
2
If we can compel governmental units to fully fund the pension benefits they grant, we can then look realistically at how public funds are to be spent. We can then address your question about percent of budget devoted to funding pensions. 401K's don't stop governments from making short-term attractive, long-term crazy bargains with workers. There is still the question of how much funding will be provided.
in today's news {Black Stone CEO was paid $785 million for 2017 salary};obviously the 1% does not care about retirement pension;they are well pensioned already!,what about the rest of us?
9
America is dumb. We are dumb-dumb citizens, but we won't admit it. We act like we 'know' what we believe in, but it's actually just a few real issues like guns, or abortion or immigration, no more. We're the sin of American democracy.
Having taught US Government, I know well the interesting wrestling matches that went on before, during and after the Revolution. No, I'm not saying it was a full democracy in any sense, but compared to the rest of the world, well, yes it was. It was a revolution in thinking more people could help control our own destinies and in turn the destiny of our state and/or country.
The 'mob', the 'rabble', the 'commoners' which now make up most of the electorate are lazy; politically, I mean. Lazy to really research and read and think for themselves. They'd rather drink a beer and elect a clown that had a reality-tv show and acted bossy by saying 'You're fired?' or leads chants about a woman, yelling 'Lock her up!'. Pitiful USA.
Everyone's culpable but those of the right-wing, the so-called conservatives, the evangelicals, they have the most to answer for. Their womanizing, draft-dodger that says McCain's not a hero because he was a POW, is a true disgrace to us all. His racist taunts are demonic. How can they chant USA! USA! with him as leader? Despicable.
Take care of the workers, Take care of those that built and continue to be the life's blood of America. Tax the richest of us that have stolen so much of our country's wealth. Fight for the good.
10
After reading your response, I agree with your first sentence.
1
Well of course! How else would you think the cadillos would treat workers on the plantation in our banana republic?
4
Divide and conquer. The finance boys respond with ‘you don’t know what your talking about’. The Professor must be cutting close to the bone!
Nation of grifters, can’t even pass a law stating your finance guy is responsible to you!
6
There are thousands or retired public employees who's annual pension exceed $100,000. That's crazy and don't care what their final salary was or how they "spiked" it just before retirement. That's a pension worth millions at mostly taxpayer expense. Public employee pensions must be capped at say $50,000 per year max unless the taxpayer is no longer exposed for any excess.
3
Why do republicans hate America and Americans?
6
For sure, most 401K people who switched out of traditional retirement funds did it figuring they'd follow what shares were being bought, and how their accounts were doing against the indexes but then... well. So, isn't it their own fault (the conservatives will ask) if they didn't take more aggressive management of their funds? This is just another example of how closely held the money is. Others are the micro-second transfers large investors have access to and smaller ones don't have, meaning companies can dump their failing shares before small investors can, and then buy them back quickly before the window washer finds out the company is about to report higher earnings per share. Who are we kidding? The small guys are milked in other ways, like think pieces from the financial press that explain why China is gonna dump lithium (or buy it). There's no real regulation of any of this, no enforcement of SEC law, except when frauds like Enron become so obvious the regulators have to do something. It's craps, now. Roll 'em and weep. The victims are not the banks and company executive because they've loaded the exchanges the rest of us play in.
4
The real reason people hate pensions: when you make a large financial promise into the future, you do not have to concern yourself about paying for it at the time of the promise. Paying for it becomes someone else's problem - in the case of government pensions it is the concern of our children. Private pensions are even worse - a government can't go bankrupt, but private pensioners can work their entire lives and then have their company go bankrupt, losing everything. I had a friend who worked in a port. The Longshoremen union was in a panic - the port was automating, needing fewer jobs, and their pension program was bankrupt. The deal the union negotiated was to put $20/hr into the pension program for the retired pensioners. The workers, whose cost was increased by $20/hr were never going to see a penny of it. The pension was being sucked dry.
3
Thoughts:
“But nothing is so hard for those who abound in riches, as to conceive how others can be in want.” Jonathon Swift, 1713
“Religion is what keeps the poor from murdering the rich.” Napoleon Bonaparte, 1806
“What we have achieved in this country is socialism for the rich and free enterprise for the poor.” Gore Vidal, August 2, 2014
"When the people shall have nothing more to eat, they will eat the rich." attributed to Jean-Jacques Rousseau. ~1760. If he won't claim it, I will...
27
Mr. Vidal nailed it.
1
Mr. Webber discusses plan governance but fails to mention Trustees, those responsible for the prudent operation of the plan, include public workers and/or retirees, most unable to financially tie their shoelaces, to manage multi-billion dollar pension funds. Of course, they typically attend a weekend "trustee training" program -- at a golf course or resort -- to become pension "experts."
And the experts plan Trustees rely on -- actuaries, accountants, lawyers and consultants -- tell the trustees precisely what they want to hear. No surprise, given that their financial livelihoods depend on keeping their Trustee clients happy. Prior to Detroit filing bankruptcy, the city's "independent" actuaries praised the "well funded" Detroit pension plans (actually underfunded by billions of dollars).
And what of those 49 states that have enacted pension reform? Shouldn't that fix the problem? Not when most changes apply only to newly hired employees -- doing nothing to reduce the trillion dollar unfunded pension liabilities for existing employees and retirees.
The author fails to mention that CalPERs is passing on massive cost increases to local California municipalities -- over 50% over the next few years. Exploding pension costs suck resources from their communities and force governments to cut services to citizens.
There's no space left to address toothless GASB accounting standards or overly optimistic actuarial assumptions. Not when you can blame the Koch brothers.
1
Wealthy people HATE competition! Especially when it is for money.
2
This is a great piece and I hate to be negative, this is 25 years too late. The ship has sailed Pension is a word vanishing from the lexicon.
4
This article poses a false choice... one between having a pension, or on the other hand, being an ignorant, uninformed investor. What about other options?
How about spending some time to educate yourself about finances and investing? You don't have to be Warren Buffet to make smart investment decisions. In fact, Warren Buffet himself advocates when he passes away, his wife take a plain vanilla investing approach using index funds. Using these low cost, low fee investments, a person can create a very effective retirement portfolio using passive investments, and will beat over 70% of actively managed funds!
Why would I want to trust the state of Illinois, my home state, to manage its finances well enough to be able to properly fund a pension? Our government in the US is notorious for overspending, building our debt, and as a result facing constant pressure to cut government programs like social security, medicare, medicaid, and pensions. I would hate to live my life knowing my future financial security was in the hands of our government.
Instead, I would pose a third option not even considered by this article, but much better than either option posed by the author... save for your own retirement using 401(k)s and IRAs. And take the time to educate yourself about these retirement vehicles. Stop making excuses about not having enough time... the average American spends enormous amounts of time watching television, on social media, and other frivolous activities.
10
I have come to the sad conclusion that the rich suffocating the poor in order to consume all their assets is simply inevitable. The long, patient, deeply cynical campaign of the plutocracy to kill unions and overpower labor, kill pensions, and prevent national healthcare is almost won. Next will be the gutting of Social Security and Medicare.
My only question is when the streets of America look like Calcutta, who will buy the iPhones?
5
the rich have their hand in everyone's pocket - that's why they are rich
5
Once upon a time, in the age of middle class prosperity, the senior management and boards of "large" companies (which were all tiny compared to the large and endlessly acquiring and growing multinational conglomerates of today), balanced 5 things: 1. their senior management compensation, 2. their shareholders, 3. their labor, 4. their customers, and 5. their communities. That now quaint idea was, recognizing were all in it together for the long haul, enlightened self-interest causes responsible companies to care about the whole. (People who are living on financial fumes can't consume much. Henry Ford knew that). We have devolved to 1 and 2 being all that companies care about. It's why 1 is running off with everything that isn't nailed down, and 2 is exploding (can you say stock buy-back?), and 3, 4, and 5, respectively, are: (labor) get laid-off, (while layoff survivors get overworked - more work for the same pay is a pay cut, even we stupid workers notice such things and can do the math) or live without raises; and (customers) get put on hold, ripped off (or both) when they're not busy being dragged feet first off of airplanes; and (communities) are left to rot while companies feverishly seek the cheapest places on earth. An economy which lavishly rewards those who destroy it is not efficient. It is nihilistic.
6
Pensions are necessary because businesses can get away with paying employees only a small portion of the fruits of their labor, too little to amass much surplus wealth in comparison with the owners’. Denying them pensions will leave a huge proportion of people who worked hard but cheaply to become impoverished. Unless they quickly die off their families and communities then must assume the burden of caring for them. Meanwhile the clever and unscrupulous enjoy the wealth that these impoverished folks created.
1
The government authorities are stuck between unions, whose support they want, and everyone else, who don't want to pay more in taxes. So they make a pledge to the unions in the form of a pension, to get union support, but don't adequately fund it, so the taxpayers keep voting them back into office. By the time the chickens come home to roost, it's someone else's problem. And now some academics are claiming the pension problem is an illusion created by the rich? That's just ridiculous.
1
So all members of Congress should voluntarily surrender any pensions coming their way. So eager to consider all of us as mere serfs, working until we are well into old age while they enjoy first class lifestyles. Their families receive so many benefits, will have more money then they can spend, and have opulent lifestyles. Look at all the money generated by lobbyists to support the NRA wishes, for example. These people in our government do not, will not, represent what Americans want enacted. The US is all theirs to plunder.
1
This op-ed highlights the critical importance of organized collective action to sustain the economic good health, in work and in retirement, of wage and salaried labor. It is simple; when collective bargaining gets stripped, worker interests get gutted.
We have seen this happen at an accelerating pace for decades as wage labor compensation remains stagnant or actually drops. The same holds true for pensions. Workers may be lulled into believing that their long-term interests are are best met by the loving embrace of corporate power, but in reality they are being fleeced.
Labor, however, is routinely taught that the pillars of conservative power stand for their values and that pointy-headed liberals are the enemy. Sadly, liberalism makes its case poorly and weakly, causing workers to vote against their own interests.
3
I love my 401k. It's in an account in my name, and if I quit tomorrow I take all that money with me. Lots of choices between good, low-fee index funds which I carefully compare and select every year.
Meanwhile my town currently pays more for its retired public workers' pensions than it does in salary to current employees!
Defined benefit pensions are a system in which politicians make promises, get the votes now, and the bills don't come due until decades later when the politicians are long out of office. If you were designing a system to encourage abuse you couldn't do much better.
3
Europe : decent pensions, no guns.
America : plenty of guns, very few decent pensions.
4
The answer to your question is almost zero. Count me in that cohort. Bush W and his pals wanted to make Social Security private as if all us financial neophytes would suddenly become financial experts. Obviously that was not the point, it was to put vast sums of money available for the greedy, self-serving financial wizes to play with and syphon off directly into their pockets. Recently congress did away with the fiduciary rule that requires financial advisors to put the interests of investors first. Who does that benefit? Not you little person and not me. But we keep sailing along putting we don't care about you, we only pretend Republican conservatives in office.
1
Another drain on state governments is prison costs.
I live in a very rich area by the ocean. You cannot call it a neighborhood as the people around here are invisible on the street yet their Porsches and Teslas are ubiquitous. These people not only do not care what happens to their countrymen, they have utter disdain to the point of hate of the rest of the country, were it not for the role of its citizens as consumers. They love their children, and that's about it. The rest of the time they milk high compensation by propping up the current system selling entertainment, on abstract platforms with a laptop, keyboard and email. They are coming for your pension, your savings, your clothes and even your kidneys. They exclusively care about the moment and how much to beg, borrow or steal from it. This is what an American 'economic elite' looks like, for lack of a better term - you had to tag the 'economic' to the word elite to make it look respectable. Otherwise, the only claim of excellence of this class is in privileged credentials at private schools and the people they know.
3
There are greedy financial types who can't sleep at night, knowing there are large pools of money they cannot skim because the money is professionally managed by retirement plan administrators.
Because of this, they keep working all the different angles to get that money loose so they can have a shot at getting their paws on it.
1
This is a math problem, not a political problem. Whether it's supplied by a public pension or a private account, retirement income has a cost. What does it cost to supply $50,000 per year plus health benefits indefinitely? Roughly a one million dollar annuity? I've never heard public employers state that they're paying an 80,000 salary plus putting away 40,000 per year to buy the annuity. But that's essentially what needs to happen.
Whether you fund it through a pension, or a private investment account, retirement is expensive. Those who save for themselves, I venture, understand the cost better than those counting on the government to do it for them.
2
pensions are funded by the employees, but the government guarantees them. Then the government 'borrows' from them, causing these shortfalls. Pensions were the best idea, and should be totally sustainable, with very few changes. It is math, but it also requires regulations to protect them. These were a promise, and part of compensation.
2
Pensions are funded by both employees and the employer. And yes, the government, that is, taxpayers guarantee that pensions will be paid. However, what's missing from the discussion is that the cost of providing the defined benefit pensions have skyrocketed because people are living longer, salary growth has exceeded assumptions and rates of return have declined. ALL of the risk is on the taxpayers. Every retiree who works for 30 years will receive 75% of their salary for the rest of their life. And in Illinois there is a COLA that guarantees a 3% increase per year. Each and every one of those pensions cost taxpayers over $1,000,000 - yes that's 1 Million dollars! less than half the people in our country don't even have a 401k plan and for those that do have a 401k savings plan, by age 55 the average balance is about $100,000. We need to wake up to reality.
1
Back in 1970 I earned $7,000. I contributed 5% and my employer contributed 10% to the pension fund ($350 + 700) for a total of $1050. That $1050 invested in a well managed pension fund is now worth $30,000 to $40,000 (depending on how the stock market is doing) so the pension fund can pay me $35,000 this year. Each year my contribution to the pension fund was a little larger so each year my pension check can be a little bigger.
As already noted below, this article fails to reference that a big part of the problem is the promises that employers - largely, public and union plans - made to employees that in the end, turned out to be unaffordable. Plan benefits got sweetened, fees were too high, investment performance was poor, people lived longer than expected, employers underfunded their plans and - surprise, surprise -plan participants figured out ways to game the system.
No wonder why employers have abandoned defined benefit plans in droves. In addition to an uncertain and ever growing future cost, defined benefit plans are costly and time consuming to maintain. 401K plans are simpler and less costly to administer, and shift all or most of retirement funding burden onto employees. It also puts employees into the role of investment manager for their retirement savings, which few are prepared to undertake.
401K plans can still work, but with a few changes: mandatory minimum employer matches, automatic participant enrollment, investment fee limits, comprehensive asset allocation tools and shorter vesting requirements. Ultimately, people need to take more responsibility to save for their retirements as companies and government can no longer be counted on to do this for them.
The preferred tactic in the war against public employee pensions in Illinois, and I suspect in other states as well, is to put out an outrageous number reflecting the unfunded pension liabilities, usually between 100 and 250 billion dollars, and then imply that this is what taxpayers owe. The suppressed information is that the gigantic number represents the cost of all employees retiring simultaneoiusly right now and pulling in maximum pensions. This includes the 23-year-old who just started working this year and who still has 40 years to go.
Another tactic is to omit mentioning that the state legislature not only went on "pension holidays" (refusing to pay the state mandated contribution), but also just flat out taking money from pension funds to pay for other state expenses.
Then the next move is to blame it all on the unions.
There is also never any mention of the contributions that the employees make themselves over the course of many years. Let the public just assume that they are all freeloaders,
6
This is an odd argument for a law professor to make because it lacks any evidentiary support. What facts (not conclusory assertions) does Mr. Webber offer for the proposition that the evil Kochs et al. are advocating pension reform for "economic voter suppression"? In a word, none. It is all inference piled upon supposition. The undeniable facts, however, are that public pensions are woefully underfunded and creating vast fiscal policy problems for states and municipalities. Absolutely, legislators could (1) raise taxes or (2) cut other spending to pay for those funding obligations, but they don't. That is a very real problem that will affect all of us. It is, however, a vast leap to argue without factual support that people raising the alarm about the problem do so "as part of a campaign of economic voter suppression." After awhile, this begins to sound like the right wing's "deep state" theories, which likewise are arguments not tethered to facts.
1
I wonder what the national employment numbers would look like if pensions were still widely available. How many people working today would have retired if they had a pension - opening the way for younger workers to advance their careers and bring added creative energy to their employers? How many jobs would have been created by the spending of more retirees being able to travel and pursue other interests? But no. Unable to see the bigger picture of our interconnectedness, we are stuck in a system in which the value of each person is reduced to only his or her net worth and economic exploitability. This is not human and it is not sustainable.
6
Why is the financial education so poor across the vast swath of population? There is no possible way, a properly advised 401K should under-perform any pension plan. From the comment that I have seen, people are worried about company match, cost of investment and so on. Ridiculous!
1) There is at least 30 years of data to suggest that active managers by vast numbers fail to beat the market. 2) Funds that track the market, especially that are indexed to market (S&P 500, or even Wilshire 5000) have very very low costs. 3) That pension plans can be altered was made evident in Mid 80s (LTV fiasco - about 2 years before I joined workforce). 4) Maximum allowable contribution to 401K - no matter your income level - is shielded from tax.
I invested throughout my work-career based on these self-evident truths, and really didn't care when my Steel company pension was converted to defined benefit, didn't try to "time the market" and I am reasonably assured of funding my retirement. My worry is getting there (Age 66, 67... target keeps moving for SS...a plan/insurance that I contributed to.)
That said, my wife ... has two masters and a PhD, but absolutely no interest in managing long term finances.
1
This is simply the best, most timely analysis of pensions and democracy I have ever read. Workers have surrendered so much so so long. Can this humiliating, devastating class capitulation ever turn around? I know the youngest voters are already somewhat mobilized, so maybe they can add this to their agenda. I'm afraid my generation is at best hopeless in these matters--we ARE the problem.
3
Well, maybe if the Democrats had stuck up for ALL working people, not just public sector. At this point, there are so few private sector pensions left, the investor class does not care. The taxpayer class is stuck with the bill on public sector pensions.
2
I was offered either a pension or a defined contribution (like a 401K), I chose the latter. I much prefer managing my own retirement and the people I work with are fantastic. I do move my funds around and as long run indexes do as well as anything, my fund isn't expensive at all, so I don't buy that argument of the author's that I'm being taken. By whom? Secondly, I don't trust my state govt to keep its fingers off of the pension. Kansas stole from its pension fund, what, the last 3 years? Do they feel good that IOUs are sitting in those coffers? Also, while I agree with the author that you have to look at both sides of the ledger, let's face facts on CALPERS. California seriously took its taxpayers on a ride by offering better and better pension packages with no way to actually pay for them without huge tax increases later. It forced CALPERS to lie about what its expected growth would be in order to hide its deficit. It was obscene, for example, what UC professors who never actually paid a dime into their pensions were taking out when they retired. It had to be reformed.
Pensions should be required to be fully funded each year at a discount rate that adequately reflects the current market risk (I'd set it at the rate that each specific municipality borrows at). The chance that CALPERS actually hits its targets is essentially nil and those poor teachers will be left with far smaller pensions and California taxpayers are going to get hit even harder.
It's borderline criminal IMO that CALPERS charges municipalities that wish to leave it a discount rate ~ 2% (which better reflects the appropriate discount rate) while telling everyone else that 6.5-8% is the right return they'll provide.
Finally, I'd also note that most of the worst public pension programs in terms of underfunding/performance are all based in deeply blue states. Hard to blame the Republicans for what's happening in Chicago, Newark, PR, etc.
2
And then there is the BIG picture: the Social Security Trust Fund, $2.7 trillion and counting, just sitting around parked in T-bills. Think of the management fees, the commissions, the expense accounts, the financial derivatives that could be generated if it were "privatized!"
Think of all the ways that money could be made to disappear!
4
It is entirely have not my fault but I do have investments in the amount of X dollars that have not changed beyond X dollars in one and three quarters decades. Both promised some growth beyond my minimum withdrawal percentage for retire income. I suspect that my investment managers do not disclose a true total of returns on X and that what I don't see beyond my withdrawal amounts goes into the managers pockets. The funny thing is that X goes down with the markets and come back up too X but not beyond X when the markets rise. Both managers are big name investment manage companies so I suspect everything they do is legal by law which they manage by controlling lawmakers. Why will our national lawmakers not give small investors protections against the sharks which the Consumer Investment Agency is supposed to do? Yet it is my fault for not wanting to spend retirement hours keeping people honest by doing number crunching and market watching on my own. The expectation of due diligence is a concept that opens doors for too many crooks to get away with unethical behavior in this nation.
don't fall for the conversion of pensions to 401k's. I thought other countries did this with their retirement plans and had to bail out the 401ks when the market tanked?
Also those who defend pensions are accused of supporting unions but aren't those who support 401k's equally guilty of supporting wall street or the rich?
2
Another factor in retirement benefits is healthcare costs.
We are now paying twice as much per captia as other first world countries.
We don't have universal coverage and we have segments with infant mortality worse than Botswana.
This is biased article doesn't represent the reality of public pension funds. I support a defined benefit pension for public sector employees, but only if the REAL COSTS are accounted for accurately, pensions are FUNDED properly and and when ABUSES are found, they are eliminated.
REAL COSTS - The actual costs of providing a defined benefit pension are consistently understated. Good news, people are living longer. Bad news, it costs more to provide the pension. And there are many other assumptions such as assumed rates of return and salary growth that don't fully reflect the real cost. BUT politicians don't want to "know" the real costs because they don't want to have to pay more money into the pension funds. they'd rather spend it on a pretty new park and when the problem surfaces in the future they will already be retired and leave the problem to someone else.
FUNDED properly - Politicians haven't fully funded even the lower annual required contribution every year as required. Politicians "raid the piggy bank" instead of raising taxes or cutting services; they take the easy way out. And this has happened time and time again throughout all states, counties and cities. A legally binding funding mechanism should be included in pension legislation.
ABUSES need to be eliminated. Pension spiking, overtime, late promotions, early retirement programs, and retirements followed by rehiring at another government body have created distrust with "the system."
Change is needed.
3
Again, the middle class is bleed dry and left to suffer and struggle in retirement after toiling for years for their employers. All so that the corps can keep profits to themselves and C-level management. Who is fighting for us? VOTE.
2
Is there any productive institution in our society that the Koch brothers don't hate and aren't trying to destroy? Every time one follows the money, it leads back to them. Repeal of the monuments in Utah, repeal of the ACA, climate change denial and Trump's pull out from the Paris Accord, etc. They aren't just going after pensions. They also want Medicare and Medicaid gone. These are the donors Republicans were referring to when they said they had to pass the tax bill or else donations would stop. Now, we'll get to see the tax break they just got fund more of their schemes and strengthen their stranglehold over our democracy. In my state, they control the legislature. Bills are often presented exactly as they were written by ALEC, Silverstone, or one of their 'institutes'. They are handed to legislators with instructions to pass them, and those legislatures do as asked. How did we get to a point where 2 crackpot octogenarians can have such an incredible destructive influence over our day-to-day lives?
4
Ideally nobody's retirement would be based on a single source of income, if only because a single source is seldom both reliable and adequate, and frequently neither. I was very fortunate to participate in a well-managed public pension (STRS-OH) but also made substantial contributions to a 403(b) account (similar to 401(k)). In a pinch I could live off either.
Remember when bushy boy wanted to privatize social security? whenever there is a savings for retirement, people raid it. Politicans raid social security. Private companies raid their retirement fund to pay for other things. And the fund managers raid the 401K plans by charging exorbitant rates. No way to win except manage your own 401K and that can be risky too.
2
Combine this with the drive to open up Social Security funds to the financial industry and workers will have no secure retirement benefits at all. Imagine what would have happened in 2008 if George W. Bush's plan to privatize Social Security funds have come to fruition. The streets of every city and town would have been full of the newly homeless. Capitalism as an economic system needs regulation by a government responsible to its citizens...not to corporate interests.
5
The law professor should have talked with an accounting professor. He would have learned, as many here have stated, that defined benefit pension plans are risky and expensive. “Risky” means unpredictable, which is a non starter for public companies, where stock prices are hit hard by unexpected earnings swings.
What is owed to participants - the participant liability - is highly sensitive to interest rate changes. The assets available to satisfy that liability - the investment balance - is subject to market fluctuations. This combo results in a slippery, constantly moving, highly risky situation.
One might ask why that risk profile is any better when transferred to the 401k holder. The answer is that the individual employee doesn’t have to value his plan quarterly and report results to shareholders.
This is all about risk - the transfer of risk from the public or private employer to the employee. With a traditional (defined benefit) pension, the risk is all with the employer to ensure they can provide funds at a future date based on a salary earned in the future (remember most defined benefit plans are heavily biased to the final salary). So the first change is to move to a defined contribution pension where the company only provides based on current salary. This has removed the unknown of future salary, but still has a risk of guaranteeing a level of growth year over year. Now the real problem step, the transition to a 401(k). The employer just throws some money into an account and all the risk is on the employee. This is where the issues with social responsibility lie. The employer no longer has a vested interest in the favorable future for their employee. This is good for the employer's bottom line, but bad for society. As pointed out in this article, how many people are involved enough in the day-to-day management of their retirement funds to ensure that they are set for their retirement? How many people will have funds to retire? How many people will have to work longer due to poorly performing investments? This is a frightening situation that is being put upon, in particular, the millennial generation.
1
I am a younger person promised a pension. I support defined benefit pensions. My father had one and it was excellent. I am just unsure how it will be paid for. What happens when the amount of money spent on retirees pensions is equal to or exceeds the amount spent on active employees? Will the public stand for less teachers so the retired ones can maintain their benefits? It is very possible that politicians made promises too good to be true to win public sector votes and kicked the can down the road. Nothing can be done to change that now. So what do we do? NYC/NYS guarantee certain rates of return. When that is not met the taxpayer makes up the difference. In my neck of the woods, defined benefit plans do not need to go the way of the dinosaur. However, a re-evaluation of current employee contributions and expected rates of return is necessary to ensure the future of the defined benefit pension. Even broaching the subject in New York is considered heresy; however, the math does not lie. Let's get out ahead of this.
Also, this does not even touch retiree health benefits. Which are not constitutionally guaranteed in NY. NYC employees contribute zero dollars towards their premiums. That is unsustainable. Anyone who says otherwise is a liar who is lying because he or she needs to be re-elected and they know they will be long dead when the bill comes due. Myself and the much maligned millennials will be left holding the bag. What are we going to do guys?
159
Mish - I am with you, and will soon be a retired college educator living on a public pension as well as Social Security, a 403b, and a Fidelity portfolio. It will be a secure retirement, but far from affluent. The thing to keep in mind is that pensions are not solely reliant on future payments by employers and taxpayers. Pension funds typically are invested in the stock market and other growth venues to help keep them solvent over time.
7
One solution is to do the smart thing. If you need to raise revenue, go where the money is (and is sitting around paying the owners, substituting for real work on their part).
4
Exactly so. In Kentucky, state retirement accounts were in the enviable state of being overfunded because the funds were well-invested and the market was good. Unfortunately members of Kentucky's General Assembly took notice of this "wealth" and began to underfund the Commonwealth's contractually obligated share of funding for its employees. They used the funds on pet projects in their legislative districts while avoiding the need to raise taxes to pay for them. They spent like drunken sailors and looked like miracle workers. More importantly, they were re-elected! This was before the big downturn in the economy. When it occurred, the Kentucky Retirement System no longer had the cushion that would have protected it from the worst. Now Kentucky has the worst funded pension in the nation. Do not assume that pensions don't work. They pay for themselves if they are wisely invested and the state pays its fair share.
2
The usual advice for the average man is to put your money in an index fund with low management fees. Of course, that is not what big investors do, and they manage high double digit returns all the time, not just in unusual times.
So it seems probable that the author is correct in suspecting a subversive interest in preventing formation of smart big pension funds and assisting instead in breaking them up into individual accounts run by robots.
Unfortunately, the Koch bros and other billionaires have the big advantage that their activities require only their own consent, while it takes organization of a whole bunch of average Joes to mount a big pension fund.
That is why government could be helpful to the little man. Except, of course, it is the billionaires that run government these days.
2
"they manage high double digit returns all the time"
Care to provide some facts to back this fanciful claim?
@Mookie: I don’t think I said the right thing about yields. I was thinking about the funds of Harvard and other big league colleges which achieve yields consistently in the mid to high teens, not the high double digits.
It's a little bit too glib to say the problem isn't with pensions, it's with underfunding. Everyone is complicit in the underfunding - because it's the easy thing to do. Unions are happy to negotiate benefits beyond which the state is willing to pay immediately, because they have a legal right to the benefits so they figure somebody will have to pay up sooner or later. Politicians are happy to go along, because it means the problem is someone else's ten or twenty years down the road, which is a lifetime in politics, while the politician can get the benefit of the votes today.
I think the solution is probably something along the lines of keeping the existing pension system, but altering payouts to fluctuate a bit based upon the funding level of the pension fund. I.e. if the pension fund is only 66% funded as to future obligations, existing pensions are only paid out at, say, ~90% of their normal value. This puts the incentives in the right place for everyone, because the politician is going to hear about it when peoples' pensions are reduced, and the unions are also going to hear about it if they go along with promises they know the legislature can't keep. In other words, it keeps everyone honest.
This article ignores the fact that most public pensions have significantly underperformed the S&P 500 over the last few years. Some public pension funds are well-managed, but many others are run by elected officials who have no knowledge or interest in finance, and may even be tempted to take kickbacks from fund managers. You’re better off with a 401k where you can choose to put your money in diversified low-cost funds.
I agree that the premise of pooling shareholder will and sentiment into a large enough hammer to earn the attention and respect necessary to ensure good fiscal governance. But by no means do I agree with the premise that traditional pensions are the way to get there.
First of all; as others have mentioned (but the author deftly dodges), pension funds are routinely underfunded *and* mismanaged. Absent strong methods of enforcement of funding levels and investment strategies, there is no reason to expect this to change. Public or private, makes no never mind.
Secondly: a pension is a promise, not a guarantee. Ask any of the millions of people who thought they were working towards a secure retirement, only to be "cashed out" or worse, "crashed out" of their plans due any of a variety of reasons. Alternatively, when my employer puts X% into my 401(k) it is mine instantly. A guarantee, not a promise. The difference matters to me. A lot.
Thirdly: pensions are abused in myriad ways. A few years ago the NYTimes ran a piece on railroad employees pulling a pension plus going back to working fulltime for the rail company. I know an emergency responder, public employee, who retired in his 40's because he made more money than he would if he kept working. There are many similar tales that can be told.
1
Apparently, states and cities are busy converting traditional pensions into 401(k)s, and the primary goal of the well-funded attack on pensions by the likes of the Koch and Arnold foundations is to "convert these traditional pensions into 401(k)s. But per IRS rules, 401(k)s are not a retirement vehicle available to public-sector employers. Moreover, existing traditional pension plans have very strong legal protections and cannot be "converted" into a different plan. Some states and localities have introduced defined contribution plans (which operate similarly to 401(k)s) for new employees, but in most cases they are offered as an option to the traditional plan structure (see Michigan or Florida, for example).
Mr. Webber also suggests that economists and actuaries continue to debate "even the existence" of any pension funding crisis. I'm not sure who these folks are, but they are outliers, much like the 1% of scientists who find little to be concerned about in regard to climate change.
Public sector employers use a combination of a 401(a) and 457(b) plan to provide the equivalent of a private sector 401(k) plan.
It is a distinction without a difference.
401k has been a scam from the beginning. Originally created for people who had more money than they could keep safely in an FDIC bank account, they could park their excess cash in a 401k at no penalty.
Somewhere along the line the stingy crowd took over, eliminated savings banks, and made 401k the only hope to grow savings. This is fine as long as the market goes up. But when the market goes down it all gets taken back from you.
282
It's not even fine when the market goes up. Unnecessarily high fees, poor investment choices, self-dealing by investment advisors (that's legal), etc. See the article.
4
The limits on 401K contributions are far FAR below what I can keep safely in a single FDIC account, much less several.
3
This writer doesn’t have a clue about how 401k plans work. You can only contribute via a payroll deduction and the amount you can contribute on an annual basis is limited by law. If you are a “highly comped” employee ( a definition based on your salary compared to the company average) then your contributions are limited even more. It’s not a vehicle for the rich to stash cash as the writer seems to suggest. It has market risk so it’s obviously not as safe as a bank account.
6
"undermine the retirement security of millions of Americans. "
That's the goal - by dumping pensions and gutting Social Security and Medicare, they are basically declaring war on the concept of retirement. The idea is that if there is no money for retirement, potential retirees will remain in the workforce, expanding the labor force and thereby suppressing wages.
2
Surely the problem lies with corporate law, are they not required to consider and act only on those ideas that increase shareholder’s returns? Of course presumably they wrote the laws themselves. One can complain....I assume they then disingenuously shrug and point to that mandated and outrageously myopic requirement.
73
If the left were smart they'd counter-attack the right by letting all Americans buy into public pensions. Why shouldn't the Californians who pay the taxes that fund Calpers be allowed to buy into the system too? Give every citizen a stake in public pensions and the battle would be half won.
7
A core cause of many disfunctional public policy discussions/debates is the non-conscious habituation to word usages which are totally biased. In the case of the word "reform", the obviousity of bias practically screams at high decibels, and this is so regardless of the particular subject to which that word is applied. The solution is also extremely obvious as soon as anyone becomes conscious ot this intrinsically biased usage: never, ever use the word "reform" under any circumstances. Merely substitute the word "change" and the conversation will be intrinsically more neutral and objective, at least with respect to this fatally biased word.
I have no problem with private sector pensions, but when it comes to the public sector, it's time to flip to 401(k)s. This article rightly points out that we're on the hook for these longstanding plans that were often made many years prior when those retiring lived maybe 10-15 years in retirement, and at a time when the public sector was a low-paying vocation. Neither is true today. Salaries have kept pace or even surpassed those of the private sector in similar roles, and retiring at 55 can mean living on that pension for more than 30 years--often longer than their service to the government.
Now, the issues with 401(k)s are deep and complex, far too complex for this comment section. It's been known for generations that the 401(k) was never designed to be a retirement vehicle, but our government allowed it to become one of the biggest ways to fleece the public since 2008.
1
I once had an HR person attempt to push me away from supporting a pension program. This was literally my first day on the job. My foot wasn't even in the door and my first meeting involved a rote lecture on how 401(k)s were the best strategy for retirement planning. I was actually surprised they had pension program at all. Perhaps this lecture was the official way of telling employees they wanted to get rid of the pension program.
The logic was entirely circular too. Basically, they were telling people not to enroll in the pension plan because people aren't enrolling in the pension plan because HR is telling people not to enroll in the pension plan because people aren't enrolling. Do you see how that works? These aren't abstract ideas. You are being manipulated and your retirement will pay the consequence.
6
Good for the NY Times for publsihing this piece! Hopefully, it will ignite more vigorous debate of these issues. The 401k system is much more "under-funded" than pensions and will lead to a deeper crisis than any "under-funded" public or private pension system. (There are some pension scnadals, but most involved police and fire departments/unions which even GOP is loathe to take on. Much more analysis, discussion and publicity is needed.
6
The saddest thing that American industry has done to Americans is to eliminate pensions. And because they have wrecked pensions for private sector workers they are now looking to wreck them for public sector workers. Almost every retiree I know who has a traditional pension is a happy retiree. Those that don't are constantly worried. Even the richest people I know who don't have pensions are constantly worried. "Nasty, brutish, and short" is the Republican mantra for healthcare and retirement. Why have so many Americans rolled over for those whose goal is to get rich at their expense and pick their pockets on a daily basis? Why do we continue to elect people whose only goal is to enrich themselves while impoverishing the rest of us? Sad. Bigly. But the Rump is happy now and busy with the important stuff like emblazing the Presidential Seal on tee markers at Trump golf courses when he's not threatening nuclear annihilation.
570
Unfortunately, 'nasty, brutish, and short' is becoming the mantra for life under Republicans, and some Democrats, period. To live a full life with family, joy, and love takes time and money away from working all the time and stock piling for the future. So what is the purpose and meaning of life -- to stockpile enough money to last till you die. Don't take risks. Don't experiment. Don't over extend yourself to care for anyone else. And pray that nothing like illness or disability or national economic disaster interrupts your plan. Fat chance on the last one!
10
Our 401K has approximately tripled in value since early 2009.
5
Well my Defined Benefit Pension plan is paying me, the equivalent of interest on 4 million dollars in savings; using an interest rate of 4%.
I am not some plutocrat, who was paid this as a "golden parachute" Executive retirement package, just an Airline Captain, who retired after 32 years of service. And a lot of long-haul flights. I had to contribute to this pension from my first flight, with the airline at age 28. Our Union was also a strong factor in preserving our pension benefits.
Now I don't have 4 Mil in savings, but I would take my DB plan any day over your "up today, down tomorrow" 401K plan!
1
Managing a 401K is not that complicated: Put all of the money and all contributions into a Target Date retirement fund with low fees likw those offered by Vanguard. Set it and forget it. No parasitic money manger is required.
The real problem is a lack of financial education.
14
So how many people have the financial acumen, to start contributing to a Target Date retirement fund in their 20s? Thanks to a strong union, I was required to contribute to my DB pension at age 28, and they invested my contributions plus employer portion during my 32 years of employment.
So the whole point of this article is that Union membership, set up this plan for all their employees from day one of employment . And I didn't have to watch my retirement fund going up and down with the vagaries of the Stock Market.
1
The Union Plan sounds great! Even putting just $10 a week into a target date retirement plan in your 20s would be very beneficial.
This information should be more widely disseminated and represents an important component of the wealth disparity that represents the US uniquely in the industrialized world and has worsened since the 1970s.
4
uhm, what? Public pension funds are massively underfunded because it is very easy for elected officials to make promises and even easier to kick the cost into the future. Public pension finds, the ones run by the state and local governments, you know those elections we are all too busy to vote in, are in real trouble and crushing state budgets. Google "public pension funds," get your head out of the sand, and stop blaming "the rich" for everything.
124
"Though the mainstream media has mostly taken the crisis claim at face value, economists and actuaries debate its extent and even its existence. Since the Great Recession, 49 states have reformed pensions to make them more sustainable, increasing employee contributions and reducing benefits."
Try reading the article next time.
12
It seems that DRB, having dismissed common sense as well as the facts and opinions about "the rich" mentioned in the article, would much prefer to blame "the rich" for NOTHING!
7
The reason pension funds are underfunded is because Congress changed the regulations in the 70's allowing fund managers to no longer fully fund pensions in exchange for promises of later make-up funding that somehow never happened. So you might try Googling the history of pension funding to get more complete information instead of accusing others of having their heads in the sand and scapegoating them as "blaming 'the rich' for everything." I would also suggest that arguments are usually more convincing when crafted with civility and not antagonism.
13
Rising income inequality is NOT an unfortunate byproduct of natural forces, it is the intended result of a well coordinated plan by the nascent feudal oligarchy who are actively building a wall between the capital they've amassed at our expense and the 99.9% who they only tolerate to the extent necessary to keep the pitchforks and torches away from their enclaves.
7
With all due respects, the author of this piece either does not understand pensions or failed math beyond the seventh grade level. Pensions can be sustainable but not when you can retire after 30 years on high payments with inflation escalators, particularly when you make a low or no contribution to the pension. Or, to use New York state as an example, when you let public employees maximize their overtime before retiring so they can inflate their pension. Unfortunately, most employees want to have their cake, in terms of a good salary today, and eat it too, by not contributing sufficiently to their retirement plan. My 401k is in good shape for retirement despite putting two children through private colleges and with only one parent working. How did we accomplish this feat? We lived within our means, we never went to Disney World (or much of anywhere else), and did what we could afford. You can do the same thing but it involves making a sacrifice today, something most Americans seem to not realize.
6
Wow - the one parent working must have made an OK wage- I know people whose entire take home wage for the year could not put 1 child though private college! The sacrifice of the parent not eating or having a place to live would not free up enough funds - the job simply does not pay enough.
Webber artfully distracts from the relevant point in his focus on fees and activist pension managers. Yes, these issues are important. But as he even concedes - "Our mutual funds could do the same for us."
By contrast, the issue with public pensions is simply that the public worker is being paid far more than the comparable worker in the private sector. Can we agree that all workers who do the same job should be paid similarly ? The issue is 33% of public sector workers are unionized. Unions are monopolies since the employer cannot compare among different possible labor offers - as he would for any other good or service. It's even worse in the public sector because the employer is government - who often receive large donations from the same unions seeking a friendly contract. For example, see the union-friendly contract that the school board in New Orleans gave the AFT - just months after their $450,000 donation.
http://www.nola.com/education/index.ssf/2015/08/union_contract_approved_...
Much of the largesse is not in the form of salary - which would appear on the books. Instead, these politicians tuck the expense away in far-off pension obligations. Liberals retort that these pensions aren't very large - e.g "only" $43,000/yr for those in the IL Teachers Retirement System. But at today's interest rates, that pension is worth $1.1 m. And that doesn't even include retiree healthcare. How many of us have that kind of savings guaranteed for us ?
8
Princeton 2015 wrote
"By contrast, the issue with public pensions is simply that the public worker is being paid far more than the comparable worker in the private sector."
Well guess what? The public worker is represented by a union, that uses collective bargaining to improve the workers' salary and benefits.
The private sector worker, OTOH has voted for GOP politicians that give him a so-called Right to Work ( no requirement to pay Union dues) , which in turn drives union representation out of his State. He has also bought into the idea, that "It's all the unions fault". So the private sector worker is paid less, has no job security, no pension or matching 401K, and sometimes dangerous working conditions.
So why not pay the Private Sector workers more, rather than dragging everyone's salary down? I guess the private sector workers can apply for food stamps ?
Investment bankers and stockbrokers have complained about Social Security since it was enacted as being a poor deal for enrollees, that the money ought to go into investments. That was understandable as being clearly potential business which was out of their reach.
Now pension funds have been big investors and they are part of the investor class. The 401k plans are just another kind of investment strategy but one that is very risky. As the market goes up and down so does the value of the stocks in these plans. The pension funds must cope with the same market ups and downs but the individual pensioners are not risking what the plans will pay to them when they retire. Pension funds are more expensive to support, so managements prefer the 401k funds over pensions. So it's not investors who care about pensions, it's managers trying to maximize their profits.
Security for people no longer working reduces poverty and it's impacts upon the economy, so helps to support widespread prosperity which supports good economic expansion. It does not hurt that the reserves in these funds contributes to activity in the financial markets.
7
Correct me if I have misunderstood, but the funds you mention are largely on the backs on taxpayers. Pension funds offered by my former employer, which is not a government entity, is sound. The pensions offered by profit-making entities can decrease with the failures of these corporations, which most mature workers should understand when they sign off with profit makers. The big surprises seem to come with those who have worked all their lives for governments, and, maybe had way too much faith in their ability to pay out when retirement time rolls around.
1
14% of private companies offer a combination of defined benefit and employee funded retirement plan. Only 4% of US workers are covered by defined benefit plans in the private sector.
2
Actually, they are on the backs of the people that pay into them. That is the point of the article. Social Security is funded through people who pay into it as well - however, if you look into its shortfall, you only have to look as far as the Reagan Administration to see why their is a shortfall, it was mostly their doing.
4
Public funds pensions are really deferred compensation...when bargaining for income, often the negotiation will be for the pension rather than a regular increase in pay. States and localities like it, because it defers what they have to pay out today until tomorrow...the problem is, they should be setting aside these funds for tomorrow, and they are spending them on other things - then crying poor when it's time to make the payments. Then egregiously blaming the workers dire straights their budgets are in, and in some instances just ending the pensions owed leaving the workers high and dry as the employer has also not paid into their social security as it is not required for entities with pension plans. 401Ks are NO substitute for pensions and while taxpayers may be footing the bill, these workers have also often worked for less pay in their working years in order to HAVE the pension plan that is being ripped away by mismanaged state and local governments.
2
Agreed that 401(k)s are grossly inadequate to the task of providing for the Americans who need them most in their old age, but I doubt that a return to traditional pensions will improve the outlook. The fundamental problem with pensions is that they tie workers to individual firms, few of which are truly long-term stable. To the extent a firm is the kind of immovable object that can be relied upon to fund a pension that will cover its workers for decades after their retirement, it is likely to be so big as to raise antitrust concerns, including using its market power to suppress wages and total non-executive compensation.
The public pensions are better in theory because government is checked by democracy, so its permanence and size are not inconsistent with the policy goal of protecting average citizens. I suspect that the correct solution is something like a progressive tax on capital that is used to fund a supplement to Social Security, and like Social Security is distributed to all workers from a centralized fund upon those workers' retirement or age of eligibility. That way, businesses can come and go, be broken up or spin themselves apart, merge and acquire as is their current habit without needing to rely upon those same managers and shareholders to diligently husband workers' pensions. I think the example of Patriot Coal vis-a-vis Peabody and Arch Coal is instructive in this regard.
2
other problem with traditional pensions is inflation. I'm old enough to remember when "old people on fixed incomes" i.e. pensions, were a byword for victims of inflation. 1960's style inflation might or might not happen again but even 10 years of 2% inflation is going to make a real dent in your buying power
2
Actually, I've been saying this for years. Wages and salaries of professional and nonprofessional workers have been lured into the stock market where they can be fleeced by the financial sector. Most people are too busy doing their jobs and raising their families to pay attention to the nuances of market movement. But we have no choice because defined benefit pensions are being phased out, and traditional savings vehicles (like savings accounts, CDs, and treasuries bills and bonds) pay shocking low rates (unlike the 4-7% they used to pay when I was growing up.) Americans are cannon fodder for people who make their living trading stocks.
27
Not cannon fodder, but plain old fodder -- as in what's on offer at their all you can eat buffet!
1
Fleeced is the word! :(
1
I think this misses the central reason for the attack on pensions. They require half as much money to provide the same benefits as everyone saving money for themselves. Because pensions are actuary based they only need enough money to pay for people who reach the median age. That is a lot less money in the pot than if everyone saves enough to live to 100. When you are taking 2% of that pot every year in fees, you don't really need any other motivation to want to make it bigger. Its the same reason we offer tax deferred retirement accounts. People eventually pay the taxes, but the finance industry gets its 2% in the meantime. Since that money is never taxed, the rest of us pay higher taxes to make up the difference.
8
In the end the individual must look out for #1. Life is not fair, one must create their own fairness as best possible. When it comes to "entitled" pensions or the finance industry, I would say that teaching people the value of sacrifice, thrift and low cost index investing is much better time spent. This is not to say that efforts at reforming existing injustices are not meaningful, but positioning oneself to ride the natural wave of greed rather than redirecting it will prove better in the long run.
1
When our 401k plan was started, the company (then private) offered a 50% match of an employee's contribution. Generous by any measure. A number of years passed; the company became a publicly traded entity. And the 401k match has dwindled over the years since to a 3% match today. Still more generous than many companies offer, but hardly the incentive workers were offered when 401ks were young. We contribute as we can to entities like 401ks and IRAs because no alternative saving vehicles exist for many. And, of course, many can't contribute at all because they have no wages left over to save. The system is a bad deal for the small investor -- outsized risks on a promise of growth that may never materialize. I watched a third of my retirement investment value disappear during the financial crisis in 2008. I've since rebuilt a lot of my savings, and despite the outsized risk, continued to rely on my 401k due to few viable alternatives. But 10 years later, I now have the anxiety of wondering when the short-sighted actions of our current Republican government are going to tank the national economy once again.
21
Here's the real pension reform we need: Hold those decision-makers in either corporate America or government accountable for the under-funding problem.
In the corporate world, the motivation was greed: funding pensions don't increase the stock price and thus CEO compensation.
In government, ideology is at fault. Cut taxes, cut services, cut pensions, in short cut government's role in society. Pensions are just one bad outcome of the shrink-the-government philosophy.
The Consumer Financial Protection Bureau, Department of Labor, and SEC could take this on if they wanted to. But not under Trump, of course.
12
Having worked for two different government entities, I say, many government jobs could disappear and no one would ever miss them - except the employee and his/her family. I am not one who believes that government in unnecessary. That's a ridiculous thought. It could definitely be streamlined, though, and this would eventually benefit the efficiency of the government agency - and the taxpayers who support government/civil service workers. For instance, in the large city where I live, USPS is falling apart. It's not the fault of carriers who mis-deliver mail - and sometimes fail to deliver it at all - but that of the management-level employees who (almost) can't be fired, even for gross inefficiency.
I'm in the asset management business. Specifically, I help to manage billions of dollars in illiquid investments such as private equity, infrastructure and real estate for a leading financial institution. I can tell you there are lots of problems with public pensions. First of all, the likes of CalPERS and CalSRS have a huge talent issue. They must disclose how much they may internal staff, which means they cannot pay them adequately. The people on the street who are paid market pick them apart whenever need be. This is very similar to the problem that some university endowments have faced. If you really want to help them out, pass a low which allows only the board to review internal talent management and compensation plans. Then you might have qualified individuals join this funds and you'd increase returns materially, saving the public billions if not trillions.
2
Or maybe we remove the incentive to overpay wall streeters? Then working at CALPERS looks pretty good.
1
Talk to Warren Buffett about your theory. He will laugh in your face!
I've invested in a 401k for about 30 years at companies with excellent matching. My 401k is doing quite well. I was about 80% invested in the stock market and have dropped to 60% in my early 60s. I'm just waiting to qualify for medicare to retire.
Sure, I've had a few jobs in IT outsourced, and didn't survive at one company long enough to qualify for the pension. I was fortunate enough to have enough money to maximize my savings.
I don't agree.
Yes companies have stopped providing pensions but imagine for a second if they hadn't. Name one company you would say is a safe bet to go work for for the next 35 years?? The world has changed and unfortuanately pensions don't fit it anymore.
The issues of corporate governance are real but they are related to host of legal and political issues; but not pensions.
4
Sears Canada, anyone? what a rip off.
The author fails to mention that low interest rates have exacerbated the liability-side problems with pensions. Structural problems include lack of direct representation by stakeholders like employees and taxpayers, as well as delayed response to lengthening life spans (though, as he notes, there has been some reform since 2008). Overall, though, well-tended pensions that are managed for the long-term, which are protected from 'kitty litter raiding' for rainy days, are a better option than 401ks for the reasons noted, and many others.
13
The traditional pension has a number of problematic features. It kind of assumes that a person will be working for a company forever, and that the company will exist during the person's retirement, two things that are not reliable. In some of the public pensions the promises exceed rational returns, and the rules about funding the pensions are too lax (except for the US Postal Service, where the rules are too strict). The only thing that makes sense in the long term is to have a national pension, which we do called social security. Unfortunately too little and the money is poorly invested in IOUs.
The same thinking, applied to healthcare, would lead us to something like Medicare.
15
I am eternally grateful that in my thirties I joined the NYS Pension Plan. I was naïve at the time and had no idea how fortunate I was to be able to work with a pension program for my retirement. I just retired this year and I am so grateful to benefit from the careful management of the system which I grew to appreciate as an administrator. Everyone in the program benefited from Tom De Napoli and others who run the New York State system with their knowledge to get the best returns on investments for the greater good. We need more pensions, not less, to support the economic future of the middle class.
43
You should be especially grateful to the taxpayers of NY that are paying for that pension, the sustainability of which is questionable. Grateful also that it contains a provision for cost of living increases, which are quite rare in private industry and increase the cost of providing a pension by about 60%.
7
Yes, you're right and I am grateful to the taxpayer's of New York. Thanks for correcting me!
The pension checks may come from NY, but the employees themselves "paid" for it, not the taxpayers. A pension is one part of the total wage and benefit package offered to employees. It was most definitely earned by them.
I worked at a hospital that offered the traditional defined benefit pension plan when I started there in 1987. The employer stopped contributing any more benefits after 25 years of service. I retired two years after my 25 years of service were completed.
The employer stopped admitting any more employees to the pension plan in 2006. They switched to a 403(b) plan instead.
I am very fortunate to be drawing a pension. I worry about the young people who mostly don't have this available to them anymore.
But pensions are most definitely earned by the employees as part of the total compensation package.
2
Like most employers, mine offers a 401(k) plan. The problems with these plans is that, especially for small employers, the choice of investment vehicles is limited, and the cost (in terms of fees) for these investments is a function of the assets each company's employees have in the plan. For the latter, the smaller the pool of assets, the higher the fees. Recently, for my plan, a bunch of the funds were sold and then immediately repurchased into basically the same fund but with a different "class," the difference being lower fees for the new class, because we had exceeded some unknown asset-level threshold.
One way to avoid high fees is to invest in an unmanaged index fund, but especially for the smaller employers, those funds aren't even offered by the plans.
I liken this idea of charging small companies higher investment fees to how health insurers charge smaller companies higher premiums, just because the group is smaller. It's unconscionable. At least with health insurance, the premiums are in your face, whereas with retirement-account investments, you really have to look for that information. And as the article mentions, very few employees comb through the prospecti and supporting documentation, preferring to just leave it all alone and not pay attention to any of it. Who can blame them?
6
I don't understand why small companies don't offer indexed funds as a 401K option. I would think index funds and ETFs would suit them best.
There is a high fixed cost when administering 401k plans. This covers participant education, record keeping, tax and regulatory reporting. It’s difficult for a plan with a handful of employees to cover those expenses. One solution is for the provider to offer only high fee funds, and divert a portion of those fees towards admin costs.
2
I cannot get my 401K to perform like my (taxable) Fidelity accounts despite knowledge, time, and effort on my part. The situation is as you describe. The difference is ALL in expense fees for my "class". Infuriating.
The question is: is it enough for those of us who are invested in pension funds to vote against Republicans, or do we have no guarantees of their survival even if Democrats get back in power?
Are both parties so beholden to the investor class, and is the "conventional wisdom" that pensions are unsustainable so widely accepted, that nothing will be done to stop this?
I wish there was some way to make the really wealth people in our society understand that income reductions of a few hundred dollars a month are HUGELY PROBLEMATIC for most of us, even they only seem like small change, or mere numbers and statistics, to them.
24
I am a recipient of a defined pension. I have been retired for 12 years and at $36,000/year have received over $400,000. Unless you are in the upper middle class and can park truckloads of cash into a 401(k) and have your company match contributions (an iffy possibility), please tell me how the average person could ever generate yearly income like mine. The 1% evidently believe my pension is too large and would like to eliminate it and have me work well into my 70's. They have convinced all the people out there with no pensions that it's not fair that I have one when they don't.
83
Again, another person who doesn’t understand 401k plans. You can’t park “truckloads” of cash in a 401k. You are limited to by the IRS annual limitation and also a limit if you fall into the highly compensated category.
Dave, the current IRS max ($24.5K if over 50, applying the $6K catch-up provision, and not earning over $120K) is indeed a truckload of cash to many people.
Pensions are promises based on future productivity. The 401(k) type of plan is actual value, subject to market whims and possible misguided moves by the holders of these plans. But at least the money is there.
Defined benefit plans are subject to negotiations between the workers and the public or private employers. Short-term promises lead to short-term labor peace but possible long-term agony. More than a few local governments got into trouble by giving away too much in promising defined benefits.
By the way, Social Security is a defined benefit program. In the worst-case outcome, the federal government would not have enough funds for this but could "print money" to cover the problem. That would be a bad situation, but at least this particular defined benefit program could be covered.
11
Pension plans are expensive and risky for employers, whether they are public or private. The article is more or less a red herring. The ins and outs of investor vigilance is subsidiary. The real show is the cost and risk of pensions. The Long and short is employers would rather shift these costs and risks to employees. Financing retirement is an important and complex issue, unfortunately I think this article muddies the waters.
8
Right. So we just shift the risk to employees. Capitalism is deemed as the best system and employers and stock holders are "justified" in taking their profits off the top because they are the risk-takers. Employers are always looking for ways to decrease risks, increase profits and reduce labor costs.
Except for the few employees covered by union contracts, employees have little leverage to negotiate with employers. There is nothing but possible government intervention to prevent the 1% from taking all the profits and leaving the 99% who actually create value with all the risk (labor as the source of value comes from Adam Smith before it came from Karl Marx).
This article is basically factual. It just states the facts. It does not muddy any waters.
5
And how, exactly, does a statement such as: "The ins and outs of investor vigilance is subsidiary." clear what you claim is muddied water?
The problem I see with pensions is that they can be unilaterally suspended by the employer if the employer runs into financial difficulty. What we need is a way to contribute to an independent fund only accountable to the employees, and now I see that it needs to be a large group with common interests. Could credit unions be a possible place to work on this idea?
23
the problem is, that it's a risk that is very complex and problematic to assume, by credit unions or anyone else.
Yes, if we still had unions representing most workers. We do have the kind of fund you are talking about, it is called Social Security. It is underfunded and provides inadequat benefits, but that will hopefully change.
5
As a worker, I prefer a 401(k) to a pension.
I don't need to worry about whether my benefits are underfunded, since I can see how much money I am putting in, and how much money I have. I don't need to worry that, if I leave my job after less than 20 years, my pension will be less than fully vested. I don't need to worry that, if my employer goes bankrupt, I might lose my retirement savings along with my job. I don't need to worry about "pension reform" that cuts benefits I thought I could count on.
There is a real problem that, when companies switch from pensions to 401(k) plans, they simply reduce the amount of money they contribute to their workers' retirements. But, for the same amount of money, I prefer to have a separate account I can control, rather than a promise backed by my employer's future health.
13
Curious to know how your actual education is being used to influence your savings ideas? I find most people know little or nothing and seem to expect they will die young and never see another recession or inflation that will affect their style of living in any way. Having lived far longer than most people, I am glad that I was able to save enough to do so by utilizing a simple lifestyle.
What you do have to worry about is the market dropping 30% within a few days and trying to recover from that.
1
Thank you for sharing this important piece. It is hard to even have a conversation with peers about the inevitable shortcoming of the 401k because most folks do not have sufficient information to understand what is happening. I hope that this will be just the beginning of an ongoing conversation.
43
The analysis presented in this op-ed is somewhat flawed in that it describes the situation as an either-or choice: individual 401k's or a defined benefit pension fund. The other option for public entities, educational institutions and non-profits is a 401a. A 401a is a pension fund for large numbers of individuals but with each individual having their assets in individual accounts that are then combined into one large fund. Thus, you end up with the benefits of a large pension fund that can influence companies behaviors without the financial risk that a defined benefit plan places on the employer.
I have a 401a plan through TIAA. In terms of its financial clout, TIAA has total assets of $>500 billion, so it certainly has as much clout as any traditional pension fund. And, it will never be "under-funded". Any under-funding of an individuals pension is totally their choice.
4
I receive a defined benefit pension from my state (MA). Is the system underfunded? Well, yes and no. If looked at through an actuary's eyes, the answer is probably yes. If looked at more comprehensively, maybe no. Why? The amount that the state refrained from setting aside to fully fund pensions has contributed its ability to fund schools, infrastructure and other stuff that that has enabled the state to prosper mightily. And that "larger economy" is available to tax. For a state, pensions are funded by 1) money set aside and 2) a healthy economy. To change the debate we need to move away from the actuarial/corporate comparison.
13
It is hard to believe there was a time when both business and government thought there was something to be gained from workers retiring in dignity.
My ancestors got pensions from steel mills and churches, from manufacturers to universities. I wonder how they would have gotten by without them.
Guess we'll find out.
But this should stick in every craw: the people in charge of the money don't care if the elderly are reduced to a life of desperate poverty, after working for decades but living paycheck to paycheck, with little ability to save meaningful amounts.
131
Pensions have only been around since the mid 20th century, when companies looked to it as a cheaper alternative to paying higher wages, given that employees relatively soon after they retired, or even before.
The time when business agreed that pensions were necessary is when they were terrified that revolution would occur here without it. The Red Scare was good for something.
Now, they have us divided by race, class, economics, and politics while reducing unions to next to nothing. The supremes will finish those off this term. Individuals are left in a very, very vulnerable position. THAT is how we got here.
3
George: You're wrong there. I had a great uncle collecting a pension from a steel mill during the Depression.
1
Defined benefit pensions problems are largely caused by deferred funding. Benefits are guaranteed, but current politicians always want to leave funding to the next guy. If a pension benefit is earned, it should be funded, not in seven years, but in current term. That way the negotiated pensions might be smaller, but they would be real. A case in point. Enron's rise was meteoric, as was its demise. How much of the deferred pension money ever got to those who earned it?
34
I tell my clients that the only money they can truly depend on is what's in their name. Anything else is subject to disappearing. If you want a decent retirement income, you have to be the one who makes sure it's there.
11
"I tell my clients that the only money they can truly depend on is what's in their name"
Of course you tell your clients that. Its in your interest. But it isn't really true. That "money" they have is only worth something when they take it out. Even a "cash" savings account can get eaten up by inflation.
The reality is all of us depend on future workers to produce the goods and services we will use in retirement. If we have a productive economy, we can all thrive. If we don't, our "savings" won't save us.
The greed of the rich is pathological. Why would the Koch brothers want more money, more influence, more power? They appear to dress as clerks with suits and ties, and spend their time sitting at desks in their (rather fancy) cubes. What for? (Trump has to work to to hold his fragile empire together, but he still finds time for lots of golf; playing pres can hardly be worth the trouble.) The Koch brothers and their ilk need to get a life. Wrecking society is a disgusting hobby.
181
Well said.
I, too, cannot not understand why that is the best people like the Kochs can do with their lives.
They obviously don't believe in: To those who are given much, much is expected.
And they are ruining our country.
3
dairubo asks, "Why would the Koch brothers want more money, more influence, more power?"
They have what I call Deranged Squirrel Syndrome, hoarding every acorn, walnut, pecan, etc. they can grab from the rest of us, filling every hollow tree to overflowing, though they could not eat 1/10 of their hoard in a hundred years.
1
This is headed for an apocalyptic crisis in a few decades. It should be a front and center issue for reform politicians and a running story for the Times. Why isn't it?
55
Anytime the little people question bug banks and the money class it is attacked by Kochs, ALEC and other lowlifes.
When is the working class going to wake up and realize that the 1% only needs you to fight wars and contribute to their largesse?
64
As a result of smart propaganda by Republicans and their media outlets Americans have lost the ability to act in their own interest ---we are now a nation of suckers. Labor keeps voting for management, and management keeps raking it in. How sad. But its hard to blame anyone but the voters, who are too lazy to inform themselves and too tribal to vote based on the issues that are in fact important in their lives
126
Great, more voter suppression, less accountability.
Why am I not surprised?
Great work here Mr. Webber. Keep it going.
How do we educate the middle-class masses about this stuff?
As you show here, it's just another well-funded investment in general ignorance.
An investment that has really paid a great return for the Koch's et al.
If all you have is a sock-full, you can't get in the game.
23
We should couple this information with the fact that Social Security is under constant attack by the same people. I don't say "forces" because that implies that they are not individuals with a monstrous agenda to remake this country into a plutocracy they control as completely as any medieval aristocracy. It is a ruthless, raw, power grab from people devoid of humanity - not to mention respect for democracy.
Retirement, in theory, is a "three-legged stool" comprised of pension, Social Security, and savings. The first leg of the stool, pensions. has been turned to jello by conversions to 401k. I attest to the total inadequacy of that system. My former employer contributes 2% of salary for employees. The manager class, of course, is on a different scale entirely complete with annual bonuses.
The second leg is savings. When earnings are stagnant, the gulf between wage and need grows wider yearly. You can't save living paycheck-to-paycheck. Even then, the interest rates hover at .01%.
The final leg is Social Security, which the Koch network and its allies have been trying to destroy ("reform" is the word used) for decades. They have Paul Ryan making up phony excuses to justify the attempts. The answer to any future short-fall is glaringly obvious: remove the earnings cap. Problem solved. No Constitutional rights are involved.
So, grandma gets a poverty level living standard as Wall Street gorges on caviar. These are the real "deplorables": despicable men. Shame on you!
279
Nicely done Nora M of New England! You go girl! Nora M for President!
1
The Koch mantra is "Let them eat cake". Retirement is for the rich. The poor are expected to send their elders "Out on the ice". We are widgets in a machine that was built by, for, and of, the shareholders. The Republicans say "Those who do not work (produce profits for shareholders) do not eat". Republicans also demand Second Amendment Gun privilege to any moron with the money. They forget Mao's famous comment: "Power grows out of the barrel of a gun."
"We cannot understand the drive toward pension “reform” by looking only at the liability side of the balance sheet: how much we owe workers and what it will cost to pay them. We must look at the asset side, too..." you say.
Then you ignore the main asset, force behind resentment against those who destroy pensions (where they exist): workers. The labor that made these arrogant and nonsensical rich people possible in the first place.
It was, is, a contract. Work hard, contribute, and retire at a decent level of good health and security.
I know you rich boys never meant a word of it, but you must at least appreciate the depth of anger and resentment this causes, and the fact that if you fail to address this issue you will pay in the long run.
Like Trump victims, we were gullible; we believed you made plans for our retirement. Our bad.
Then your lies became obvious: whenever there was a bankruptcy you moved the heavens to abandon pensions. And we saw that the whole of our lives was a tick on a balance sheet.
We heard your stupid assertions you alone created your success, you alone are worthy human beings, you alone deserve security and the fruits of our labors. And we saw you for what you are: dishonest, mean of spirit and pocketbook, disreputable.
You own the Congress and the courts, yes you own the corporations and the Evangelicals and the President. But fix this, my friends.
Be constant and generous, or you will pay.
58
A 401 is not a pension plan, that is just a clever marketing tool. It is simply a savings account with a preferred tax treatment. Even the tax advantages are being mitigated under our new plans
4
More pie in the sky planning by politicians and the wealthy to increase their own bank accounts. What sounds like a good idea in a country where the average person knows nothing about investing is crazy. You have to understand that most people prefer to just let "the experts" run the show for them even as those same experts are only there to take a piece of the pie. I was lucky to have a good union job in public service and for about 5 years I worked weekends on overtime to fund my 401K. I sent the money to Vanguard. When I was young I was a dirt poor minimum wage worker. I was determined that I would never live in that kind of poverty again.
6
So the robber barons are on the rise. Robert Reich told us so.
This is ridiculous. The Koch Brothers don't need more money. What purpose is served by returning us to the Gilded Age? Just to make greedy people ever more wealthy, we are going to deprive workers of their retirement benefits?
What -- what -- do these rich people need to buy that justifies this mistreatment of American workers? They may have mountains of money but they've certainly sold their souls.
66
Yet Webber is a member of the republican NRA.
The attack on Unions is so very vicious because Unions are a real danger to the wealthy and a real protection for working people.
9
The republicans lied to us about climate change to protect their funding from corporate polluters.
The republicans assisted corporations and dark money interests in destroying pensions, and unions, in this country in order to first impoverish and then silence us.
The republicans used the 2nd amendment as cover to support the sale of assault weapons which led directly to the deaths of our school children and thousands of other citizens.
The republicans have embraced Trump who has done significant damage to our country and our standing in the world.
The republicans appear to be well on their way to converting all Americans into placid, uncomplaining, thoroughly beaten down, cash cows.
And when we are dead? They will grind our bones to make their bread.
20
The exploitative manipulation of workers' 401(k) accounts is just another of many ways that the rich takers steal from the middle- and working-class makers.
11
Thank you for this. I would like to add public entity unions, which the Supreme Court will almost for sure destroy in a decision later this year, are the ONLY thing standing between Koch-funded attacks on pensions and the workers who have them. The State of Illinois, having been badly managed by a string of corrupt politicians, and having one of the lowest income tax rates in the U.S. for decades, failed to pay into its SURS for decades and now wants to take away defined benefit pensions (including from those of us who've already retired). The AFCSME is the ONLY thing that has prevented this, to date, by extensive lobbying and organizational efforts with its members. When we look at corporate America's attempts to sap all the assets and power of workers, union busting is right up there at the top of their list. Workers who don't want to pay union dues are simply fools.
31
All goniffs.
Every last one.
3
The answer in one word: GREED.
7
People need and deserve pensions
5
If it was not clear by now, we are not citizens of a country, but consumers. Citizens are consumerist targets and employee targets to be wholly exploited. It's capitalism of course but today in the US, the governors of us have made it open and make no pretense about taking 100% of everything away: no retirement, no healthcare. Now, on your knees. Greet your masters.
2
There is something that 401(k) investors can easily do. Index! The percent of assets invested in index funds has increased dramatically since 2008. (No co-incidence there, as investors finally started to wake up to the absurdity of active management).
Yes there is the long-term price discovery problem associated with that. But the pain will be felt by corporations, capitalists, and the investment management industry, far greater and sooner than it will by investors. Only then will be their skin be in the game.
2
Yes, Illinois is the poster child for underfunded pensions as stated before. I don't know how this problem will ever be resolved because the liabilities are so great. The pension reform drive in Illinois has pretty much come and gone, blocked by the Illinois Supreme Court. A contract with workers cannot be abrogated unless the Illinois constitution is somehow changed. The pension systems (Illinois has at least fifteen different public systems) that are funded by local tax levies each year seem to be doing ok, but the Illinois legislature-funded ones owe billions. Who is going to ultimately pay these obligations? The local taxpayer. Some are leaving Illinois because of this relentless government financial need. A real stalemate exists. As Trump might say--Sad! very sad.
3
"Who is going to ultimately pay these obligations? The local taxpayer. "
They elected those legislators. Or at least some of them did. I think we need to understand that we have been passing bills forward to the next generation. Sometimes that is appropriate when they also are still getting the benefit of the spending, but pensions aren't really one of those.
They are hoping the democrats will retake congress, then a democratic president 2 years later will bail them out with, yes, tax money from all the states. Seriously this is their plan.
Of course if it happens then states that were even remotely responsible in pension funding and projections will say hmmm ....
Advocates of pension “reform”...will tell you that such funds are a big drain on state and local budgets, since...they are obligated to pay workers a defined amount" NO. They are "a big drain" on budgets because public unions have leveraged their power over politicians to "negotiate" (I use the term advisedly) larger and larger benefits, to the point where such benefits are not only bankrupting (otherwise well funded) plans, but putting their sponsoring governments in dire fiscal peril. There is nothing wrong with the defined benefit arrangement (just as there is nothing wrong with 401Ks), as long as they are not hijacked by their beneficiaries to the detriment of the general public.
10
A boss, is a boss is a boss. The same is true for public employees. As their bosses, its in our interest to pay them as little as possible. That is why they need a union to look out for their interests. If politicians aren't adequately looking out for our interests that is our fault, not our employees or their union. We should elect people who will.
2
This is why all your 401(k) or 403(b) investments should be in Vanguard funds, and the plans should be managed by Vanguard. When they aren't, one suspects the investment managers bribed the corporate (or non-profit---same scam) managers for the contract.
5
Sound advice - but only for index funds. The worst is to chase annual performance by actively manged funds.
This is an astoundingly narrow aspect of the larger concern regarding pensions. To disregard the problems with liabilities created by pensions will not lead to workable solutions for anyone. I have a 401K, have saved steadily and manage it myself mostly through broad, safe, almost no-cost vehicles, and I do pay attention to values when I select what to invest in. I don't want to saddle a future generation with my debt.
6
You claim narrow perspective and then talk about yourself.
1
As a public school teacher in Los Angeles for 21 years (Nine to go), I am the beneficiary of one of the few defined benefit pensions left in the country, the California State Teachers Retirement System, or CALSTRS.
I am mystified by the Koch Brothers, whose wealth is inherited and put, in my view, to the advancement of evil things. They hated and loathed Obama, and said he would regulate them into poverty, but each of the two tripled his wealth during Obama's tenure, from $15 billion to $45 billion.
Private sector pensions were never unaffordable for their companies - after Reagan, the Republican Party completely abandoned labor in favor of capital, and under Clinton the Democrats did the same. Our present crisis is the result.
In Medieval Europe, kings who couldn't care for their people lost their heads. The Republicans have already made their bargain with the devil. Democrats, take note.
7
This is of a piece with the Janus case just argued before a Supreme Court now stacked with business friendly justices. (Thanks Mitch McConnell!) They are likely to rule against the right of unions to collect dues from non members in exchange for negotiating contracts for them. This will drastically cripple union power to fight for pensions among other things.
It's considered bad manners to talk about class warfare, so let's just call it the war of the rich against everyone else.
1
How sadly true. Those in defined-contribution, self-directed funds like Cal-Pers, TIAA & TSP have maximized gains by DCA-ing into broad-based, low-fee, no-load, common-stock indices. Hugely profitable from c. 1960-2082 if assets were never touched. My case: 28K + salary inputs became 2.2M over 25 years, before depletion by embezzlements & divorces. We need an obligatory nat'l program like supra embracing all workers, incl. giggers & self-employed. Trillions in sociotilities can be financed by returning to 91% marginal rates on income over $5MPA, per 1934-67 [+ stiff inheritance levies]. But the precariat must rise!
1
What I get is that the system is rigged against the workers. And corporations got the people elected who would rig the system for them. Personally, I believe it started with Reagan and the anti-union sentiment. But it also rigged the system with policies like Earned Income Tax Credits, which subsidized businesses at the expense of the worker' future and our own tax structure.
Read the whole article. How many of the problems would just disappear if all the workers just got a raise? Which is why investors hate pensions. And raises. And, basically, their most burdensome of all expenses... the workers.
2
This article makes the assumption that investment managers actually do something productive (paragraph 6), and finding the right one will affect returns. That is nonsense, and it's been shown to be the case. The only reliable predictor of investment returns is the fees associated with the investments. Picking stocks via active management is a loser's game for everyone except the "manager" who makes commission regardless of whether the client makes or loses money.
Just put it all in a simple, diversified index fund and let it ride for 30 years. It'll be fine.
2
The fundamental problem with public employee pensions is that politicians repeatedly sweeten the payout formula to garner union votes. Then the pension plan becomes an unsustainable Ponzi scheme with more takers than contributors.
8
Donald: Your comment is anti-union drivel. Before I retired I was in a Public Union. We had about 150 members in a country with a population of 185,000. About a dozen of our members lived outside of the County so could not vote in local elections. Do you really think that our union could throw an election for anyone running for County Supervisor? Pension plans have failed, not because of the greed of the employees but because of gross mismanagement by the governmental bodies which purposely underfunded them. In other words, it wasn't the union's fault but management's fault.
4
When defined contribution plans were first put into the Federal tax code in 1978, it was never intended that they be a replacement for traditional defined benefit pension plans. Rather, the intent was to close a loophole on executive bonuses. As a primary retirement vehicle for average workers, 401k plans have the shortcomings of insufficient voluntary savings, and lack fiduciary oversight.
Effective in 1984, the Federal government used the new 401k (or 457k) provisions to end the old Civil Service Retirement System (CSRS), where long tenured employees could be guaranteed up to 90% of their salaries for life, after retirement. Under the new Federal Employees Retirement System (FERS) the defined pension benefits were drastically reduced (by about 50%). However, unlike the CSRS, FERS employees contributed and participated in Social Security (and paid FICA taxes on all their earnings), and were given the opportunity to participate in the federal Thrift Savings Plan, which is a 457k instrument. As a federal employee, I was taught to look at my retirement funding as a 3 legged stool (pension, SSA, and TSP). I started contributing to my TSP as soon as I could and kept it up for my whole career. As a result, I can now anticipate adequate retirement income for the rest of my life (provided that the Federal Government continues to honor its obligations). As a society, the USA needs to have more people in this position when they reach retirement age. It's a pity that we don't.
1
There is another reason why pension funds are underfunded: many states are allowed to "raid" them of supposedly "excess profits". CA did this 3x to CalPERS to balance the state budget, taking billions and NEVER paying it back. Those "excesses" were profits in strong market years that would have evened out the inevitable weak market years. The loss of that compounding is staggering. It's also exactly what Bush did to SocSec, and was also damaging. Only solution is to pass laws keeping politicians' hands off pension funds ALWAYS....I just hope we're not too late.
6
The real reason why the investor class ( owner class or economic elite) hate pensions is that it costs them money. They want the working class to save for their own retirement from the wages they receive as it used to be before the defined benefit pensions, and social security, came into being. The idea behind the 401(k) is just that - that worker save for their retirement with some uncommitted contributions from the employer. The reason the 401(k) idea is failing is that no commitment is required by anyone and there are loopholes in the plans that drain the money out. Yet, the wall street has pushed for the 401(k)s because of the lure of investment fees. Unsuspecting workers are being duped with the passivity of the regulators. Another reason the wall street investor class hates defined benefit plans is that these plans have the power to negotiate fees and demand returns, unlike the individual 401(k) investor who has no such power and knows little about how the investment business runs its business.
Mr. Webber's precisely correct about three essentials:
1. That much of the problem stems from decades of underfunding or even raiding pension plans, then turning around and declaring that they're in trouble. See also what the Right pulled on the British NHS.
2. That California chopped into its worst excesses (see also administrators, "kiting," their salary the last year of employment), rewrote the rules on final compensation calculation, and increased employee/employer cintributions to CALPERS and CALSTRS.
3. That it is silly to believe that the average Jill or Joe is capable of managing their own pensions funds with anything like the expertise and effort of a professional company.
By the way, everybody on state or Federal pensions loses a big chunk of their Social Security benefits. reagan and Tip cut a deal, back in the day, to shore up the system.
A bit of a thank you would be appreciated, Trumpists.
2
I'm kinda fascinated to see CALPERS held up as a shining example. Anyone in Ca knows that they have mismanaged billions and institutionalized manager corruption, along with setting ROI goals that are frankly ludicrous. Unless you know some way to get 7.5% in the current markets.
CALPERS has also been backstopped by the Ca legislature, unlike most states, so there's no penalty for failure. If the fund can't come up with the pension funding, the state is required to sell assets to make up the difference. The real question that needs to be asked is whether this protects the taxpayers.
2
Companies come and go. They grow and shrink. They are bought and sold. If you start contributing to a corporate pension plan when you are 20, you may need it to be solvent 70 years hence. The odds that the same company exists are actually pretty slim. Corporations are not stable enough to be guarantors of pension. Government employers are more likely to still exist, but the alternation of political parties create another form of instability which puts steady funding in peril. Even in places where one party dominates for decades (say, Illinois or California), it is easy to put aside funding tomorrow's pensions in favor of solving today's problems.
.
In any case, how much should an employer put aside today to be able to fund a pension due in 50 years. There is not an expert in the world who can answer that question, and as a result it is foolish for companies or governments to make pension promises that they don't know they'll be able to afford. Pensions are financial time bombs waiting to go off. What makes more sense is to save a fraction of your income, have the employer match it, and invest it in low cost index funds that track the general economy. 401(k)s were never designed to replace pensions, but with some adjustments, they would do just fine. Make contributions and employer matches mandatory, make pre-retirement withdrawals almost impossible. and let employees, not employers, choose the administrator from amongst regulator-approved low cost candidates.
7
while the author makes some good points, in Rhode Island we have much experience with abuse of the defined benefit pensions - political insiders allowed to "buy" accrued public pension time or get phony promotions in their last years to boost pensions, a corrupt Providence Mayor buying votes by giving employees unsustainable 6% "cost of living" annual adjustments, and more, these are real world problems. We've seen public and private defined benefit pensions cut from what was promised (an example of the latter was a Catholic run hospital pension plan) so the promises of defined benefits are sometimes worthless. Presumably the defined contributions and their earning will be there unless the investments go bankrupt.
I think its best to balance retirement assets into both classes whenever possible.
4
The U.S. is an outlier in the developed world.
We have succumbed to "shareholder value" and "job creators" propaganda. Or at least our political class has and the media nearly so too.
594
Trust me, the media is involved up to their armpits. They, too, are owned by the investor class and dare not upset them.
3
Yes, and euphemisms galore, style over substance.
1
Ed....Since the US is an outlier in the developed world---give 1 or 2 examples how the other democracies provide for pensions and retirement---for contrast!
Which this op ed could have done. And do their conservative parties try to push
"self directed" retirement accounts on their workers?
1
Most of the southern states are right to work states, salaries are low even in the private sector: how do you fund a 401K with little or no disposable income? Basic economics. I am in a pension system and glad I am.
3
Another illustration of the 'golden rule' of economics: He who has the gold makes the rules. Bernie was right but short on what to do about it. Unfortunately there may not be much that can be done but we do need to stop being "supine" on this, not to mention campaign funding, universal healthcare and the stacking of the Supreme Court with ultra-conservatives.
2
Another thing pension funds don't generally do is panic sell at the bottom of big drops, which is something 401K holders and small individual stockholders are know to do and which gives the large players much better buying opportunities than they would otherwise get. Also, individual investors are known to buy into bull markets late for fear of missing out on the seemingly (to them) endless gains giving the large players better selling opportunities (off course only to turn around and sell as the market crashes). All of which agrees with your thesis that the large non-pension investors and corporations are trying to limit the amount of "smart money" that benefits the general public because surprise, surprise they want even more money.
8
It's about class. Because careful analysis debunks the idea that pensions doom companies. Statistically companies with adequate pension plans outperform their sector. Doesn't matter, because the Kochs are ideological. The 1%, or 0.5% are like us all, in a small society of peers. That's who they deal with, and try to impress. Class consciousness, that thing that makes you see the world according to your economic position, dominates.
Attacks on pensions are class warfare.
48
Excellent wake up call - we need to engage with our pension funds (and our reps who vote on our behalf as board members) every bit as much with our more traditional "elected representatives." We also need to encourage our elected reps (in state and local legislatures) to safeguard pension systems.
2
The age of Citizens United, giving unfettered voice to corporate interests, is the age of diminishing corporate accountability. Add pension reform to the list that includes mandatory arbitration clauses (that preclude class action relief) and so-called "tort reform." And shipping all our manufacturing overseas has lifted the burden of providing decent labor and environmental standards too. But free speech, amirite?
9
Underfunded public service pensions have nothing to do with shipping jobs overseas.
1
Jobs were shipped overseas because trade deals made it cheaper to manufacture in places where we do not have to pay decent wages, for decent working conditions, or for decent environmental controls. We allowed corporations to lay these costs that we had fought 100 years for off on the people of other countries.
1
The article sounds good and documents the well known problems of 401ks.
A defined benefit pension plan assumes skilled management and assumed level of growth to fund the benefits. Both of these elements particularly the assumed level of future growth are usually lacking with private and public pensions funds alike. With private plans when the obligation to fund becomes burdensome, the company negotiates underfunding or goes bankrupt. With public funds the outcome is more complex. Witness the state of Illinois, where benefits are outstripping the state's ability to pay. In any case, the bottom line is likely to be that future defined benefit retirees will get less benefit than expected.
A variety of measures are necessary to solve the problem of old people below the poverty line. First, we should fix Social Security so that it is a better safety net. Nobody should have to eat dog food in America.
401ks, IRA's and defined contribution plans are here to stay. Professional managers should have a fiduciary standard. Self dealing and pitching products good for the salesman but not the consumer are rampant. But the bottom line is people will have to assume some responsibility for themselves and gain minimal skills for managing their money and planning for retirement.
5
Thank goodness. The anti-pension rhetoric is so pervasive that even the Brown administration in California has taken it up.
In all of the pension and 401(k) debate, the question no one answers is: What exactly do you plan to do with the elderly once you've eliminated Social Security, Medicare and pensions? It's clear that 401(k)'s do not do the job. Even if the elderly physically can work, no one really wants them as co-wokers. So, what next? I remember that my great-grandmother, who lived in the days before Social Security, Medicare, pensions and 401(k)'s, had a bed in the living room of my grandparents' house. Everyone referred to pneumonia as "the old folks' friend" (kills fairly quickly). As a country, are we planning to go back to that?
64
So who is eliminating Medicare and Social Security? I haven’t read who is sponsoring that legislation.
Turn old folks into soylent to feed the poor - American Oligarchs for Our Own Prosperity
1
Paul Ryan wants to eliminate Medicare and Social Security...
1
I collect my public school retirement check each month. For the years I worked, I paid in 14.5% of my monthly paycheck. The school board matched that amount--rather than make it a part of my salary--so I socked a big chunk of money away every month. When I reassessed my career goals at about age 35, my retirement account played a huge role in convincing me to remain in the classroom. My pension is part of my reward for sticking with the system, despite lack of respect and low pay.
825
"My pension is part of my reward for sticking with the system, despite lack of respect and low pay." The problem is contrary to your assertion, you were not low paid. See link below comparing (in detail) the compensation for public sector teachers vs private sector teachers. Salary is comparable. But the public sector pensions and retiree health benefits simply have no comparable in the private sector. The relevant point is NOT that the "school board matched that amount". If that were really the case, then you are talking about a 401k or 403 - in which I really don't have an issue.
For the typical pensioner, however, the relevant point is not a defined contribution (e.g. employer match) but rather that the public employer is promising a defined benefit (pension) whose value implies incredibly high employer contribution or reinvestment rate. In IL as an example, the average pension for those in the Teachers Retirement Service is $43,000/yr. That may not sound like a lot - but at today's interest rates and given the fact that teachers are pension eligible after as little as 20 or 25 years, that pension is worth over $1.1 m. How many people have that kind of funds waiting for them ? See link.
https://www.heritage.org/education/report/assessing-the-compensation-pub...
7
Then you should be furious at your local politicians and union representatives if they used aspirational discount rates and weren't required to fund the full amount every year (which is the vast majority of pensions). Many teachers are going to take a huge hit in what they thought they were getting and what they actually will. I hope you are not one of these teachers who have been mislead.
3
You are lucky-in CA the state legislature is responsible for funding teachers pensions and they have underpaid for over 15 years with no penalty.
3
I think the author is missing the boat. The real issue with public employee pensions is funding. Politicians buy union votes by promising lavish pension benefits but then failing to fund those pensions. Just look at Illinois as a classic example. When the pension plans can't afford to pay benefits, the unions demand that governments - both federal and state - bail them out.
There would be no opposition to defined benefit plans if states were required to maintain 100% funding of vested benefits at all times. But then politicians would have to be upfront with taxpayers about the costs of their promises.
The advantage of a 401K plan is that politicians cannot defer funding, and employees don't have to worry about arbitrary cuts to their pensions due to political malfeasance.
23
Not all pension plans are attached to unions. Virginia is a right-to-work state, which translates to no unions in government-funded employment. But I am part of a pension plan from years of teaching in a public high school. I can live comfortably on that pension, which means I do not have to seek out government assistance in the form of food stamps, for instance. Many of my neighbors are not in that same position; we need to fund retirement safely and effectively every year of our employment.
7
The moment the market crashees 401k's will have funding problems. Social security is basically a pension because the market fails for people over 65. If you don't think 401ks aren't being used by politicians to buy votes listen to fox anytime a tax increase might take place. They will tell everyone this will hurt their 401k. Even you are falling for the 401k talking points right now.
1
The disadvantage of the 401(k) plan is that it is subject to the whims of the stock market. After the banks got bailed out by the government did the 401(k) holders get compensated for the banks gambling with their money?
btw, I understand that the pension plans are heavily invested, but at least there is a contract between the state and the employee for the pension.
The problem that Webber describes is echoed at the 401k plan level: The rank and file participants, rarely if ever unionized, have no say in how the 401k plan is run, the investments that are offered, the fees that are charged, etc. (Hence the recent volley of class action suits against plan sponsors and 401k companies for overcharging participants.) Although defined benefit pensions aren't coming back, making "DC" more like "DB" is a goal that many people in the US have quietly worked towards since the late 1990s. This will require mandatory contributions by employers, professional not individual asset management, less "leakage" from plans before retirement, and a mechanism for converting savings to pension-like income at retirement. The change is occuring in Europe, where unions won't accept pure US-style DC. But it's barely gotten any traction here. Good pensions have always been more of a promise than a reality, and progress is harder today because of the BabyBoomer demographic distortion. We need a politically, economically and actuarially imaginative solution. (The author is publisher of Retirement Income Journal.)
10
You really haven’t looked at pensions in the public service sector. Please explain why they are exempt from state taxes.
John: Please explain why you thing that government pensions are exempt from State income taxes. California takes a bite out of my state pension every month for state income taxes.
3
John, a public-sector retiree may be taxed on DB or DC distributions, depending on their state of residency. Each state has its own income tax policies.
1
The only reason public employees' pensions look so good is because employees in other sectors lost theirs.Generally, newer public employees do not have the same benefits as those with longer service. (For example, the many "tiers" of benefits for NYC employees). People also forget that public employees bargained for pensions, giving up other things to get them.
218
While a discussion of pensions is important, there is more at stake. The nature of employment has changed significantly. Companies are moving further away from having actual employees that, under law, requre certain considerations, to having contractors or part-time employees that are on their own when it comes to any kind of benefit. Politico ran an article a few months ago about these "contingent" jobs, which account for the bulk of job growth in this country. It's worth reading, https://www.politico.com/magazine/story/2018/01/04/future-work-independe.... The upshot is that, even if we can eke out some progressive victories regarding pensions, it will accelerate the corporate push to absolve themselves of legal responsibilities towards their employees, by increasing their contingent workforce.
24
Work for 30 years, retire for 30+ years at 60% of maximum salary; all based on assuming that perpetual exponential growth on a finite planet will continue at the same rate. What could possibly go wrong?
26
This is an extremely common misconception among we liberals. An economy that uses the same amount of resources more intelligently grows by definition.
An economy completely powered by renewable energy and whose ecological budgets are perfectly in balance will grow at the rate at which it learns to do more with less.
Perpetual growth is only impossible when it becomes impossible to learn to do better. It has nothing to do with the amount of resource you use (in fact, increasing resource usage under the same process only sometimes produces growth, while learning to use the same amount more efficiently produces growth by definition).
Growth via more intelligent use of resources is what we all should be working toward.
4
And marry a young person a few years before you die, thus entitling them to another several decades of pension. No problems there!
You need to use a better set of assumptions. Working for 30 years has not been the assumption for most of us, more like 45 years. Nor is 30 years of retirement, since if you assume age 66 for retirement, the percentage that lives to 96 is not that big.
3
This article and most commenters miss the critically dominant issue. The USA population is aging and a much higher percentage of that population would like more spending for medical care (including long term care) and more money to spend for the necessities and pleasures of life past age 65.
Where shall this money be found? Only two places. The USA borrows from abroad or much more money is extracted from the incomes of those working to redistribute to those who are not working. Each year USA produces a certain amount of GDP. If a higher percentage of that GDP goes to post-65 persons, then a lower percentage of GDP must remain with those who produce it.
Of course, some might say that "tax the rich" and all will work out OK. Maybe so. But my point is that if people over 65 are to receive much more of GDP, some others must receive less--absent huge increases in the rate of productive growth and output..
Arguing over 401K vs. defined payment pensions only distracts us from the tough decisions. How much should post-65 receive? Who will pay? Among those paying, what allocations shall be assessed?
I realize that deferring retirement age may reduce some funding requirements. But, with increasing life expectancies and vastly increased possibilities for medical expense coverage, deferred retirement merely pours a thimble of solution into a gallon of desire.
5
Corporations have racked up more unspent cash in the last 10 years than workers have racked up pension liabilities.
There's a lot more money out there than you think. GDP per capita has gone up 50% after inflation over the last 40 years while wages have gone up 1%, where's the missing 49%?
That 49% takes care of comfortable retirement for every worker and then some.
8
These types of arguments are harder to see as serious worries vs a version of 'concern trolling,' while tax rates are being slashed to historic lows.
4
Perhaps we could find some funds for the post-65 in the war budget.
6
It took my mother's semi-retired private tax person (who works from her home) to tell my mother than the big bank managing her investment accounts was abusing her and getting awful returns. Been there, seen it happen. This is a real problem.
39
There is another traditional pension factor at play - the economy is best served when seniors fully spend the pensions they receive - rather than fearfully and cautiously reviewing their investments and holding back spending.
As a retiree receiving a (formerly) traditional pension income, I spend what I receive each month - with a level of confidence that 401(k) holders will never enjoy. After all, spending drives the economy.
140
Don't be so quick to spend everything. People lose their pensions for many reasons, such as the insolvency of the business/state/county/ government. Save!,
1
Some of this is corporate culture and leadership philosophy. I've worked for an airline since 1999. When I started we had a defined benefit pension plan that would have, after 30 years service, paid 60% of the average of my highest 10 years of pay. As we headed toward bankruptcy, that was frozen in 2003, and replaced with a hybrid defined contribution plan,which was then frozen in 2005, if I recall correctly. My reduced pension will be $500 per month, going down to $350 once I start drawing SS. However, the 401k that replaced it has an automatic 3% company match, even if the employee doesn't contribute. They will then match the employee dollar-for-dollar for an additional 6%, bringing the company match to 9%. Of course, they also pay decent wages (scale employees make around $30/hr after 10 years), so this works out a lot better than a company that pays most of its people at or near minimum wage. It helps to be in a heavily unionized industry. Even the companies that don't currently have unions match or exceed what the unionized employees make at the other companies, since that's the best way to keep unions out.
14
cranky--Unions!
1
Reading the comments, one would think that there is no solution to the public pension mess. But there is! As a retiree, I benefit from a pension from the state of Wisconsin. This well-managed system apparently differs from all other state pension systems and should be serving as a model for others. It includes elements of a 401(k), or defined contribution plan, in a way that no other state does. Read this to see how it works:
https://projects.jsonline.com/news/2016/9/26/wisconsins-fully-funded-pen...
4
New Jersey pension fund was raided, looted, and defunded by Governors and legislators beginning with Governor Christine Whitman through Governor Christie. Before Governor Whitman stopped the state's contributions to the NJ Pensions Funds, the pension fund was fully funded. New Jersey public employees increased the percentage of their pension fund contributions, pay more for health care, increased the retirement age, and as of July 2010, anyone with less than 20 years of service pays for retirement health care. Governor Christie gave lucrative contracts to financial sector campaign contributors to manage some of the pension funds instead of allowing state employees to manage the pension funds. The hedge funds made large fees for their services.
The pension funding problem is a creation of conscious decisions by NJ Governors and legislators to defund the pension plan. The public sector retirees and current employees made a contract with the State of New Jersey and local municipalities to receive a pension. Public employees fulfilled their contractual obligations. It's time for the state to fulfill their contractual obligation.
11
I'm surprised your Gov. Walker hasn't gotten rid of it yet.
1
Defined-benefit pensions should cost employers/employees/society less than defined-contribution funds. The pension is designed for the average age and has a pool to manage risks, but the fund needs to be sufficient for a maximum age and the individual has to deal with any risks.
So why are employers switching to defined-contribution plans? It should cost them more to provide the same security, but somehow they find savings in this. This isn't going to end well.
12
Perhaps defined benefits are better investment vehicles than defined contributions. What this article doesn't address is that defined benefits can, not always, but definitely can, lead to employees taking a job, setting their "time to retire" alarm, and going to sleep for a few decades. I live in a state where state employees retire in their early 50's, with 80+% of salary, regardless of how high their salary may have become, plus benefits, take post-retirement jobs, and may be asked to come back to the same or similar job for over 100 days a year. And, the fund struggles to remain solvent. It's not just the 1% who take issue with this.
15
Also, well known are the years just prior to retirement when government employees "load up" their FAS on which their retirement benefits will be calculated (often final 3 years, maybe 5 at most.) Overtime, friendly raises, double dipping, etc. can each boost that retirement check.
Of course, their career long actuarially paid employee contributions fall woefully short of (fair share ) funding of the benefits they receive. More insolvency for the pension fund results.
The investment industry has "no skin in the game". When you do business in just about any other part of our economy, the seller specifies what they will do for you and what they will charge for that. Not so with most investments. They get their fee regardless of how well your investments perform.
I remember years ago shopping for a single premium annuity, where we'd turn over a large sum of cash, they would invest it in funds we would chose (and take the risk on their performance), then when we retired and started to draw down the annuity, the investment firm would return 5% of the balance for the following 20 years (basically returning OUR money), only in year 21 would the investment firm experience any risk...after using our money for free for 20 years. "Oh, and by the way, you might want to select an annuity that has a life insurance feature"...where they would return the remaining balance to our heirs.
No Skin In The Game!
11
The problem with pensions is at least as much overpromising as underfunding. Employers negotiate with unions over defined benefit pensions, the financial impact of which won’t really be felt for years to come – when the negotiators are no longer in office or no longer working for the company they’ve negotiated into a financial jam. Much easier to promise a payoff many years down the road than to, say, increase wages now.
The problem is particularly acute in government. One group of officeholders makes promises, and subsequent officeholders have to deliver on those promises. But along the way, revenues go up and down, and there is that other constituency – the taxpayers – to be served. When revenues are down, it’s a lot easier to skip some pension payments than to cut services (or raise tax rates). When revenues are up, some will want to cut taxes, and others will want to increase services. Nobody wants to say “hey, we have a budget surplus, let’s put it into the pension fund” – that’s not sexy.
I’ve worked over 35 years under a defined contribution retirement plan. I’ve accumulated a nest egg that should comfortably fund my retirement. And there’s Social Security as a supplement. I’ve assumed some risk over the years, related to my retirement benefits, but with risk, there are often rewards. My employer has made generous contributions, which have a cost in the present, but their obligation to me is fully funded – no impending budget crisis due to a defined benefit plan.
11
It would be interesting to see what the average monthly pension is. Some comments here use the phrase "generous pensions". When Detroit went bankrupt, I remember seeing an article stating the average pension was $15,000. a year. Not big in my book. I worked 25 years in the private sector and have a 401(k) from that time. I will retire in a couple of years from a state job that will, after 15 years, provide me with about 30% of my final salary. As far as medical coverage, for pre-medicare retirees, we can buy it for $700 - $900 a month. This is not a "generous" situation.
369
The numbers you cite do not look generous. But they are also deceiving. Take IL as an example. The average pension for someone in the Teachers Retirement System is "only" $43,000. But at today's interest rates and given the fact that teachers are pension eligible typically after just 20 or 25 years, that annuity is worth over $1.1 m today. How many people have that kind of resources waiting for them upon retirement ? And that doesn't even include the value of retiree health insurance. See link.
https://www.heritage.org/education/report/assessing-the-compensation-pub...
5
It's a matter of perspective. 30% of final pay after 15 years sounds generous. Compare to 0% of final pay after 15 years. Also, how many of those pensioners were double dipping? Average pension is interesting at all. How much tax money needs to be funneled into the plans, is much more interesting. Total cost of employing a state/local employee is much more interesting.
1
Pro-pension advocates always talk about average pensions, which include people who retired decades ago or worked a partial career. They do this to support their fiction that the pension is modest.
The proper measure is the size of the average pension for recent, full-career public employees.
4
401Ks where a boon for companies. To properly finance a pension requires 20 - 30% of salary per year. Quite a bit. With 401ks a company could get away with matching 4-6% and putting the management cost on the employees. The saving for companies are substantial, which is why they are so popular with the 1%.
Now they are also going after Social Security, Medicare, and Medicaid. For some reason the 1% likes to see the old out on the streets begging.
383
Most commenters overlook the fact most employees never received a pension--even when they worked within a defined benefit plan. These plans normally required 10-20 years to vest. Most employees never vested.
We professors long ago, decades prior to 401K, were eligible for a similar plan called 403-b. Due to mobility within academia, most professors preferred 403-b to university or state defined benefit plans, as the general population of workers has recognized a career of multiple employers is likely, the 401-K looks like a better alternative.
Also, defined-benefit pensions held people in their current employment when they have preferred to switch. 401-k helps people migrate to jobs when they believe that it is in their interest and preference to do so
9
"To properly finance a pension requires 20 - 30% of salary per year"
Any facts to back up this fanciful statement? You would be hard pressed to find any private sector firm whose defined benefit pension funding ever exceeded 20% of pay.
1
More likely, they want to see them at work. More people in the workforce - including elderly and women - expand the labor pool and drive down wages.
2
The writer overlooks the fact that the majority of pension benefits are loaded into the final 20-30 years of work, or 15-20 for some jobs like police. How many employees in the private sector intend to stay with same employer for virtually their entire career? At least with a 401k you own the money you put in and its returns. Vesting of the employer contribution is also much faster.
I also agree with the comments that it is extremely easy to set up a rationale investment plan with low expense indexed mutual funds or ETFs. Further there is an astounding number of resources online to assist in doing so.
6
It is unfortunate that you truly don't understand anything the article says. In today's age the only employees who get a "traditional" pension ie company paid for are the people at the top. The law allows the managers to have a real pension as long as the peons get a "pension" such as a 401K. A 401K is a salary deferral plan which only lowers your current income by the "contribution" to "save" for the future. They conveniently forget about college costs in addition to normal living expenses which increase every year while you salary doesn't
I have directly experienced both sides of the issue. I am 66. Traditional pensions without portability to a new job are a ball and chain.
1
The big picture can include gun regulation, bank regulation, environmental protections-- anything that shapes as a policy that is not the profit motive- gets eliminated. Welcome to the Republican Trumpian victory.
8
This nonagenarian has seen them come & go. H. trumpestis dino-don is unraveling. Hang-in!
The war continues.
The Bush family tried mightily to get social security funds invested in the stock market, which would have made their rich stock owning friends trillions of dollars, as the stocks were bid up to incredible levels, at least until the inevitable crash happened.
We are not one people and in fact have an economic system that sets one group, the rich investor class, against the rest of us. There is no difference from a Russian billionaire than an American one, they own the same politicians and strut about the same places.
When Putin took over the Russian government, it was the pensioners and war veterans who stood on street corners begging, but it was the hidden (mostly) billionaires who grabbed all the assets and gained god like status.
But make no mistake, this was voted in by Republicans, and in a democracy, they get to run things into the ground.
Income inequality is how America was founded, on the backs of slaves and the murders of the native peoples. It's founders, mostly Virginian slaveholders, chortled over the wealth available by keeping men and women and children in chains.
Pensions are going the way of cheap housing, small newspapers, and patriotism.
Hugh Massengill, Eugene Oregon
339
It is not sustainable for public sector employees to have pension and healthcare benefits that people in the private sector do not have (and who's earning pay the for the benefits of the public sector employees). The only outcome their is conflict.
23
While you are correct that conflict will be the outcome, this article explains why the private sector no longer has pension plans. It doesn't suit the wealthy owners/investors. They have succeeded in destroying pensions in the private sector and now are going after the public.
And yes, conflict is the result as people employed privately don't want to see others have what they do not. As a retired teacher I saw it up close. In my state the Republican legislature constantly attacks the teachers pension fund.
The Janus case, currently before SCOTUS, will gut public unions by allowing those who don't want to be a part of the union to not pay fees for enjoying what the unions negotiate. It will make freeloaders who will eventually weaken the union's position and power.
401ks are a joke for retirement. If Social Security wasn't propping them up at least a little they would be totally worthless for most workers. Salaries have not gone up enough in many years to allow most workers to save. They live pay check to pay check. Conversely, those I know who have pensions spend money on many varied pursuits and objects. Isn't that good for the economy?
It's all about power and control and money. But they may create a bigger mess. They may force larger blocks of people into work stoppages as we see happening in West Virginia where every teacher in the state is striking.
8
Sounds like you’re simply repeating slogans from the Koch Brothers, “Independent”. Why shouldn’t private sector employs also enjoy financial security when they’re in their senior years?
13
The solution then, Mr. or Ms. Independent, is to figure out how to motivate private sector employers to offer defined benefit plans again, not to take away those plans from public sector employees.
11
Pensions are for people who are working class for the most part. Workers who are not sophisticated with respect to finances. Why salaried and transparent -dealing pension managers are an essential protection of the pension. Unions are almost always the catalyst of a pension as well. Here is where 1%ers and Big Business (BB) balks. Unions can and do encumber 1%-BB earnings. Auto industry is a good case study: https://nyti.ms/2l9b2FC (Could Conservatives still be bristling at the Communist underpinnings of workers uniting?)
The unions and pensions did not cause the decline of the American auto industry, competition and a better business model did that, yet unionized labor costs-contracts including pensions-were factors. (Could tariffs help protect domestic production and native jobs?)
Municipal pensions do survive, but are being eroded. By contrast to 1%-BB, municipal business leaders, aka politicians, benefit directly from labor-favorable contracts and pensions, they get votes and campaign contributions. They can also use the pension funds for other municipal undertakings, or even play with funding or bond issuance. Politicos made pension equity fungible, and they shouldn’t have.
Pensions are also excellent means of control and retention. Unions and 1%-BB enterprise as well as unions and politicians / municipalities need to work together for cost sharing & gain-sharing for a win-win.
Let’s not give a lifetime of “gigs” and Uber-driving to our children.
31
I am a professional investor, with our main clients being pension funds, so I am well versed on this topic. There are several faults with this article:
1. If you want your 401(k) to mimic the S&P 500, buy an S&P 500 Index fund. They are readily available in most 401(k) plans, and many cost less than 0.1% per year. Not only is this a bargain, it invalidates much of what the author writes.
2. Calpers was a poor example. Despite being able to pick any manager and aggressively negotiate fees, their performance has lagged what they should have been able to achieve. While individual investors cannot renegotiate fees, they can vote with their dollars in terms of which funds to invest in.
3. While what Wells Fargo did was a crime, it has nothing to do with pension funds or 401(k)s.
4. Traditional pensions have both advantages and disadvantages relative to individual investors. Disadvantages include higher trading costs due to large buys/sells moving the market, and inability to take advantage of smaller, less liquid stocks that individual investors can take advantage of.
5. The author seems to think that the primary purpose of pensions is to act as a source of social change. No, the purpose of a pension is to guarantee an income to the retiree. I agree we need to fix underfunding.
I recommend that this law professor stick to law, because he is woefully ignorant about investing.
52
To point #4, traditional pensions CAN and DO hire managers of small cap company funds, as well as invest in private equity funds more easily than 401k investors.
1
As some one who is NOT a professional investor, I too saw the inconsistencies in his points. Thank you for addressing the matter.
The unfortunate truth is that the best (only?) benefit of a 401k-type defined contribution plan is the fact that politicians can't kick the can down the road. Any system where the government needs to make investments today to pay for obligations down the road is going to fail because politicians (both Democrat and Republican) cannot resist the temptation to please voters today with lower taxes, balanced budgets, etc. by "delaying" needed contributions. In the immortal words of Wimpie, "I will gladly pay you Tuesday for a cheeseburger today." The most annoying part, however, is that in the case of pensions it is the pensioners who get tagged as the bad guys, livin' large while the rest of us suffer under higher taxes and reduced services to pay for their pensions. It's not their fault that they and their unions negotiated good pensions. Or that they trusted politicians to hold up their end of the bargain.
10
Resentment: that's what many Americans feel about workers with pension plans.
Contrast this with the situation in Norway: large sovereign pension funds professionally managed on behalf of all Norwegians. And doing very well.
684
And issuing propaganda that makes people resent those who still have defined benefit pensions is a favorite tactic of the right-wing propaganda machine.
The average person's gut response to news that teachers and other public employees still have pensions is, "Why are those lazy good-for-nothings getting pensions with my tax money."
Unfortunately, most younger workers are unaware that defined-benefit pensions used to be the norm in the private sector.
The proper question should be, "Why am I NOT getting a pension?"
28
Well said. It is resentment, pure and simple, and boy, did the knives come out right after and during the after effects of the crash!
Having been a public school teacher for 35 years, I am a defined-benefit pensioner. What I often find when this is discussed with friends and acquaintances who have spent their lives in private sector jobs is vast ignorance of one important fact: that my defined-benefit pension was one of the sacred guarantees the state made to me for my agreeing to accept such low pay for those 35 years of hard work - far lower pay than other professionals with comparable levels of education and responsibility.
23
The resentment is a product of two things: propaganda from Fox News and its allies that stoke it regularly, and the death of unions that educated workers about the value of belonging to a union.
People literally died for the right to unionize - a largely unknown history - and we let ourselves be led to demonize "the hand that fed us." That's how it works!
7
I worked for a Fortune 500 top 25 corporation for 25 years until I committed the unforgivable sin of turning 50 and got railroaded out in 1993. The cutthroat, carpetbagger management that took over has liquidated that once immense, multinational conglomerate (Tenneco) to an obscure fraction of of its former size. I did hang on long enough to qualify for a small pension before I bailed out of that poisoned culture and I've been collecting it for 10 years. The most recent report on that pension fund has disclosed it will soon be unable to meet its obligations to retirees - but the Pension Benefit Guaranty Corporation, a Federal agency, will likely cover the slack for most of us, at least for a while.
I've been very fortunate to have been positioned in a timing and demographic bubble that has repeatedly granted me the benefits of what were the best years for many U.S. wage earners. I am one of the charmed beneficiaries of the Greatest Generation. That is both humbling and disgusting that my generation has allowed the next generation to become 3rd world shark food.
426
I just want to say thank you for recognizing the existence of a " timing and demographic bubble that has repeatedly granted me the benefits of what were the best years for many U.S. wage earners. " The economy really is not what it used to be. Reagan, whose generation benefitted greatly, made sure that the benefits of a thriving middle class were doomed.
26
I am sorry for you, but it looks like you already know what the boomer generation did to this country. When the history books are written, the boomers will be referred to as the most wasteful, indulgent and narcissitic group the world has ever seen.
What a spectacularly greedy lot, if you consider what they still do to our primaries and in Florida.
Disgusting.
2
Kirk, you don't have to wait for the next generation to become shark bait, there are many of us Boomers who have no pension of any kind. We are still working and most of us will until we drop dead, get fired as I and others have been because of our age or become incapacitated vegetables and get fed to the sharks. I can only assume that the taxes I continue to pay out of my non-living wages help fund the Pension Benefit Guaranty Corporation. I don't begrudge you that but yes you are fortunate.
We can all thank Ronald Reagan for making it okay for large corporations to destroy labor unions and pension funds. I hope that wherever he is he is forced to eat cat food and live under a viaduct.
3
Glad someone is finally exposing the ideological "anti-pension" drive for what it is -- simple greed at the top. This drive is part of the larger shift in the U.S. away from upward mobility and toward oligarchy, with a sharpened divide between the "haves" and the "have nots."
Another side of the pension issue not discussed in this piece is the role pensions in attracting and retaining quality workers. The same minority voices who deny the value of pensions, see no contradiction in "golden parachutes" for top executives.
495
I dont understand what the writer is trying to say at the end.....is he saying that there is some kind of magic bullet solution to the pension underfunding crisis, or that there isn’t even a crisis? his remark about the changes in pension systems since the crisis are misleading...sure some of made changes, but the majority of public pension funds (and private corporate ones) still hold less than 70% of the assets needed to fund existing and future payments. Large company pension systems have been closed by the hundreds in the past 30 years as they have become unsustainable drains to corporate profitability. Public funds benefit public employees and the political contract, and social contract that binds these plans remains the foundation for their continued existence. However the state and municipal plans are under attack by more than the Koch’s. Aging workforce’s, declining tax revenues and other government spending priorities are doing the real work. Mr Webber should really have done some better homework to address the real issues here regarding the health of the public pension system.....the investor class loves their money and the fees that continue to feed it, just the 401k marketplace does for its river of dollars.
3
Pensions have also been undermined by years of low inflation. It was easy to promise money years down the road when the real value of that money was going to be far less than it was when it was promised. Now that pensions are faced with paying out in real, uninflated dollars, they have problems.
Plus pensions conflict with the desire to have short term, gig based employees. You don't want people hanging around because they want to some day collect a pension.
4
Most public pension plans increase retiree pensions for inflation (similar to what is done for Social Security) so your statement is incorrect.
11
Up to a maximum of 2%. Works well now, but not so much when inflation spikes.
The sad truth is that defined benefit (traditional) pensions only work if the State is the guarantor and is willing to suffer the collateral damage associated with honoring its obligations.
France is an example, massive unemployment, very limited employment growth, declining relative income, but citizens still enjoy a good with health care a right. The French seem to be ok with this because they believe the government will honor obligations, view the state as legitimate institution representative of the National will, like their fellow counrymen, believe government workers (and all workers) are entitled to a middle class life and financial safety.
H about the US? Almost none of the conditions for collective national sacrifice to support pensions are in place; we don’t trust the State (federal or local), we are divided into hostile tribes, our political system is captured by modern finance capitalism, we allow private employers to default on pension obligations (steel workers) and most of us are shouldering old-age financial risk and don’t feel generous about de-risking others.
What to do? In the short run we need to require (legislate) a strict fiduciary standard for 401k, legislative action requiring all employers to pay into employee 401ks. And, we need to accept (for now) that the US doesn’t do collective risk mitigation and take responsibility for our finances.
Longer-term, political realignment, de-tribalization and social cohesion. Work for best, plan for worst.
33
The Trump administration is in the process of removing the strict fiduciary standards that the Obama administration had put in place. It now leaves money managers the freedom to work for the hedge funds rather than for the consumer.
96
AV - The fiduciary standard applied to investment advisors long before Obama was President. Check out the Investment Advisors Act of 1940. The DOL under Obama intended to extend the fiduciary rule to broker-dealers, which are not discussed in this article. I see many comments like this here where the commenter appears to have little understanding of the financial services industry.
4
My years with a Fortune 500 company left me with a fixed benefit pension - but they've taken away defined benefits for current and new employees. No need to ask who'll get the short end of that stick.
More and more and more money for the 0.1%, less and less for the rest of the nation. Do they think they can be rich enough to not need an economy?
210
Not our economy anyway. We are becoming a renter society which will only lead us to share cropping. We do all the work, they take all the benefits. The Company store will have chips and chits, the chips will be in us, the chits will be on us.
2
So, finance, especially personal investing (through a 401k) is too hard for most of us? Obtuse systems and arcane rules challenge people who lack insider knowledge and have busy lives--too busy to take time to learn and act rationally?
Then why do we think these same people are the critical foundation of democracy?
Individual investing has gotten easier and "cheaper", with index funds, ETF's, and low cost mutual funds designed for those who do not want to dedicate much time. And 401k accounts have increased fund offerings, as well as information and support. Enrollment "nudges" increase participation rates.
If we are too supine when it comes to a critical life issue like this, what good are we? Maybe people need to get "woke" about investing, and not rely on others to do it for them.
12
Finance is too hard for most of us? Regrettably yes, because most people are busy earning a living and not educating themselves and investing int the market. The problem is compounded by the incredibly low levels of financial literacy in this country. Many of my students "want to be rich" but don't bother learning the difference between a stock and a bond. Their parents (and even my peers in the academy) don't know the difference either, but are too embarrassed to admit it. So instead rely on the dubious advice of so called "experts".
8
This is a completely biased representation of the problem. The author points out legitimate issues with fee based investment vehicles but chooses the wrong solution. A multitude of problems exist with Defined Benefit programs like CalPers. They are established by politicians and are underfunded because well, politicians tend to hand out candy cotton benefits to state employees and foist the cost on future generation of tax payers (See: State of Illinois as a perfect example). The presumption that state or company run managers are better than the company run administrators of 401K's is simply incorrect. David Webber chose a terrific example in CalPers the $325B California custodian of employee money. THey are roughly $135B in the hole because ... wait for it.. they manipulated the actuarial assumptions to keep employee and employer contributions low in the short term for political reasons and over-estimated their returns. Pension reform is actually quite easy. Society should decide on whether workers must be obligated to put more than social security level amounts into forced savings. Then provide a series of public very low cost options. As Buffet has pointed out, invest in a broad market index through a low cost ETF and you will tax efficiently outperform high fee managers every day of the week
19
And it can all be wiped out in the next market downturn. My wife and I put our "rollover" into finds when we retired, only to see them drop about 20%. Luckily we didn't need them because we had a pension. It took about 8 or 9 years to recover. If we had had to actually live on the rollover, it would have been devastating.
That scenario can be especially devastating if the market drop occurs just before someone plans to retire and they are forced to keep working no matter what.
42
Jkile, you are correct that markets have risk. We have all been exposed to a forced savings with a (politically) determined benefit program called Social Security. The implied rate of return for most people is very poor and well below stock market returns but in return you get the certainty of a payment. While a 20% swing in the market is unpleasant, you can have a choice - certainty with low returns or uncertainty with very likely higher returns. If you choose the latter, you should simply plan on a lower than top of the mark payoff. You will likely be pleasantly surprised and still better off than a government program
Chris,
Haven't we heard the evils of government since forever? Guess what the evil is never as bad as people say.
We are definitely marching backwards towards a financial and investment industry totally unregulated.
And the ruling class has done it so easily, banking on the electorate’s short memories and fondness for smooth-talking salesmen.
This doesn’t end well.
187
The headline made me queasy because I suspected (correctly) what the reason was. I read the article and still feel hopeless about it. I've been retired for a year, living on under 2K per month, combined Social Security retirement benefits and a few hundred bucks from a small 401K account, which I opened only about 15 years ago. I lived overseas for over a decade and from the time I returned to the US in the mid-90s until I retired a year ago, my salary increased by only $4K annually. In fact my salary was higher when I left the US in the early 80s. Stagnant wage growth (excluding the top 1%) is still a huge factor in this problem. A few months after starting a job at a venerable private company in the mid 90s, the CEO announced it was "going public", eg, joining the stock market. In short order it canceled its pension plan; next its health-insurance plans skyrocketed. Then came layoffs, trimming, and flattened salaries to make the "bottom line" look better to investors, to whom the company was now beholden. Forget about producing quality products, not to speak of valuing employees. The company, like others, is now in the "money business," dedicated only to making money for investors. The insidious influence of Wall Street is pervasive and until this system is corrected, there will be no hope of meaningful change.
718
I want to add that it is really a tragedy that the Occupy Wall Street movement was quashed. Big, big omission by President Obama. Had the message been heeded, and action taken to address the deep injustice of our current state of economic inequality, we might have avoided the likes of Trump, whose message twists and displaces economic resentment onto a variety of scapegoats, such as immigrants, people of color, and women.
83
Yes, those pushing the private retirement accounts make it sound so easy. But many have different life experiences, as you did, that don't fit the cookie cutter mold they push.
17
I work at a non-profit hospital. The very same thing happened here after the board brought in a CEO from the business sector. The pension system was gutted, high deductible insurance became the only offering, workers laid off. When I worked at a state university, the state routinely underfunded pensions (workers also had to contribute an equivalent percentage of their salaries, so it was not "free"), all to reduce taxes for corporations and the 1%.
33
As the beneficiary of a defined benefit pension plan I watched as my non-profit employer switched to a "cash balance plan" and then to a defined contribution plan. The latter is much less trouble for the employer to budget and manage. With a defined benefit plan the employer has to deal with fluctuating investment performance as well as interest rates. In the low interest rate environment over the last few years my employer had to contribute considerably more to the pension which hurt their bottom line which could have affected their credit rating and also could have led to layoffs. It is too bad that individual employees often make bad investment choices and get charged higher fees from some investment managers. I believe it was John Bogle from Vanguard who warned investors to beware investment advisers who drive fancier cars than their customers. The article also didn't mention the battle over the "fiduciary rule" that required investment advisors to recommend investments that were best for their clients rather than for them.
41
Under Mayor De Blasio, "more people now work for the city...than at any other point in its modern history, with thousands more scheduled to join them."
Old time politics: all these new workers will not only vote for De Blasio, but they'll also have influence over how other people vote. And all these new workers, as part of powerful municipal unions, are receiving generous pensions, which a future administration will have to pay, even during an economic downturn. Echo of the 1970s, the decade economic liberals like to pretend never happened.
Fine to have good pensions for workers, but you also have to have the political will to tax the rich.
7
You have to have the political will to tax everyone.
6
Very interesting perspective to consider. We should also be questioning the movement to change Social Security to a 401(K) structure too and the harm it will bring to the vast majority of Americans.
623
You are so right about Social Security - Good retirement investments are stock, bonds and Social Security. A three leg stool. Social Security is a great diversification of retirement investment - the return may not be great but it is not stock and not bonds. As the saying goes "keep your hands off of my Social Security."
29
This is very interesting. It never occurred to me to consider the internal corporate power interest of activist mega investors in promoting the transition from traditional defined benefit pensions to 401(k) funds. Good job.
347
This has been obvious for decades. Putting average people heavily into the market in vehicles where no manager could move quickly enough makes a huge herd of sheep to shear at regular intervals. It's called profit taking, where all the gains in a 401K get skimmed off regularly by investors who can move quickly via high speed trading. On top of that, the pension liability comes off the company's books, so it's a double win for a company or government to shed pensions and direct the sheep to the 401K and IRA shearing pens. In ten years, when all the boomers are retired, living off cat food and dying in the streets, the masters of the universe will have it all.
130
What, it never occured to you why corporate power interests cancelled secure pensions and pushed 'self directed' accounts, putting all the risk onto the individual employee? Never?
8
I don't think that's what he/she is saying. The point is that corporations can use 401(k)s to preserve management power. Traditional defined benefit pension funds, such as CalPERs, hold management feet to the fire.
401(k), generally operated by investment advisors, don't do that. In fact, they make their fees by moving investments around. So they have little interest in disciplining corporate management.
That is only one of the motivations, but it helps to explain why they've been so rabid about getting rid of defined benefit. After all, it was mostly insurance companies that managed defined benefit, so the 'risks of longevity' fell mostly on them rather than the employers.
5
Mr Webber-Whether public or private, Pensions fail primarily because employers don't put in their contribution in a timely or consistent manner. In Mass our system is still struggling to make up the deficit from the first 40 years when the state ran the pension system the same way Bernie Maddoff ran his Ponzi scheme. If you look at any of the poster children for public systems in trouble today (NJ, Illinois etc) you will find they haven't put in their contribution in many years. Mass is better than most, but when the state was having problems balancing it's budget in 08-09 and Deval Patrick was governor, they cut their contribution for 3 years. The employees who were having trouble balancing their household budget kept putting in their full contribution and didn't get a payment holiday. Many systems in NY were 100% funded in the 80's until they took holidays and stopped contributing for a few years. Many private pensions got in trouble around the same time because they decided investment returns were so good they could use actuarial assumed rates of return of 9-12% (which greatly reduces the required contribution, increasing the corporations profit and increasing the CEOs bonus but bankrupting the pensions system down the road when the CEO like the politician is long gone). Pensions are like a mortgage but in reverse. How long would your bank or credit card company allow you to make reduced payments or skip payments on your mortgage?
240
It's a bit astounding that you would attribute this problem solely to "decades of underfunding pensions" while ignoring the issue of over-promising. There's an obvious structural problem that occurs when politicians can
(1) promise generous pensions based on unrealistic estimates of investment returns
(2) reap the immediate political benefits of that generosity, and then
(3) retire long before the bill comes due.
By all means, let's force pensions to be fully funded--but that means accepting realistic, far-lower investment returns. Pension beneficiaries deserve either the assurance of a defined benefit or the higher expected return that comes from investing in riskier assets. On behalf of future generations taxpayers, it's important to admit that they don't deserve both.
120
"(1) promise generous pensions based on unrealistic estimates of investment returns
(2) reap the immediate political benefits of that generosity, and then
(3) retire long before the bill comes due."
You get it. I've seen it happen so often in Texas. It is shameful. I can only hope the politicians who enabled this process find themselves struggling in their retirement years. It would serve them right.
4
Well. they certainly don't deserve neither, which is what they are getting now, and it will get worse.
1
I don’t think you have the timing correct here. Politicians don’t announce increases in pensions based on inflated return numbers. They announce better budget numbers based on inflated return numbers. So when times are tight, the books get cooked based on these inflated returns, and pensions get under funded. Since an actuary has to sign off on these numbers, they use technically legal but obviously overly optimistic (or plainly inappropriate) numbers to make it all sound legit.
Under funding of pension was exacerbated by the lack of wage growth since 1979. Hypothetically, if the average wage earners yearly income drops from say $70,000 a tear ti $35,000 a year, the tax revenues for a state are halved. So naturally the state pension funds are funded. Collateral damage to the lack of wage growth.
60
Huh ?
2