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Good Pensions for Me but Not for Thee, Part 3

9:54 am in Economy, Financial Crisis, Government by dakine01

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:

It’s Not Just Jobs that Are Needed

12:56 pm in Economy, Financial Crisis, Jobs, Unemployment by dakine01

While I write mostly about the need for jobs and long term un and underemployment, there are always a number of related issues bubbling just below the surface for me. The past couple of days, I’ve seen a few articles that are seemingly unrelated but are probably more closely related than most folks realize.

The first article was from today’s (Friday 1/28/11) NY Times on Standard & Poors downgrading Japan’s Long Term Sovereign debt.

S.& P. lowered its sovereign credit rating for Japan to AA- from AA. That is three levels below the highest possible rating, and S.& P.’s first downgrade of Japanese government debt since 2002. With the lower grade, Japan’s debt rating is now on par with China’s, which last year overtook Japan as the world’s second-largest economy, after the United States.

S.& P.’s move came just weeks after both it and its rival ratings agency, Moody’s, cautioned that they might take a more negative stance on the United States. It highlighted just how deeply indebted many of the world’s developed economies remain — despite concerted efforts on the parts of governments to improve their balance sheets.

Yesterday was this from Reuters on Moody’s considering downgrading the ratings for states:

(Reuters) – Some U.S. states face so much pressure to fund pensions for public employees that it could hurt their credit ratings, Moody’s Investors Service said on Thursday.

As concerns grow over the financial health of many states after the 2007-2009 recession and how they will cut spending to cope, the ratings agency combined pension and debt data to rank the liabilities of each state.

In the past, Moody’s evaluated credit risks from pensions and debt levels separately. Lower credit ratings could raise the costs to states of borrowing money.

Interesting isn’t it how suddenly Moody’s has to change how they figure things for rating the states and combine debt AND pension liabilities all of a sudden. One might think they have an ulterior motive in doing so.  . . . Read the rest of this entry →

The Future Is Here and Now

10:42 am in Financial Crisis, Government by dakine01

Today’s (Thursday, December 23) NY Times has an article that tells me the future has arrived and it is not going to be pretty. The pundits and those who want to destroy all aspects of public service have been calling and complaining for years that public pensions are going to destroy the universe. Never mind that those public employees have often foregone higher salaries in order to have those pension plans. Never mind that it is the elected officials who failed to properly fund those public pension plans, it will be the retired police, trash collectors, fire department employees and all the other municipal and state employees in their greed that are going to be the end of civilization. (That’s snark for the snark deficient)

But regardless of all the calls for austerity, and all the calls and drum beating about things needing to be done to “rein in out of control pensions,” it is not civil servants that caused the meltdown to the world economy. Civil servants have not been the people who took tax cuts and placed the bets in the Wall St casino. They did not commit the fraud in mortgage processing.  . . . Read the rest of this entry →

No Mr. President, We Need Jobs This Labor Day

10:34 am in Uncategorized by dakine01

So the President gave his Labor Day speech and he gave some ideas for what he thinks people need (or want to hear).

I want to highlight a couple of pieces of this "talk." President Obama goes down the standard list of administration "accomplishments" (though many of those "accomplishments" are subject to debate as to how truly effective they are in helping those in need today). But the following just struck me as wrong on a lot of levels.

That’s why we’re making it easier for workers to save for retirement, with new ways of saving their tax refunds and a simpler system for enrolling in retirement plans like 401(k)s. And we’re going to keep up the fight to protect Social Security for generations to come.


Mr. President, I am 58 years old. I have been un- or under-employed for six years now. I do not need a "simpler system for enrolling in retirement plans like 401(k)s" nor do I need a "new way of saving my tax refund."




Right now, your Catfood Commission is looking for ways to cut Social Security, not "protect" it. And yes, raising the retirement age is a cut no matter how many ways you may attempt to spin it otherwise.

I’ve had to spend what retirement savings I had in 401(k)s these last few years in order to survive. What I need now is a job and I’ll take care of whatever savings I can from that going forward. But thanks to your bankster friends and catfood commissioners, all I get is words and platitudes, not actions.

So, Mr President, on this Labor Day Weekend of 2010, I hear your words but I’ve seen you parse your words before. At this time, your words do not match your deeds.

I can take care of the savings part on my own as long as you and the banksters don’t blow the economy up again.

But I do need the decent paying job to do this on my own and so far your words are doing nothing for that need for me and millions of other Americans who are un or underemployed today.

Address the issues at hand Mr President, not the issues you wish were at hand.


Cluelessness or Cognitive Dissonance?

10:37 am in Uncategorized by dakine01

My apologies for not writing any posts for a while but I do get tired of having to repeat myself so frequently.

Once again we see the cluelessness of the financial reporters in a couple of articles from the past few days. First up was an AP story (via MSNBC) which reported on an analysis from Fidelity Investments on people raiding their 401Ks due to "hardships." This came on top of the Weekly New Unemployment claims report showing (Reuters via CNBC):

New U.S. claims for unemployment benefits unexpectedly climbed to a nine-month high last week, yet another setback to the frail economic recovery.

Initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 500,000 in the week ended August 14, the highest since mid-November, the Labor Department said on Thursday.

Analysts polled by Reuters had forecast claims slipping to 476,000 from the previously reported 484,000 the prior week, which was revised up to 488,000 in Thursday’s report.

But today’s (Sunday, August 22) NY Times really steps in it.

Renewed economic uncertainty is testing Americans’ generation-long love affair with the stock market.

Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.

If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked.

Small investors are “losing their appetite for risk,” a Credit Suisse analyst, Doug Cliggott, said in a report to investors on Friday.

Now, there is obviously some validity to this but buried three quarters of the way down in the article is a far more likely reason:

And the flight from stocks may also be driven by households that are no longer able to tap into home equity for cash and may simply need the money to pay for ordinary expenses.

Five hundred thousand new jobless claims the past week. The rolling four week average at 482.5K (highest since December ’09). Unemployment hovering between 9.5 and 10%. Underemployment added in basically doubling that.

I’m one of the lucky ones as I’ve mentioned before. I cashed out my 401K/SEP-IRA and such in order to survive a few years ago. Even with paying the early cash out penalties, I still got to spend more of it on myself than those folks who watched theirs swirl down the drain as the market crashed in 2008.

So as we watch the politicians come scrounging for votes this November, here’s a few things to think about.

1) President Obama’s "Deficit Commission" is looking at things such as raising the retirement age and use "Social Security’s in crisis" as a theme to avoid paying back Special US Treasury Bonds.

2) People like Mitch McConnell like to go on shows like Meet the Press and talk about how Social Security is in crisis even though those Special Treasury bonds are "pieces of paper sitting in a filing cabinet somewhere."

3) Raising the retirement age keeps older people (those still fortunate to be employed that is) in the work force longer

4) Keeping older people in the work force longer keeps younger people from getting the entry jobs in the work force.

The economic world in the United States and worldwide is not a vacuum. All the pieces of it intersect and interact. At some point the so-called political, business, and TradMed elites are going to have to admit to themselves that the world is not as they envisage it. People all over the country are scared and angry. They see bleak futures for themselves and their children and grandchildren. Empty platitudes and simplistic slogans are not going to mollify people any longer. We see it in the demonizing of the "others," be they brown people, gays, or whatever the minority group du jour.

And because I can:

Cross posted from Just A Small Town Country Boy