Good Pensions for Me but Not for Thee, Part 3
Back in December ’08 I wrote a couple of diaries (here and here) comparing the pensions received by retiring Members of Congress compared to the pensions of union member auto workers. Well, today (Tuesday, March 15) McClatchy once again is reporting that for all the sturm und drang from Congress about the costs of state pensions, it seems they rarely manage to speak up about the excesses of their own pensions. From the McClatchy article:
Since 1984, members of Congress have enjoyed both a defined-benefit plan and a defined-contribution plan. The defined-benefit plan gives them a fixed pension in retirement that’s scaled to their number of years in office.
By McClatchy’s calculation, 13 sitting senators and 31 members of the House of Representatives — about 8 percent of the Congress — have served at least 25 years and accrued annual pensions worth at least $50,000. By comparison, for average U.S. former workers 65 or older who receive private pension payments, the median annual amount is $8,016, according to the nonpartisan Employee Benefits Research Institute.
As long as they’ve served five years, lawmakers can collect their pensions starting at age 62; if they’ve served 20 years, they can collect them at age 50; and if they’ve served 25 years, they can collect them no matter how old they are. Their annual pension annuities cannot exceed 80 percent of their final salaries.
Only 30 percent of active workers in the country had defined-benefit plans last year like the one available to lawmakers, according to the Employee Benefits Research Institute.
Now, this is coming on the heels of this article from Saturday’s NY Times “decrying” the pension burden on the states. Although once again, the Times manages to bury pertinent information near the end of the article:
Workers in Wisconsin point out that their payments in retirement are hardly a king’s ransom. Their average annual benefit is about $26,500, and they believe they have been wrongly portrayed as greedy chiselers who game the system and walk away with six-figure pensions.
But it can be a huge burden for states and municipalities to provide even a modest, $26,000-a-year pension to hundreds of thousands of people, at least in today’s economic environment, and especially if those people are able to retire well before 65 and collect that money for many years.
“When interest rates are low, these plans are really expensive to run,” said Gordon Latter, an actuary at RBC Global Asset Management (U.S.) Inc., (formerly Voyageur Asset Management) whose clients include both corporate and public pension funds.
Despite the furor in Wisconsin, collective bargaining does not appear to be the main factor driving pension costs higher.
My bold. Now where have we heard of this type of situation before? Oh right. Social Security for example. Last Friday, MSNBC’s Tom Curry offered up a standard Beltway Village
Idiot Pundit rationale for “reforming” Social Security:
According to the latest Social Security trustees report, about 14 years from now, the interest earned on the bonds won’t be sufficient to cover the annual difference between benefits and tax revenues.
At that point, the trust funds will be drawn down — the bonds will be cashed in — until the bonds are gone in 2037. If Congress does nothing before 2037, benefits would need to be cut by 22 percent to keep the system in balance.
“What often confuses people is that they see these securities as assets for the government,” the CRS report said. They aren’t really assets, but liabilities.
Or as the Congressional Budget Office explained in a report to Congress, “The balances in the trust funds (in the form of government securities) are assets to the individual programs (such as Social Security) but liabilities to the rest of the government.”
“When an individual buys a government bond, he or she has established a financial claim against the government,” the CRS said. But “when the government issues a security to one of its own accounts, it hasn’t purchased anything or established a claim against some other person or entity. It is simply creating an IOU from one of its accounts to another.”
The bonds are a promise to pay benefits in the future — but not the ability to pay those benefits.
Charles Krauthammer also chimed in with his weekly op-ed in the Washington Post:
Back-of-an-envelope solvable: Raise the retirement age, tweak the indexing formula (from wage inflation to price inflation) and means-test so that Warren Buffett’s check gets redirected to a senior in need.
The relative ease of the fix is what makes the Obama administration’s Social Security strategy so shocking. The new line from the White House is: no need to fix it because there is no problem. As Office of Management and Budget Director Jack Lew wrote in USA Today just a few weeks ago, the trust fund is solvent until 2037. Therefore, Social Security is now off the table in debt-reduction talks.
Here’s why. When your FICA tax is taken out of your paycheck, it does not get squirreled away in some lockbox in West Virginia where it’s kept until you and your contemporaries retire. Most goes out immediately to pay current retirees, and the rest (say, $100) goes to the U.S. Treasury – and is spent. On roads, bridges, national defense, public television, whatever – spent, gone.
In return for that $100, the Treasury sends the Social Security Administration a piece of paper that says: IOU $100. There are countless such pieces of paper in the lockbox. They are called “special issue” bonds.
Special they are: They are worthless. As the OMB explained, they are nothing more than “claims on the Treasury [i.e., promises] that, when redeemed [when you retire and are awaiting your check], will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.” That’s what it means to have a so-called trust fund with no “real economic assets.” When you retire, the “trust fund” will have to go to the Treasury for the money for your Social Security check.
Bottom line? The OMB again: “The existence of large trust fund balances, therefore, does not, by itself, have any impact on the government’s ability to pay benefits.” No impact: The lockbox, the balances, the little pieces of paper, amount to nothing.
Basically, Krauthammer is advocating that the US Government default on Social Security. And he misses the easiest option of all – remove the cap on Social Security earnings (currently capped at $106K per annum).
So folks like Curry and Krauthammer want to see the government default on the Treasury bonds backed by the full faith and credit of the US rather than raise taxes while Congress and TradMed mostly whine about public sector pensions and unions, even while they keep their own Cadillac (Beemer? Porsche? Ferrari?) pensions.
Oh, and this blog post from Forbes points out that in Wisconsin at least, those public pensions cost the taxpayers nothing as they are deferred compensation for the workers.
It is real easy to demonize public sector workers, teachers, and unions at all levels. Too bad that the real thieves are still stealing from the rest of us via Wall St and their pet politicians.
And because I can: