Ed Brayton is a journalist, commentator and speaker. He is the co-founder and president of 
The New York Times had an article the other day about a very serious problem -- underfunded pension plans -- and what the trustees of those plans are doing to fix their past mistakes by making more mistakes.
States and companies have started investing very differently when it comes to the billions of dollars they are safeguarding for workers' retirement.Companies are quietly and gradually moving their pension funds out of stocks. They want to reduce their investment risk and are buying more long-term bonds.
Sounds benign enough. But here's the problem:
But states and other bodies of government are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk."In effect, they're going to Las Vegas," said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. "Double up to catch up."
The problem of underfunded pensions is one that few people are talking about, but it's a gigantic iceberg that this country is going to ram in to in the not too distant future. Social security and Medicare are, of course, huge underfunded pensions because the money that was supposed to be set aside and invested to pay for the retirement of the baby boomers has been spent instead (it makes the deficit look lower than it actually is every year).
But that's just the tip of that iceberg. Nearly every state has an underfunded pension plan for state employees, some far worse than others. Michigan alone has $50 billion in unfunded pension and healthcare liabilities for government employees. And the corporate world is no better. GM and Chrysler alone have $29 billion in unfunded pension liabilities.
The problem is that when those people retire and start drawing on their pensions (and social security), the only way to maintain the level of benefits they expect and have been promised is to up the taxes on those still working, and the ratio of workers to retirees is going to go way down. And this is true even of private pensions because if they default on those pensions, the government has to take them over through the Pension Benefit Guaranty Corporation.
This is a notoriously short sighted country, and we're headed for disaster if we don't start fixing this problem now.
Politics
Comments
During the bail-out the US seemed to manufacture vast amounts of money out of no-where without putting up inflation (i.e. you didn't print money).
Surely the only way to do this was to borrow from someone (China?).
I see people expecting this problem to be solved in the same 'magic' way - the money will just come from somewhere.
The real question is what happens when the US credit rating starts to fall (see 'too big to fail') or when debts start getting called in.
I hear Alaska is nice - how is it worth in today's money?
Posted by: David Durant | March 17, 2010 9:33 AM
David, Alaska used to be pretty valuable, what with all the oil and caribou, but then it became public knowledge that Sarah Palin lives there and property values plummeted.
Posted by: Squiddhartha | March 17, 2010 9:37 AM
David, we did just print money. The reason the inflation rate has not gone up is that 10s of trillions of $ were destroyed by the collapse of real estate prices and the stock market. We've been printing roughly enough money to counteract the decline in value of those assets, thus keeping inflation near 0 rather than letting it go negative.
Posted by: delurking | March 17, 2010 9:57 AM
During the bail-out the US seemed to manufacture vast amounts of money out of no-where without putting up inflation (i.e. you didn't print money).
I'm not so sure about the printing part of that statement. What happened to all of that money is that it was used to fill gaping holes in balance sheets, so the velocity of money remains at historic lows. Same thing as happened in Japan, 1990 to present. We run the risk of nasty inflation once the velocity of money picks up again, but that may be a few years away yet.
Posted by: Eric Lund | March 17, 2010 10:02 AM
Ed stated:
Not only are we short-sighted, but we also have large contingencies of people that will advocate for ever-more irrational or defective policies the clearer past mistakes become as it becomes clear a crisis exists. I used to believe that people would eventually wake-up out of their lethargy or discard their biases as a crisis became undeniable, e.g., we required Pearl Harbor to respond to the rise of fascism - it really was our problem as well as Europe and the Far East's. Instead this generation now has significant chunks of the population who advocate even more shrilly that the looming crisis is the fantasy of their political opponents or they advocate for policies that were a primary contributor to creating a crisis.
An example of the latter is the GOP advocating primarily for tax cuts given our current and growing national debt crisis. It's not just your totally idiotic ignorant politicos like Sarah Palin who advocate such, but also your so called moderates like Sen. Scott Brown and supposed policy wonks like Rep. Paul Ryan (WI) and Rep. Eric Kantor (VA).
An example of the former and a world-class, perhaps ultimate example, of projectionism you'll ever encounter is Sen. Inhofe talking this week about climate change and Al Gore. I double-dog dare someone to top this. Watch the 51 second video for the full impact. Safe for work, but turn off your irony and projection meters.
Posted by: Michael Heath | March 17, 2010 10:18 AM
Michael Heath @5:
Why should it matter whether the government spends the money on tax cuts as the Republicans want or on creating large underfunded entitlement programs as the Democrats want? Either way we have a recurring drain on money available to the government and mounting deficits. It's like the old dieting refrain: you'll lose weight if calories in minus calories out is negative; the exact reason that it's negative doesn't matter so much. The problem is not that the Republicans want tax cuts; it's that they don't want to have corresponding budget cuts to pay for them. Likewise, the problem (from a fiscal standpoint) is not that the Democrats want the government to somehow pay for everyone's health insurance; it's that they don't want to have corresponding tax increases to pay for them (since, after all the whole point from the public perspective is to give people "free" health "care"). And the real overarching problem is that progressives get the first problem but don't seem to understand the second one and conservatives get the second problem but don't seem to understand the first.
Posted by: Miko | March 17, 2010 11:09 AM
The entities should declare bankruptcy and distribute what they have based on what was put in by participants.
Start over.
Posted by: datruth | March 17, 2010 11:19 AM
The really bizarre thing is that putting money in long-term bonds right now might be the stupidest thing they could do: the interest rates have nowhere to go but up - and when they do, it's going to flat out destroy the bond market.
Posted by: Don | March 17, 2010 11:26 AM
I don't see a fiscal problem here. Americans and American businesses are already paying for their health care. A proposal for a single-payer system merely reroutes those dollars past the insurance companies, and should do it in a revenue-positive way. Americans and American businesses would be paying less healthcare dollars into the system, not more, so there is no real fiscal problem inherent in the idea at all.
This, it seems to me, is qualitatively different than the Republican tax cut approach, which would starve the government of revenues needed to provide services - exactly the opposite of a single-payer system.
Posted by: Gingerbaker | March 17, 2010 11:30 AM
Miko @6: It doesn't matter much from a deficit point-of-view...but when was the last time that happened? The last large, underfunded entitlement to pass was the Republican Medicare drug fix. Do I have to bring out the old chart on post-Vietnam deficit spending as a function of party? This pox-on-both-their-houses is part of the problem--when one party is clearly being more fiscally responsible than the other, the proper reaction is to publicly acknowledge that fact in order to encourage such behavior in the future.
Posted by: Shygetz | March 17, 2010 11:36 AM
"During the bail-out the US seemed to manufacture vast amounts of money out of no-where without putting up inflation (i.e. you didn't print money)."
You have fiscal policy and monetary policy. Fiscal policy, which is raising taxes and spending money, was used when the government borrowed money from China to give tax cuts and fund some jobs in the stimulus package.
Less clear is monetary policy, controlled by the Fed, which has made huge puchases of assets held by banks, to inject money into the system. The Fed's balance sheet, which was added to using money they just printed as little electronic digits, went from 6% of GDP in Q2 2008, to 16% in Q3 2009. That's just under $1 trillion to $2.25 Trillion in 2009.
so we did print money, it was just given to the banks as part of a lending facility or TALF/TARP asset swap. They boorowed at 0% and are lending it back to the goverment at 3%.
Posted by: Kevin (NYC) | March 17, 2010 11:37 AM
"Why should it matter whether the government spends the money on tax cuts as the Republicans want or on creating large underfunded entitlement programs as the Democrats want?"
It was the DEMS that wanted PAYGO. It was the DEMS that ran a surplus. It is the DEMS that are actually looking for ways to pay for extending insurance coverage to a large portion of those that don't have it.
It was the REPUGs that spent every dime we had and then went on a binge that wound up putting everyone in hock to China.
NOT THE DEMS.
Posted by: Kevin (NYC) | March 17, 2010 11:40 AM
Just a quibble, but Social Security is not an underfunded pension plan. Unlike Medicare, which never sequestered enough monies for its upcoming demographic challenges, Social Security is better defined as a properly-funded pension plan from which the Federal government has improperly borrowed.
Quibble aside, your post is very cogent, especially in light of the ridiculously enormous sums squandered by our military and fiscal stimulus expenditures. These long-term issues deserve a hundred-fold increase in public awareness.
Posted by: Gingerbaker | March 17, 2010 11:42 AM
Just get rid of pensions.
Transform them into portable 401-Ks.
Make health insurance portable and divorce the policies from employer sponsorship.
Posted by: datruth | March 17, 2010 11:46 AM
Miko,
I have to point out that you are using the Republican talking point against the Democratic plan which doesn't really represent the Democratic plain fairly. I'm not saying they can't screw it up, remove important provisions that would have made it workable, etc., but big parts of the health care reform issue involve the fact that we already pay more for our health care than any one of the major industrialized countries that have some form of single-payer or hybrid system. Again, if implemented properly, health care reform will stop the skyrocketing costs and roll them back which would go a long way towards making this not only a budget neutral plan, but potentially could but the budget in the black (for this single issue).
Again, I'm not saying the Democrats wont screw it up, but claiming that Health Care Reform is as irresponsible and idiotic as Republican calls for tax cuts is less than honest.
Posted by: dogmeatib | March 17, 2010 12:00 PM
As a Gen-Xer I don't know anyone of my friends who is counting on Social Security. Its IRAs all the way.
Only my opinion but with the baby boomers being such a large voting block, I suspect the "solution" to underfunded social security will be a raise in the minimum age for benefits that will track just behind them (i.e. so the boomers' benefits are unaffected). My generation won't see a return until we're in our 70s and there's a significant drop in the boomer population.
Posted by: eric | March 17, 2010 12:12 PM
Don't worry.
The boomer's grandkids will pay for genX social security.
Posted by: datruth | March 17, 2010 12:15 PM
Now for some news from across the pond :
Here in France, a quasi-dogma among the right is that the current pension system (based on repartition: today's active workers pay for today's pensions) is bankrupt and should be gradually replaced with a system of pension funds. Because if it's good enough for the USA, it should be good enough for us, of course.
I think they should read the US news more often.
Posted by: Christophe Thill | March 17, 2010 12:16 PM
Two reasons this isn't possible and at the same time incredibly dangerous to try to implement. First, the pension systems (social security included), are founded upon continued funding to keep them working. That's why the GOP's privatization wont work. It's like sawing three of the legs off a table and then expecting it to stay standing, wont happen. Doing so would screw over every single retired worker who participated in the plan and is now retired.
The second issue is, by privatizing, you both set the retirees up for dismal failure (see the 40% loss in market value 2008), and you give businesses a legitimate argument for not contributing (which is really what the GOP wants and has since '35). In this case, again, you have a two part problem. First, while pension plans can (and are) subject to some of the dangers of investing, there are safeguards and provisions in place to protect the retirees in worst case scenarios. With 401k's, no such protections exist. You lose your 401k, you get to work another 20, 30, 40 years, period. Second, pension plans involve employer contributions. In fact it is one of the arguments for why a lot of state and local government employee salaries are lower than similar jobs in the private sector, IE your benefits are better and safer. The reality is that they aren't better, for example my health care is absolutely terrible if I go beyond the individual plan to the family plan, but again, my pension is protected and is matched by my employer. Going to a 401k based system would eliminate all of those safeguards and, at the same time, would give employers a legitimate argument that it is an individual's 401k, the employer shouldn't be expected to pay into it. That would effectively cut many worker's pension plans --> 401k plan contributions in half which would decrease their benefits and, at the same time, increase the amount of time they would have to work.
You can try to argue that employees who find that their employers aren't going to match their contributions should simply leave and go to an employer that will do so, but the problem with that is, once you hit your mid to late 40s, you really don't have as much of an option to move to another employer without major competition, taking major cuts in pay, etc. IE about 10-20% of the labor force is effectively trapped in their current job for all intents and purposes.
What such a plan would entail is:
1) Millions of retired/pensioners, would be forced to return to the labor force.
2) Millions of those reaching retirement age would be forced to remain in the labor force.
3) Millions face losing their entire retirement fund (with no safety net) as the (STILL) unregulated market can (and has) lose massive values.
4) Businesses, both public and private, will be able to maximize their profits or minimize their expenses to the detriment of workers (yet again).
These factors combined would, increase unemployment, increase the size and competitiveness of the labor pool, reduce the quality of life, and likely lead to more retirement age people dependent upon the income of their children to stay alive thereby reducing the ability of working age families to consume thereby slowing down our economy even further as discretionary income is rerouted into staple products (food, medical, etc.)
In effect, your plan would reverse the entire concept of retirement plans and restore us to a pre Great Depression economy.
Posted by: dogmeatib | March 17, 2010 12:17 PM
Cristophe(r?),
Actually it does work quite well if you don't redirect the money (a'la Social Security), or you don't have a large workforce followed by a smaller workforce demographic (IE the "baby boom" followed by Gen-X).
Overall the system worked quite well until the 80s (social security) and the current stock market bubble. In the 80s they started using some of the social security trust fund to buy up treasury bonds to help finance the debt and deficit spending. While the bonds did earn interest, after accounting for inflation, they ended up being a nil interest bargain, or even negative in years of higher inflation. That meant that while the social security fund was technically increasing by $200 billion or so every year, that $200 billion was effectively earning zero interest which is effectively like stabbing multiple holes in your fuel line. Sure, the car will keep running for a while, a long while if you keep pouring gas in the tank, but its efficiency is greatly reduced and eventually you're going to run out of gas. The pension fund problem was a little different. As long as companies and state agencies were careful with their money and made safe investments, they too would be okay. The problem came in with the 2008 crash. Many of the investments were falsely listed as A grade investments and higher. That is where some of the criminal liability comes in. You can't really blame the people in charge of the funds if they invest it in what are listed as good, safe investments when the people in charge of rating those investments lie and cheat. That's why the guys at Enron, the financial market guys in '08, the real estate market guys in '06-08 are such rat-bastards.
When you see 40% of the stock market value vanish, you're going to see ripples throughout the economy, especially those areas that involve investment. I don't even blame the pension investors for making risky investments. Sure it's dangerous, and in many cases will prove to be foolish, even stupid, but it is also human nature.
Posted by: dogmeatib | March 17, 2010 12:40 PM
There is a general election coming up in May in the UK.
The Labour Party, in full knowledge that there was going to be an election this year, raised the top tax bracket to 50% (from 40%).
Next month, a new budget will be announced, and the Chancellor has already said it will be a "tough" budget with no giveaways (unlike the usual sugar in the last budget before an election).
Finally, all three parties are campaigning as the party to make the deepest cuts in spending over the next few years. All parties claim they will cut spending -- Conservatives say they will do it right away, Labour says that they will too, but in a year or two once the economy is on a better footing, and the Lib Dems want all government spending to be on the table for cuts (unlike the other two).
I don't know how engaged the British public is in this deficit debate, but all the politicians are competing like crazy to appear as the most responsible and austere guardians of the economy. Quite a difference from the current situation in the US.
Posted by: tacitus | March 17, 2010 12:46 PM
dogmeat @ 19
whuh?
(the pension systems (social security included), are founded upon continued funding to keep them working. )
nope. they're based on investing wisely and paying back participants. good plans can survive no more funding.
Ponzi schemes rely on continued funding.
(by privatizing, you both set the retirees up for dismal failure )
really? investing in mix of bonds and stocks and buying and holding and reinvesting over the course of a career is a bad strategy?
do yo have any evidence besides cherry picking 2008 stock market? stock market procues 11% returns over long run, inflation is 4% = 8% real return. mix in bonds to smooth the ride.
I'm not saying dump social security. It's the safety net for morons that can't save. If we ever ran a guvmint surplus, I'd be for investing in private bonds and equities.
Given the choice between portable 401K/IRA over employer, I pick 401K.
Employers do in fact often provide matches for employee contributions. It is not illegal and not uncommon.
Posted by: datruth | March 17, 2010 1:02 PM
datruth @ 22:
This is the typical nonsense that I hear from the political wing of the Ayn Rand cult.
You did not provide any evidence that Social Security is a Ponzi scheme. How is it a Ponzi scheme?
The Wall St. banks seem to be engineering Ponzi schemes, so I think you have it backwards.
Did you ever consider that the reason why people aren't saving is because of medical bills?
It never ceases to amaze me that you advocate laissez faire capitalism when it clearly does NOT work?
Typical of the delusional thinking one finds in deeply indoctrinated people....
Posted by: Brian W | March 17, 2010 1:55 PM
dogmeat @ 22
okay dodge the issues i raised.
i'll bite ...
1) I'm not a randist and saying that a randist supports it doesn't disprove anything. Der Fuehrer wore pants. Does that make pants evil? Not all pensions are run by crooks that rely on Nancy Pelosi and John McCain to bail them out.
Ponzi schemes supported by Bush and Obama. Dems and Repubs both voted to bail out their Wall Street MBS leveraged bribers/campaign donators.
2) I didn't say SS was a ponzi scheme. Read carefully before going off on a rhetorical tangent.
3) ... (because of medical bills) ... and new cars and mcmansions and eating out and liquor and mcdonalds. lot's of reasons people don't save. so, yeah I have considered it, that's why we have SS. it's for moron's that can't save.
So, yeah, just call your critics wingnuts and you WIN argument! Folks that that rely on ideology have social pathology.
Posted by: datruth | March 17, 2010 2:12 PM
On Social Security funding, it behooves us to read Paul Krugman
http://krugman.blogs.nytimes.com/2008/03/28/about-the-social-security-trust-fund/
Note that SS is funded by a regressive tax (only on income below
~90k$ individuals). Krugman:
"If Ronald Reagan had said, back in the 1980s, “Let’s increase a regressive tax that falls mainly on the working class, while cutting taxes that fall mainly on much richer people,” he would have faced a political firestorm. But because the increase in the regressive payroll tax was recommended by the Greenspan Commission to support Social Security, it was politically in a different box – you might even call it a lockbox – from Reagan’s tax cuts. "
Now President Bush the lesser handed out the accumulated savings from the Social Security Trust Fund as tax cuts, mainly to the 0.1% richest Americans (the rest of us save $35.95, and your kid's school needs another bake sale to buy test tubes for chemistry class).
And now 'Conservatives' call for, you guess, cuts in Social Security, claim (wrongly)that it is a Ponzi scheme....
Those of us who worked the last 20+ year did pay up for Social Security. (But enough of us were stupid enough to vote for Bush, Al Gore's 'lock box' looks so much more appealing now).
Social Security is actually not at all a bad investment, if you consider that it includes an insurance component: If you die, your spouse and kids get survivor benefits!
(Without that, should you die when your stock-invested savings are down, your family might lose the house).
And there are still people out there proposing we should all have invested our pension funds, individually (so as to generate more fees for Wall street), in Enron stocks, e.g.
Actually, many Americans nowadays do not have 'defined-benefit' pensions, but rather 'defined-contribution' pensions, that is, they carry all the risk of a stock market plunge. We envy those who still can get a 'defined-benefit' pension, like our parent's generation, and Europeans.
A change in accounting rules (during Bush admin) made it easier for companies to invest less than actually needed in their future pension obligations; that's why some pension funds are in trouble. (And don't forget that until a few years ago, a company's pension fund could be solely invested in the company's stock. So when Oregon Power was taken over by Enron, OP's pension funds holdings in OP stock [absolutely safe! Never missed a dividend since 1905 or so!] were promptly exchanged into Enron stock, with the known outcome [rescue by taxpayer needed]).
Posted by: A | March 17, 2010 2:56 PM
This is a notoriously short sighted country, and we're headed for disaster if we don't start fixing this problem now.
The only true fix is to spurn permanently socialism in this country. It doesn't work and it's absolutely unsustainable. These pension costs got so high because politicians were constantly making sweetheart deals with the unions so the unions would contribute to their campaigns. The fact that so many states - and mainly those with large social welfare programs - are on the brink of bankruptcy is proof that socialistic welfare programs in the long run are unrealistic and unsustainable.
Posted by: mroberts | March 17, 2010 3:11 PM
An example of the latter is the GOP advocating primarily for tax cuts given our current and growing national debt crisis. It's not just your totally idiotic ignorant politicos like Sarah Palin who advocate such, but also your so called moderates like Sen. Scott Brown and supposed policy wonks like Rep. Paul Ryan (WI) and Rep. Eric Kantor (VA).
Add spending cuts to those tax cuts and you have a recipe for success. Paul Ryan is not just advocating for tax cuts Heath, he is also advocating for spending cuts. At least get his whole argument right for a change.
Posted by: mroberts | March 17, 2010 3:13 PM
The fact that so many states - and mainly those with large social welfare programs - are on the brink of bankruptcy is proof that socialistic welfare programs in the long run are unrealistic and unsustainable.
It is also unrealistic to think that if a very large portion of the voters suddenly go into poverty, they won't (elect a government that will) change OUR taxes to get out of poverty. Which will affect you. In a representative government they can, they will, and its their political right to do so.
So, you may want to consider social security to have an insurance component for YOU, though not the one A@26 mentions. It insures the stability of your taxes, by reducing the chance that other voters will suddenly, at some future date, feel the need to vote higher taxes on you.
Posted by: eric | March 17, 2010 3:31 PM
Which Europeans are those? defined benefits schemes are rare in the UK. I think school teachers still get them and obviously MP's give themselves a very nice pension but for the rest of us especially in the private sector its defined contributions all the way.
Posted by: Matty | March 17, 2010 3:56 PM
Tell it to Europe, you brainwashed putz.
Posted by: Gingerbaker | March 17, 2010 4:03 PM
datruth @24,
Before I reply to your comment(s) content and substance, I'd like to make a few pointers to help you with your argument(s).
First, be careful to know for certain to whom you are replying. I didn't make the comment you attributed to me, Brian W., did. Second, when slamming someone for not replying to the substance of your post, again, be certain that they were actually the person who posted the response. I didn't "dodge your issues" because I didn't make the comment. Third, be careful to correctly identify the post to which you are replying. #22 is your own post, #23 is the post you take exception to, you know, the one I didn't write?
Now, having addressed those issues, I will reply to the content of your post. I am merging your #22 and your #24 where the substance of your arguments are consistent.
You suggest less than a full understanding of how pension plans (including Social Security) actually work. If you took a 20 year pension plan, at 2/3 your salary at the 3 highest years, you would break most pension plans within about 25 to 30 years. In effect a pension is a gamble. You're gambling that you're going to live more than 20 years after you retire, I'm gambling that I am, and we're both (in essence) gambling that the other isn't. To keep the math simple, let's pretend that I make $100,000 per year for my three highest years. That means my pension (@2/3) will be $67,000 a year. Unless you're talking some seriously impressive investment rates, extremely high matching funds, or extremely high pension withholdings, such benefits aren't possible with a one to one system like you suggest. Add to that things like disability and survivor's benefits and a 1:1 ratio pension plan would fail miserably. Also add to this the fact that the pension plans, when implemented, had numerous workers at or near the end of their working lifetimes who benefited from these plans (including social security). Also, if it was a 1:1 ratio, just assuming an individual worked from 25 to 65 and then retired and lived to 105, they would run out of retirement benefits, even at 2/3, long before they reached that age.
The reality is that the current working cohort pays part of the costs of the retired cohort who preceded them. That retired cohort paid part of the costs of those who preceded them. The incoming cohort is expected to pay for the current cohort when they retire. Taking the money out for individual retirement plans destroys the whole system. Why do you think so many of the organizations that propose privatization of social security and pension plans are the same organizations that opposed both from their very inception? Now all of the sudden their altruistic in their motives? Hardly.
Also they aren't Ponzi schemes because they do pay out. The reality is that they are (intentionally) shared risk strategies. If I go in individually and invest for my retirement and make mistakes, I'm out of luck. On the other hand, if I am part of a pension plan, I share the risks and rewards but both to a lesser degree. Also because of the larger reserves the pension plan can get significantly better rates of return on the investments if done wisely.
----------
It isn't a bad strategy if you have the money to invest from the very beginning and you don't have any setbacks throughout your entire working career. The reality though is that most Americans don't make enough money where they can invest it for their future, don't have the skills (or luck) necessary to invest it successfully, and/or at one point or another in their lives run into situations entirely beyond their control. I'll give you a few examples:
1) I am a perfect example. Previously my wife and I had saved $400/month. We live frugally, well within our means, have few debts and few bills. Namely what you would refer to as the "intelligent" rather than the "moron who can't save." Over the last few years though, our savings have been whittled away to nothing. Because of the economy my wife's employer established a pay freeze, since then, due to inflation, her wages have effectively dropped on average 3% each of those years to the point where she is effectively making 10% less than she was a few years ago. On top of that, also due to the economy, I took a 20% pay cut and am looking at the potential for another 5% pay cut this year (neither including inflation). The reality is that economic factors entirely beyond our control have effectively eliminated our ability to save for our retirement.
2) I had a friend who had invested wisely and was able to retire in his late 40s. During the height of the technology growth period, his portfolio was caught by a bizarre combination, and he was virtually wiped out. He had done everything recommended, diversified, a combination of safe, moderate, and risky stocks, etc., and still lost in a very short period of time, virtually his entire retirement plan forcing him to return to work in order for him to rebuild his portfolio in the event he lived beyond 70.
3) I don't need to point only to 2008 to show times where the stock market has vaporize people's retirement plans. That isn't an aberration, it's a cycle. ENRON is a perfect example. Utility companies are generally considered safe, along with real estate, for investment. Add to that silver, gold, and other hard commodities. Again, each and every one of those "safe investments" over the last 30 years has had an incident where, if your retirement was tied to those investments, you could have been wiped out or suffered a serious setback. In fact I have seen "good" investment strategies that involve a mix of utility, property, and hard currency investments. ENRON + mortgage meltdown + The Hunt family & silver = total meltdown of a allegedly diversified portfolio.
Rather than individuals making poor investments and paying for their own mistakes, each one of those involved malfeasance or manipulation of the market for the advantage of a tiny part of the population at the expense of millions of individuals.
Given that social security was never intended to be the sole means of support for the retired, I'm not certain what this has to do with anything? As for a budget surplus, given that the interest payments alone on the debt, post Bush(43) are in the neighborhood of half a trillion dollars annually, I don't see us having a surplus in the foreseeable future so what you'd like to do with them is like pondering what it would be like to ride a unicorn.
Who said anything that suggested that employers don't optionally do this or that it was in any way illegal? Also, how does this refute the argument that privatization of pension plans (and/or social security) would not lead some companies to withdraw their matching funds? That's like saying because some companies voluntarily don't use tainted meats or expired products that there isn't any reason for the FDA to do inspections. If you were to privatize pensions and/or social security, *some* companies would continue to match contributions, but others, seeking to maximize profits, would look very eagerly at that being an area they could cut. The logical and rational argument could be, of course, that it is "your private retirement fund, why should we, the company, contribute to your retirement, it is your responsibility, not ours." With one stroke of the pen you've eliminated 70-80 years of collective bargaining, employee rights and benefits, and given those who hated the very idea of benefits for workers precisely what they've wanted for generations. Congratulations, we can party like it's 1889, read a little Mark Twain, and lament that we've entered another Gilded Age.
From #24:
Quite the rant here. Your departure into the land of Godwin not withstanding, the Hitler euphemism doesn't work unless we were talking about eugenics and someone were to argue that your position was similar to Hitlers. In this case the Randist's idiotic stance on taxes, bogus arguments in favor of "rugged individualism," and self masterbatory love for the rich and successful actually do play a role in the discussion where Hitler's position on fashion choices is rather nonsensical. The reality is that Randists, in general, oppose reality when it counters their ideology and make arguments that are quite similar in content and ideology. If you espouse (or appear to espouse) a thoroughly discredited ideology, don't be surprised or offended when it is pointed out to you.
Actually, I already responded to this nonsense earlier, a perfect example is my own financial/savings example above (#1 in my points). We had carefully planned out our expenses, set up our finances with $5000 a year in savings above and beyond our social security and my pension. This was planned out and figured out after all of our expenses, including discretionary spending on things like cars, eating out, etc. What has since happened, entirely beyond our control, is a reduction in our household income combined with an increase in our expenditures related to inflation that has caused those investments to vanish. I know literally dozens of households like this just amongst my coworkers, family, and friends. The reality is that many of the people you refer to as "morons" have been forced into the choice between their retirement savings and their quality of life in the present day.
Posted by: dogmeatib | March 17, 2010 4:50 PM
I said that the last patch to Social Security wouldn't work when they did it back in the 1980's (and my LTE on the subject is a public record). This is more of the same.
Posted by: Cynical | March 17, 2010 4:54 PM
Except, of course, for much of Europe, where is has worked quite well.
To be honest mrroberts, I get very tired of conservatives like you who argue the same flawed points and same flawed logic despite the fact that their arguments have been shattered over and over again. Your basic response is "vote Republican, they'll fix it!" except much of this mess was caused by their failed policies.
48 of the states of budget deficits. That means that the states that have or don't have "large social welfare systems" are in trouble. Why is that? Because the private sector, after being deregulated by people who, like you believe that the market place is the best solution to all problems, totally screwed over the nation (really the world) in order to make a quick buck on risky, short term investment strategies that included long term penalties that we all get to pay.
Your argument? Screw the poor, who didn't cause this, let them be poor with no system in place to help their children get food, education, or opportunities. I guess they don't need medical care if you let them die in the first place, right? Yours is a cold hearted, "I've got mine, fuck the rest of you" mentality that, thankfully, most of us are better than. Pity you aren't.
Except for two major problems. First, we've reached the point where we are below the effective tax rate. Tax cuts in the stimulus plan are getting $.50 for every $1.00, IE they're upside down. Responsible, reasonable economists recognize that tax cuts aren't going to have the impact that conservatives continue to believe they will have, they will, instead, simply add to the deficit and debt. Simply a tax on the future. Second, the actual cuts that conservatives agree on amount to less than 1% of the budget. We found this during Bush, we find this again with polls conducted at CPAC and of other self identified conservatives. You guys like to talk about cuts, but you don't really actually want to cut anything. When you actually get down to the "welfare" and "foreign aid" that conservatives are willing to cut, it boils down to about 1% of the total budget. And, yet again, it really boils down to "I've got mine, fuck the rest of you!" So really, the conservative response is bullshit in, bullshit out. Much like the last 8 years, but hey, at least you guys are consistent about something for a change.
Posted by: dogmeatib | March 17, 2010 5:09 PM
Was it ol' Ron Reagan who started spending Social Security? I sure remember ol' Ronnie taking an axe and carving out a huge piece at any rate.
Stocks will always be a problem because of the way they are traded - people pay more without a corresponding increase in productivity or sales. You pay more for a piece of paper while profits do not increase to justify what you're paying - and how is that supposed to be good? It is only good while some fool will pay you even more money for that worthless (now imaginary) piece of paper. The stock system needs a serious overhaul - I believe it is still an essential part of commerce, but it should not continue to exist in its current form. It should be a tool for raising capital for projects, not something to be simply traded for ever higher prices with no link back to reality.
Posted by: MadScientist | March 17, 2010 5:51 PM
@tacitus: that's funny. First Blair, then Brown claiming that the money they are throwing out (and throwing to overpaid irresponsible people and the corporations they run badly) is magic and will not put the population into debt - and then taxes go up. Congratulations, and welcome to fascism - you only exist to support the new royalty who run the large companies. What has always annoyed me is that the vast majority of people seem to swallow all the nonsense.
Posted by: MadScientist | March 17, 2010 6:05 PM
To be fair, while Reagan was president, it was a bipartisan decision to require that social security purchase treasury bonds. What that has effectively done is "reduce" deficits by roughly $200 billion while at the same time eliminating the interest that SSA could add to the general fund thereby making it more and more unstable. Even if you were talking 1% interest post inflation, you're talking $2 billion, on top of that, it's been going on for roughly 25 years which means that $2 would have been added to 24 more times and compounded over and over again.
Neither party has the guts to stop doings because the other party, as we see with the GOP blaming the '09 deficit on Obama, etc., is more than willing to pretend that the $200 billion dollars which would appear as deficit was because of irresponsible spending of their opponents.
[note: I am greatly simplifying the process]
Posted by: dogmeatib | March 17, 2010 6:11 PM
Christophe Thill | March 17, 2010 12:16 PM:
Perhaps they do read US news, and based on it, they have concluded that many people are so ignorant they can be made to believe arbitrary lies.
Posted by: llewelly | March 17, 2010 6:49 PM
op said: "States and companies ... [are] reducing their investment risk and are buying more long-term bonds."
op said "But states and other bodies of government are seeking higher returns for their pension funds [...] Higher returns come with more risk. "
so, are they reducing or increasing their investment risk?
Posted by: Bos | March 17, 2010 7:10 PM
dogmeatib, we've lived too good for too long, with jobs, insurance, public schools, roads, emergency services and so-called "social programs" that disproportionately "assist" the poor to "not starve" or "get an education to help them pull themselves out of the grinding circle of poverty".
These so-called "egalitarian" "humanitarian" measures distract the plebes from their dutiful responsibility to faithfully, in service to higher masters, grease the wheels of our factories and far-flung battlefields with their painfully shed and patriotic blood.
You have to realize that it's time for all of us to make sacrifices, so that those above us can maintain or expand their standard of living, as they've done before and will again, forever and ever more. Amen.
Think of it as the "Trickle Up Theory". It's what the Founding Fathers and Jesus would've wanted.
Posted by: Modusoperandi | March 17, 2010 7:12 PM
@dogmeatib
Well, that's the point, no? The interesting thing is that this is all for benefit management these days, though they often talk of "shareholder value." If you think they really care about shareholder value, take a look at the performance of your 401k.
And I thank the FSM every day that Bush wasn't able to "privatize" Social Security -- because I know damn well where the vast majority of the infamous CDOs would have ended up -- in the approved funds set up to meet the regulatory requirements for Social Opportunity Accounts or whatever the hell they would have called it.
Posted by: Craig Pennington | March 17, 2010 7:43 PM
@dogmeat
Ah, I see the problem. You think private pension plans rely on new employees paying for old employees. (Social Security currently does, that's a separate issue). No. An industry could disappear and no new employees would work for a specific company. A well managed fund would have invested in a mix of bonds, stocks and maybe other investments, calculated the longevity of the contributors and be able to pay out what they said they would. A bad would not. That's the problem with pensions and why 401K/IRS/TSP etc. are good. I"m glad to straighten you out on this. No problem.
Sorry to hear about your financial woes. Save more. A rainy day will come. Be prepared.
Posted by: datruth | March 17, 2010 8:14 PM
I stated @ 5:
mroberts responded @ 27:
mroberts - OK, I'll violate my own standards and respond to you this time. I see you still have a remedial reading comprehension problem (see my emphasis added above). Rep. Ryan's plan in no way solves the national debt problem but in fact argues to maintain deficit spending into at least the 2060s because he cuts taxes.
We know the GOP will vote to cut taxes, they repeatedly have done so even when economists predicted doing so would increase debt. We also know that the GOP will vote to cut taxes even now without corresponding spending cuts given their talking points continue to specify tax cuts without promoting any spending cuts that would reduce debt. Sen. Scott Brown made this very case in winning Massachusetts in Jan., and GOP House leaders Rep. Boehner and Rep. Kantor continually make this case along with their informal leaders like Sarah Palin.
Yes, Rep. Ryan proposes to cut spending, you are right about that, but I didn't mention it because his spending cut plans will not happen in at least this generation, they're illusory. As I originally stated, I was referring to the entire party and its members primarily promoting tax cuts; Rep. Ryan does propose spending cuts even he knows will never happen - I see this as an example of how deeply unserious even their supposed policy wonks are.
If Rep. Ryan would have proposed deep defense cuts, not advocated radical beneficiary cuts to Social Security and Medicare but instead adequately funded them with tax increases, and generated annual budget surpluses in the 2030s, that would be a serious plan where his defense cuts would be worthy of mentioning. We all know, well those of us who aren't delusional idiotic sheep, that his spending cut proposals can't even garner the support of his own party, let alone the majority of Americans.
I'm glad Rep. Ryan created this plan since it clearly illuminates that tax cuts can not solve our debt problem but will in fact aggravate our debt problem even with radical spending cuts (relative to current benefit levels) for two programs, Social Security and Medicare, which both enjoy massive bipartisan support. I perceive Rep. Ryan's plan as a stake ground that's helped conservative economists who are legitimate argue more vehemently that we can't solve our debt problem without raising taxes. This argument has not went over well with their politician clients, perhaps this will be a pivotal point though I doubt it since I see no evidence of any serious people among the GOP leadership (Ryan could be, he's still young and naive).
Perhaps you didn't see one of the most popular populist talking points this past year from the GOP's voting base, "Keep the government out of my Medicare!". So yes, while I'm privy to Rep. Ryan's plan having reviewed it when it came out, I also realize his spending cuts will never happen, even if his party were to take both the Presidency, House, and Senate. Especially since they enjoyed such majorities in the past decade and increased Medicare unfunded liabilities while simultaneously cutting taxes. If they'd have learned their lesson, then we'd be hearing different spending rhetoric from the GOP leadership this past year but we do not; we fact here the same message ever more shrilly and idiotically, i.e., George W. Bush is an economic genius relative to John McCain, John Boehner, Mitch McConnell, and Sarah Palin.
In fact Rep. Ryan's budget continues deficit spending into the 2060s because he can't bring himself to raise taxes in spite of the fact that our effective tax rate is relatively low and we've enjoyed strong economic growth and budget surpluses with higher effective tax rates in the past where I've went back to the start of the 20th century in past research (OMB spreadsheets).
So I stand by my comment @ 5 while bemused at your comment directed at me that it would be a change for me to get an argument right for once. I'll assume that's another example of the age-old conservative attribute, projectionism.
Posted by: Michael Heath | March 17, 2010 8:14 PM
You are a condescending twit aren't you? You might want to reread the original post, we're talking about state run pension programs which are commonly pool funded or unfunded. You didn't straighten anything out because you still don't know what you're talking about.
Your concern is underwhelming.
Posted by: dogmeatib | March 17, 2010 10:18 PM