Weekend Roundup

Practically every activity I engaged in this weekend – reading, surfing the internet, golfing, or watching a 5-hour documentary on Napoleon somehow brought me back to pensions and government.

Waterloo for pensions

With all these public pensions going bust we may get some troublesome types returning, if history is any barometer:

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How Distressed are Pennsylvania Public Pensions?

There are over 1,400 public defined benefit plans in Pennsylvania which are required to file actuarial valuation reports with the state.  The 2011 numbers just came out and have been compiled and assigned distress score reports (81% average) where assets are compared to liabilities.  I sorted their list by assets which highlighted the funded ratios for: the biggest (62%), the most distressed (34%), and the bankrupt one (114%???).

Betrayal of Pensions

Bartlett and Steele have a new book that is a bit too anecdotal for me but includes a chapter (The End of Retirement) that does view the rise of the 401(k) as a corporate plot to steal pensions from workers.  It may sound like a conspiracy theory but they are absolutely correct which gives credence to the rest of what they’re espousing.  Notable excerpts:

Lacking a civic or moral compass, it’s (our governing plutocracy) a peer group without a purpose beyonde its own perpetuation with no mission except to wall in the money within its ranks.  p. xv

workers were put out of work not because the rest of the world’s economy was catching up with America, but directly because of policies put into place by the powerful who rewrote the rules to serve their own interests.  They hired lo0bbyists and bought Congress to do their bidding, and they did something else that may have been even more important: they created a powerful propaganda machine.  p. 27

In early 2012, a rift developed between the Kochs and Cato, sparking litigation by the Kochs and charges by Cato president Ed Crane that Charles Koch was trying to gain full control of the think tank to advance his “partisan agenda.”…..One of the most significant, ongoing recipients of the Koch largesse is the Mercatus Center at George Mason University in Arlington, Virginia  p. 30

The reason?  While some in Congress are simply ignorant about trade matters, a lot of free trade legislation is passed because people with money want it and make sure the money gets to those who vote. p. 106

while China and India may be poor countries, each has millions of very bright, talented people eager to work at a fraction of what bright, talented people need in the United States to maintain a middle-class lifestyle here. p. 111

that’s in keeping with the perennial optimism that economi9sts generally peddle about the direction of the American economy when the subject involves free trade.  Why give much ink, these optimists reason, to a problem that doesn’t fit the prevailing theory that offshoring is good?  p. 122

This one issue t(corporate tax breaks) illustrates why the corporate elite always win – and why Middle America always loses, why the future is so bleak.  As companies lobby for legislation to give them a mammoth tax break, there is no one in power in the US government to speak – and actg – for working America to counterbalance corporate power. p. 148

From a peak of 112,000 defined-benefit plans that provided retirees with a guaranteed monthly income in 1985, the number plunged to 27,650 in 2011.  By then, only 3 percent of private workers were covered solely by such plans.  p. 170

Thanks to the way Congress writes the rules, pension accounting has a lot in common with Enron accounting, but with one difference: it’s legal.  By adjusting the arcane formulas used to calculate pension assets and obligations, corporate accountants can transform a drastically underfunded system into what appears to be a financially healthy plan, even inflate a company’s profits and push up its stock price.  Ethan Kra, chief actuary of Mercer Human Resources Consulting, once put it this way: “If you used the same accounting for the operations side [of a corporation] that is used on pension funds, you would be put in jail.” pp. 179-80

For the industry, it was (lobbying) money well spent.  Corporations saved tens of millions of dollars by eliminating pensions, and the substitution of 401(k)s created a profitable new industry in the financial sector.  The proliferation of 401(k)s led to a proliferation of financial planners.  Studies show that the administrative costs of 401(k)s are higher than traditional pensions, in part because there is so much overhead as a result of an army of players grasping for a piece of the $3 trillion industry.  pp. 187-8

Golf Lies

Union County is saying their golf operations are (or will be) profitable.  They’re not and I say so within an article today where I’m quoted:

Critics are skeptical. John Bury, an actuary and active member of the Union County Watchdog Association, thinks the projections are exaggerated and that actual expenses in recent years have left out some personnel costs. And he doesn’t believe the county should be involved in the event business — something it plans to do with a large banquet space on the second floor of the new clubhouse.

“It’s not the business of government,” he said. “They’re just doing it because it’s an ego trip.”

in response to:

“In the next two years, once the clubhouse is finished, the golf operations will probably break even, said Sanchez, the golf director. They should be stabilized, however, by 2015, when he expects to once again earn a profit while paying down all the debt.”
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So where did Summit Council president get his information:
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More to follow as I check out the course.

9 responses to this post.

  1. Posted by Napoleon XIV (google it if you are too young to get the joke) on August 5, 2012 at 7:38 pm

    Nice find on the Napoleon pension. I wonder if the newly re-installed Bourbons were cutting off all sorts of people, especially veterans, of the Napoleon I rein, which is why Napoleon I was able to come back in power and why eventually Napoleon III took over. Maybe that is what the quote “”they had learned nothing and forgotten nothing”” refers to.

    As far as Galloping Hills goes, there might be a precedent in Bethpage Black for a successful golf course. Galloping Hills is next to Newark and very close to Manhattan. So it is not impossible to believe it will be successful. One way to funnel money into the pension plan might be to develop public properties with taxpayer money and then privatize those properties sending the funds into the pension scheme. Just one conspiracy theory. Galloping Hills is a crummy name though, too Caddy Shack for me.

    Betrayal of Pensions – Actually they realized they needed to throw people off the pension schemes if they were going to maintain lavish pensions for the few aka government management, military, police, and fire. My problem with 401ks is they are a more universal scam with heavy fines for minor screw ups in things like withdrawing assets. In place of IRAs I would suggest that people just be given $50,000 a year of tax free unearned income and then a flat rate of 15% on the next $500,000. No special tax treatment for other assets like real estate would be eliminated. I would also shelter $2 million of assets from bankruptcy or other judgements, but eliminate any homestead and other exemptions. Then just eliminate all IRA’s as an expensive bureaucratic waste.

    Reply

  2. Posted by Pat on August 6, 2012 at 9:38 am

    An interesting posting that should give some of your commentators some thought. It has been long known that 401k’s are a scam, but so much effort has been made to demonize the publics that it has almost been forgotten. I’m sure that tough love will stick with her position about the corruption between the unions and government (which is correct), but can she turn her magnifying glass on the privates and how they colluded with government to pass the laws the doomed the private sector plans? And, being in the financial field, is she herself a beneficiary of the massive largess created by the 401k scam?

    And don’t forget the long-term effects of the scam. A quick search finds that Fidelity 401k customers have an average of $75k. A NY Times op-ed article, “Our Ridiculous Approach to Retirement”, states that 75% of 401k holders nearing retirement have less than $30k in their accounts. These people will have no choice but to work until they drop, and many will end up on public assistance. As for the kids, they will be paying for all this while waiting for their 75 year-old bosses to croak so they can get a promotion. And no one will have a lot of money to buy the stuff that drives the economy, except for maybe nursing home care.

    No wonder the public pensions look so good. The privates used to have them (my wife still does, fully paid by a major hospital system), until they were stolen. Now it’s a race to the bottom with the rich winning and everyone else losing.

    Reply

    • Posted by Tough Love on August 6, 2012 at 10:35 am

      Spoken by a public Sector worker with a pension no doubt 2, 4, (even 6 times if a safety worker) greater his/her your Private Sector counterpart, all while making no less in cash pay and only paying for 10-20% of the total costly of that VERY rich pension …. with Taxpayers on the hook for the 80-90% balance.

      Diligent savings over a career can easily yield 7 figure 401Ks all tax-deferred. Fees may be high on some Plans, be it’s the best gig in town ….. unless you’re a Public Sector worker and (with the assistance of self-serving, contribution-soliciting, vote-selling politicians) can endlessly sucks money out of taxpayers’ pockets.

      Reply

    • Posted by Pat on August 6, 2012 at 12:42 pm

      Yes TL, I am a public employee with 30 years in the system who has been following John’s blog for some time. If you can promise me that you can deliver a 7 figure account, send me your card and I will pass it to the younger workers who could use it. Its too late for me, I’m now planning on getting 50% of what was contracted to me.

      Another quick search finds that 30% of 401k returns are lost to fees and resulting lost returns (Wall St Journal, Could Your 401K Fees Buy You a House?). That 30% is going into the pockets of the investment companies who have managed to change the rules to their favor. It looks like you are profiting from it also. BTW, do you belong to and pay fees to a trade organization that lobbied to promote 401ks and ending pensions? Does that make your organization corrupt, especially when they schmooze their favorite politicians with donations to get what they want?

      Reply

      • Posted by Tough Love on August 6, 2012 at 3:39 pm

        As to the last 2 sentences … no, and not applicable. If you’ve been in a Public Sector DB Plan for 30 years, a cut of 50% to your pension it would bring it closer to those of your Private Sector counterparts. Earning no less in cash pay than those counterparts, there is no justification for a larger pension, 80-90% paid for by Taxpayers.

        Being at the tail end of your career, you’ll likely escape much of the reforms certain to come. At a minimum FUTURE service pension accruals must come down by 50%. While this will lessen digging the hole we are in even deeper, it doesn’t address the huge unfunded liability for past service accruals. Seems pretty unlikely Taxpayers (with there MUCH smaller pensions) will pick up much of this tab ….. leaving increased employee contributions and pension haircuts as real possibilities.

        Some 401Ks can eat up 25% of total long term returns, but the gov’t is try to increase transparency and control excessive fees. My 401k could buy 2-3 (maybe 4 with the drop in prices) typical NJ houses … I’ve been maxing it out for many years. It’s called planning and responsible saving, something most Public Sector workers feel they should be immune from.

        Reply

  3. Posted by eatingdogfood on August 6, 2012 at 12:42 pm

    Bankruptcy; There is really NO other way out of this mess caused by the Democrats and their Union Bosses !!!

    Reply

  4. Posted by MJ on August 7, 2012 at 8:10 am

    TP, while I agree that drastic reforms are needed, those reforms must be made to current and retired workers. The problem is what we are paying publics now in pension and healthc care costs not what we migth be paying in the future if anything. Maybe the easiest answer is that cuts are made to exising retirees and they can buy into their health care if not eligible for Medicare and current workers start contributing 50% into their pension.

    Reply

    • Posted by Tough Love on August 7, 2012 at 11:22 am

      Quoting …”Maybe the easiest answer is that cuts are made to exising retirees and they can buy into their health care if not eligible for Medicare and current workers start contributing 50% into their pension.”

      While Public Sector workers would find such a suggestion draconian, it’s interesting that:

      (a) when Private Sector workers retire before age 65 (Medicare age), that’s exactly what they have to do (buy their own healthcare), and
      (b) even if Publics paid 50% of the total cost of their pensions, with those pensions costing a level annual 30-55% of pay (to fully fund over their working careers), the remaining 50% that you are suggesting that Taxpayers pay is MUCH greater than the retirement contributions Private sector workers get from their employers (INCLUDING the employer’s share of Social Security contributions). With Public earning no less in CASH PAY, why should taxpayers contribute more towards their pensions than we get ?

      Reply

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