The real reason for pensions
A group of people collectively bargained for future payouts from an entity that was only represented by its current voters (or in some cases, shareholders).
Predictably the pensioners-to-be asked for generous pensions, paid early in life, at the least expense possible. Predictably the public purse was more generous with future payouts that didn't look like debt than it would be with present payouts. Predictably the economy shifted away from uncompetitive and unionised sectors of the economy in Detroit to Austin. Predictably the now-pensioners claim that they paid for pensions and are thus 'owed' them.
But from whom? Either they never cared to set up a fund or did and had the state backstop it, and now there is no money. Retiring after 32 years and earning "80% of your best 4 years of pay" for 40 years (remember, they keep paying out when you die because your wife still needs to eat, so we have to handle the statistics to handle the average case) turned out not to be affordable on the tiny percent they put away.
What else was ever going to happen?
Pensions are a foolish idea and I seriously hope no one under the age of 50 takes a job with a pension, expecting it to actually materialize. But the workers of the past didn't have our benefit of hindsight, and we should do what we can to keep our promises to them.
But seriously, guys, don't offer your employees a pension, and if a potential employer offers you one, laugh in their face. Let us manage our own retirements.
This article proposes that we close the barn door after the horse is left.
If my employer offered me a pension I'd laugh in his face. In 2013, a pension benefit's market value is $0. Who actually believes the money will be there when the time comes?
After 30 years of private sector firms refusing to fund pensions and passing them off to the PBGC, the public sector is finally getting into the game. No one should surprised.
Which is worse? Taking money from the young (who already have bad prospects) and giving it to the elderly? Or "taking" money from the elderly and "giving" it to the young? I say "taking" in quotes because a pension is a contractual obligation, not a god-given right.
Ultimately neither solution is a good one. This is class warfare at its finest.
Personally I think the social contract of the US is starting to break down, as is societal cohesion. We're all super civilized when we all have good prospects and everyone's life is improving. As the prospects deteriorate so do people's willingness to participate.
This is the really interesting part of the article:
> On Tuesday, a federal judge said Detroit could legally cut the pensions it has already promised to workers as part of its bankruptcy plan. Many state constitutions, including that of Michigan, hold that the government can’t go back on pension promises, and, because of this, cities have generally assumed that they could not touch existing pensions even in cases of bankruptcy. (Instead, many have been cutting pensions for newly hired workers.) But federal law supersedes state law, and, according to Judge Steve W. Rhodes, pension cuts are just fine under federal law. “Pension benefits are a contractual right and are not entitled to any heightened protection in a municipal bankruptcy,” he said.
Takeaway: Bankruptcy courts > state constitutions. It's a straightforward result of the Supremacy Clause, but is practically very significant.
Maybe pensions are a bad idea after all, but the bigger implication of this is that it will be yet another thing that dissuades people from public service. Some may say that's a good thing, but if you keep removing benefits of public service, it is only going to reduce the quality of people working for our government.
People talk about how bad government incompetence is now, but it can get far worse in the future. Not saying that pensions need to stay, or that they should never be cut. Just saying that if the good reasons to go into public service keep getting removed government is only going to get worse.
Related: I recently was chatting with a retired 401k salesperson who explained to me the real reason for employer-matched contributions. The highest compensated employees, typically executive management, are subject to deferral limits that are based on the contribution rates of the regular employees.
> Why is it important for companies to encourage their employees to save? Aside from “it’s the right thing to do,” there are actually compliance reasons why this is necessary. “It helps with nondiscrimination tests,” says Robert Richter, vice president of SunGard’s wealth & retirement administration business in Jacksonville, Florida. He adds, “Highly compensated employees are subject to deferral limits that are based on non-highly compensated employee contribution rates. If non-highly compensated employees defer at low rates, then it will limit the amount that the highly compensated employees can defer. Safe harbor plans are a way to eliminate that test, but in order to use the safe harbor provisions the employer is required to contribute to the non-highly compensated employees either a minimum matching contribution or an across-the-board contribution, even for those who do not defer.”
- http://fiduciarynews.com/2013/11/are-401k-plan-sponsors-pois...
I think that a pension is a promise to the employee that should be held.
I also think it was silly to offer pensions in the first place since it is not possible to predict the future. People working for cities and other organizations offering pensions should be very concerned by recent events.
What I thought was missing from this article, but insinuated: that Caeser knew: give 'em something so they don't overthrow you.
Well the modern economy is reaching such inequality levels that we're going to have to do something or else it'll be forced, and potentially volatile.
Guaranteed income seems the best plan.
Then there's this:
http://www.rollingstone.com/politics/news/looting-the-pensio...
Isn't the problem not so much with the pension, but the amount being paid into the pension fund vs what is scheduled to payout? Underfunding the plan and unreasonable expectations of the amount the fund will earn are commonly sited problems.
You folks should check out this video:
I am very glad that in the UK all Defined-Benefits pensions have to be insured, so that if the company goes bust people aren't abandoned.