Home › Forums › Financial Markets/Economics › Excellent Economist Mag. article on CA’s Gov. retiree Pension problems
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November 20, 2011 at 12:00 PM #733278November 20, 2011 at 8:07 PM #733288
GH
Participant[quote=UCGal]I may be opening up a can of worms here but…..
SS is a defined benefit retirement program. Does everyone here who argues against defined benefit plans want to give up their SS?[‘/quote]
What would you do if I discovered a cure for old age?
Now ALL people cal live to 10,000,000 years or MORE!would you have young people born AFTER this discovery living in slavery so the SS recipients can continue to receive what is OWED to them for ALL TIME?
This has already happened to SS. Folks are living a LOT longer than expected and young tax payers are being asked to pay up!
IMO, SS needs to be immediately converted to a 401K type account where each person has an earned balance and no more and no less!
November 20, 2011 at 10:19 PM #733293an
Participant[quote=UCGal]I may be opening up a can of worms here but…..
SS is a defined benefit retirement program. Does everyone here who argues against defined benefit plans want to give up their SS?[/quote]
Yes, I would. As long as I can stop paying my SS tax. I’m not counting on SS for my retirement. If it stay solvent and can actually pay me out what I put in, I’d be super happy, but I’m not counting on it.November 21, 2011 at 10:24 AM #733306sdduuuude
Participant[quote=UCGal]I may be opening up a can of worms here but…..
SS is a defined benefit retirement program. Does everyone here who argues against defined benefit plans want to give up their SS?[/quote]
Absolutely !
You say “give up their SS” but really that also means “giving up paying into the SS system and letting someone else manage my money.”
Can I have all the money back that I have paid in, then ?
I’m self-employed so I pay double, by the way.
November 21, 2011 at 3:29 PM #733321Anonymous
Guest[quote=UCGal]SS is a defined benefit retirement program. Does everyone here who argues against defined benefit plans want to give up their SS?
[/quote]Although SS has many things in common with a defined-benefit retirement plan, it is not really a retirement program. In reality, it is an insurance program.
It’s even called that: Old-Age, Survivors, and Disability Insurance (OASDI)
http://en.wikipedia.org/wiki/Social_Security_(United_States)
What SS is today, and what it is was originally meant to be are quite different. SS was meant to protect against poverty due to disability and old age. It was never meant to be a retirement program, although as people grew older and more of the population expected to receive it, it became more and more perceived as a supplement to retirement income.
Defined benefit pensions really haven’t been around that long, and I beleive it can be argued that they are an idea that has failed. Pensions are not really the “norm” – they’ve only been around for one, or perhaps two generations. Some have succeeded, some have failed. There are two reasons that the trend is moving away from the use of defined benefit plans. One, it turns out they are far more risky than many beleived they would be (just ask a retired Continental Airlines pilot) and second, it’s just not a good idea for employers to be in the investment business. Companies (and government agencies) should focus on their core business and not run a side business investing their employees’ compensation.
[quote=”SK in CV”]A DB plan isn’t just risk. There is, and has been, pretty substantial reward.[/quote]
Exactly. You may lose, you may win. Why are governments playing “casino” with someone else’s money? Sounds a lot like Wall Street, no?
But back to Social Security:
I am very much in favor of keeping the existing Social Security system in place, provided we make the necessary and very feasible tweaks to keep it sustainable. These “tweaks” include increasing retirement age and decreasing benefits (which will certainly impact me, btw.)
Why am I in favor of SS but not public-sector pensions? Because they serve very different purposes. Like I said above, SS is insurance – it protects against poverty and is part of the safety net that government should be providing.
Pensions, on the other hand, are a form of compensation. In particular, as deferred compensation, pension compensation is often used irresponsibly in such a way that the costs are hidden and big problems grow unseen (sound familiar?)
Government employee compensation should be equitable and transparent. The only way to ensure that it remains transparent is to avoid the use of deferred compensation. Pay employees at the time of service, just like anyone else receiving a paycheck with benefits and 401K. If people want a defined benefit, they can buy an annuity. There’s simply, no reason that public and private sector compensation cannot be “apples-to-apples.”
November 21, 2011 at 4:05 PM #733325SK in CV
Participant[quote=pri_dk][quote=UCGal]SS is a defined benefit retirement program. Does everyone here who argues against defined benefit plans want to give up their SS?
[/quote]Although SS has many things in common with a defined-benefit retirement plan, it is not really a retirement program. In reality, it is an insurance program.
It’s even called that: Old-Age, Survivors, and Disability Insurance (OASDI)
http://en.wikipedia.org/wiki/Social_Security_(United_States)
What SS is today, and what it is was originally meant to be are quite different. SS was meant to protect against poverty due to disability and old age. It was never meant to be a retirement program, although as people grew older and more of the population expected to receive it, it became more and more perceived as a supplement to retirement income.
Defined benefit pensions really haven’t been around that long, and I beleive it can be argued that they are an idea that has failed. Pensions are not really the “norm” – they’ve only been around for one, or perhaps two generations. Some have succeeded, some have failed. There are two reasons that the trend is moving away from the use of defined benefit plans. One, it turns out they are far more risky than many beleived they would be (just ask a retired Continental Airlines pilot) and second, it’s just not a good idea for employers to be in the investment business. Companies (and government agencies) should focus on their core business and not run a side business investing their employees’ compensation.
[quote=”SK in CV”]A DB plan isn’t just risk. There is, and has been, pretty substantial reward.[/quote]
Exactly. You may lose, you may win. Why are governments playing “casino” with someone else’s money? Sounds a lot like Wall Street, no?
But back to Social Security:
I am very much in favor of keeping the existing Social Security system in place, provided we make the necessary and very feasible tweaks to keep it sustainable. These “tweaks” include increasing retirement age and decreasing benefits (which will certainly impact me, btw.)
Why am I in favor of SS but not public-sector pensions? Because they serve very different purposes. Like I said above, SS is insurance – it protects against poverty and is part of the safety net that government should be providing.
Pensions, on the other hand, are a form of compensation. In particular, as deferred compensation, pension compensation is often used irresponsibly in such a way that the costs are hidden and big problems grow unseen (sound familiar?)
Government employee compensation should be equitable and transparent. The only way to ensure that it remains transparent is to avoid the use of deferred compensation. Pay employees at the time of service, just like anyone else receiving a paycheck with benefits and 401K. If people want a defined benefit, they can buy an annuity. There’s simply, no reason that public and private sector compensation cannot be “apples-to-apples.”[/quote]
I think you’re trying to play with words to get the outcome you want. Social Security was a retirement pension from the beginning. Some pensions are compensatory. Some are government retirements. Disability pensions are also pensions. And maybe they’ve been around longer than you thought. The teamsters pension funds have been around since at least the very early 50’s, probably longer.
You got me stumped on the last paragraph. Government pensions are transparent. They are deferred compensation (just like every employer retirement plan, INCLUDING 401Ks.) And the only reason it doesn’t seem like apples to apples is that the private sector moved away from defined benefit plans.
November 21, 2011 at 5:08 PM #733327eyePod
ParticipantSS is a defined benefit program but I paid in a LOT more than I will EVER get out of it, unless I live to be 300 years old. If they touch SS, that is the height of UNFAIR. A problem with SS is it loaned ALL its money to the federal government.
California pensions average $26K per year. Why should they get ANYTHING? They didn’t pay in anywhere near that amount, put them on 401k’s. Why should the TAXPAYER be responsible for paying for something they don’t get at all (pension)? (I ask this to all the people who just kneejerk and say talking about pensions is demonizing and baseless – well please post the FACTS about how well they are funded, please)
November 22, 2011 at 10:39 AM #733354Guest[quote=SK in CV]I think you’re trying to play with words to get the outcome you want. Social Security was a retirement pension from the beginning.[/quote]
Strictly speaking, your use of the word “pension” is probably more semantically correct, but I think you know what I’m getting at. The key point is that SS is insurance against hardship, and today’s defined benefit plans are a form of compensation. They “pension” people get from their employers are a form of reward for service: “Work for us for 30 years, and you can stop working a a certain age and we will keep paying you for life.”
The primary goal of the retirement portion of SS was to protect against poverty in old age. It was insurance against outliving one’s ability to support oneself. From my link:
The act was an attempt to limit what were seen as dangers in the modern American life, including old age, poverty, unemployment, and the burdens of widows and fatherless children.
Today’s employer pensions are not a safety net; they are plans that allow people to stop working at a certain age while continuing to maintain a similar lifestyle. That’s why it is common to have plans that pay 50-100% of one’s final salary (often based on the highest or average of the final three years.)
Today’s pensions are far more than a safety net.
The difference is much more than just nuance – the goals of the two types of “pensions” are very different.
[quote]And maybe they’ve been around longer than you thought. The teamsters pension funds have been around since at least the very early 50’s, probably longer.[/quote]
My grandfather had a defined-benefit employee pension from United States Steel, and my father had one – although it has been at risk of insolvency for some time. But my grandfather’s father certainly didn’t have one, I don’t have one, and my children will not likely have one.
Like I said in my earlier post, they’ve been around for about one or two generations. We tend to think of them as “the norm” because we hear our parents and grandparents talking about them. However, defined benefit programs based on investment performance never really have been proven to work in the long term.
[quote]You got me stumped on the last paragraph. Government pensions are transparent. They are deferred compensation (just like every employer retirement plan, INCLUDING 401Ks.)[/quote]
Once again, I think you probably know what I mean.
Government pensions are transparent to a professional accountant who takes the time to follow the complicated trail of contracts and laws. Sure, if you want to spend your time reading public employee contracts and tracking CalPERS investment performance, then it is theoretically possible to understand how much your neighbor is really being paid by CalTrans.
So technically you are correct. However, in practice, complicated deferred compensation programs are not transparent simply because the actual cost is so obfuscated.
[quote]And the only reason it doesn’t seem like apples to apples is that the private sector moved away from defined benefit plans.[/quote]
And the private sector moved away from them because shareholders eventually had to face the ultimate reckoning of this failed idea. Now taxpayers have to face the same reckoning. However nobody (on this thread, at least) wants to discuss specifically how the shortfalls will be covered.
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