Clinton on Defined Benefit Plans

  • I’ll also work with you to advance a broad strategy on retirement security – one that protects defined benefit plans and defends Social Security and ensures that every worker can retire with dignity. We owe it to our seniors and to future generations of retirees.

Hillary Rodham Clinton remarks at AFSCME – June 8, 2015

So what does this leaked agenda item portend for defined benefit plans?

Commenter NY sees it this way:

My guess is her strategy when push comes to shove will be to “monetize” all or nearly all unfunded-DB-pension liabilities (multiemp & public) via the Fed with as little fanfare as possible, which has the advantage that it doesn’t require her (or any state governor) to raise taxes. I guess her advisors will justify it to themselves by viewing it as QE direct to her downmarket foot soldiers (rather that to ‘the rich’), and that unlike QE as we’ve known it since 2008, they’d spend a large fraction straight on goods/svcs (rather than being saved by ‘the rich’ as today). She’ll probably just pay 100% rather than go to bat on ‘spiking’ and similar games, because doing so would be too embarrassing to her union cronies. And the piper doesn’t get paid until the day far, far away when the USD begins to wilt, the way the GBP has since the Brexit vote.

I’m not saying this is a good idea, just that it’s my best guess of how she’ll address the liabilities. I’d be keen to hear others guesses, I agree there’s very little clarity. Re: Puerto Rico, she’s also still very cagey.

I’ll say this for her: her advisors discuss in the Wikileaks emails the possibility of making 401k/IRAs less attractive for high-earners, to refocus towards the original intent of govt-subsidized retirement savings, which is basic income security to avoid penury/hunger. This isn’t the worst idea I’ve ever heard.

Thoughts? Am I crazy for thinking this is a plausible scenario?–

My guess is that Clinton is pandering to a municipal union audience and I have seen nothing that indicates her people recognize the depth of the problem* which would lead to any actions beyond the benign neglect policies of the Obama administration.

As for targeting high-earners where it matters, politicians first have to understand the fallacies behind average benefits testing  especially for new comparability CB/DC combinations.  That’s not happening. There may be some tweaking of 410(k) limits but that’s as far as I see it going.




* In fairness, I have seen nothing in the presidential campaign on this issue though hundreds of thousands of union employees have already had benefits arbitrarily slashed.


16 responses to this post.

  1. Posted by skip3house on November 1, 2016 at 10:14 am

    Thoughts? Key words stand out, at least for me… Refocus,..Original intent,… Basic income security to avoid penury/hunger..Plausible..*… Politicians first have to understand….not happening.


  2. Posted by Anonymous on November 1, 2016 at 10:21 am

    ….and exactly how will she monetize trillions of dollars that are not there?


    • I think the Fed’s the obvious candidate to print the $$$. I don’t know exactly what their enabling legislation says and how their lawyers interpret it, but they might be able to do it without any additional legislation (i.e. no vote in Congress)…


      • Posted by dentss dunnigan on November 1, 2016 at 10:47 am

        They wouldn’t even print the Marines sign up bonuses …they are taking them back …no way would the gov ever backstop pensions with money from those that have nothing close to a pension ….Hell NJ was lucky to get Sandy when the people were homeless …that family out in Kansas will not be to happy to put up tax dollars to support state pensions in CA ,NJ, or otherwise .


        • I agree re: the KS family; this is why I think it’d be attractive to Hillary & co to go thru the Fed: possibly no need for congressional authorization, and they’ll argue “it’s just a routine round of QE injections like we’re always doing nowadays, not tax dollars, and this time to upstanding, hard-working union members rather than Wall Street”.

          Re: the CA marines — good point, and DoD chasing them to reimburse is not very nice.


          • Posted by George on November 1, 2016 at 7:19 pm

            “her strategy when push comes to shove will be to “monetize” all or nearly all unfunded-DB-pension liabilities”

            Monetize is a fancy way of saying the fed is buying something, that is exchanging an asset, the fed is buying, for US currency. Traditionally they would buy only US gov debt, but these days they will apparently buy corporate bonds aka quantitative easing.

            A central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply.


            The problem with unfunded liabilities is there is no asset to monetize aka buy. Believe it or not the Fed actually expects to make a profit, and the Congress expects the Fed to make a profit because they expect to spend the money the Fed makes. Maybe if states issued pension debt, that debt could be purchased by the fed. It is not clear to me that the fed would buy pension debt, especially if it were tax free municipal debt as the Fed does not pay taxes in the traditional way banks do. I think it is possible the fed might buy some pension debt, but no all of it.

            The federal gov could send money directly to retirees. This would require congress to appropriate the money, possibly in return for onerous bailout terms such as the EU central bank’s handling of Greece.

            I personally doubt the fed will be the solution to the problem.

  3. John — I think a future ‘monetization’ strategy doesn’t necessarily require that Hillary and/or her advisors currently appreciate the depth of the problem. I think the logic could still hold if we assume that they don’t know now, but that they’ll be forced to reckon with (or at least more consciously neglect) this as some point in the not-too-distant future due to the funds’ failure to achieve assumed market returns in years to come.

    Besides monetization, two other basic options are to simply allow large haircuts to pensionholders (possibly requiring federal legislation to pre-empt state laws/constitutions in the case of public-employees), or force some combination of ‘actives’/taxpayers/employers to pay up. My guess is that when faced with these options Hillary’d end up seeing monetization (with some sort of process, not completely “Wild West”-style money-printing) as the easiest way out in political terms–


  4. “I’ll also work with you to advance a broad strategy on retirement security – one that protects defined benefit plans and defends Social Security and ensures that every worker can retire with dignity. We owe it to our seniors and to future generations of retirees.”

    Sorry, but your generation of seniors didn’t pay what it owed, and ensured it could retire richly by destroying the ability of future generations of retirees to retire with dignity.

    And it has been bi-partisan.


  5. Posted by steve on November 1, 2016 at 12:35 pm

    with all due respect – I think you are over thinking this issue with regards to clintion -put it in terms of their personal empire -every thing thus far has been to perpetuate them selves and lineage like rulers of old—remember your vassals and lords history or “let them eat cake” scenario ?


  6. Posted by TB on November 1, 2016 at 2:08 pm

    More and more people are beginning to realize that Defined Benefit plans like public pensions are not sustainable, including the private sector which has more or less done away with them. Here is my solution to this looming crisis that is only going to get worse without any correction of course:

    Please help spread the word…


  7. Hillary’s minions also don’t seem particularly fussed about the consequences of shifting pension funds’ assets to private equity (as long as their guys get a spot at the trough)…

    > Hey John:
    > Will look into. When is your dinner? Tonight?
    > Gene
    > On Mon, Jun 1, 2015 at 11:26 AM, John Podesta > wrote:
    >> I’m having dinner with a bunch of minority owned private equity
    >> firm guys, who were key financial supporters of Obama. I think they have a
    >> chip on their shoulders that Obama never leveled the playing field to let
    >> them compete for federal Gov’t pension asset investments. Unlike States, I
    >> didn’t think the federal government placed pension funds with PE firms. I
    >> thought TSP operated under one master contract with only vanilla index
    >> strategies. Am I missing something?


  8. Posted by Anonymous on November 2, 2016 at 2:24 pm

    Ok so is wikkileaks that pro RNC or maybe just pro Trump? Where does their money and information trail lead, in the US and abroad?? I mean is the Donald that squeaky clean they don’t have anything of substance on him???
    Follow the yellow brick road to Putin’s Russian hackers…..


  9. Posted by buddyroo on November 2, 2016 at 4:59 pm

    Off topic here, but I just read this about Ct’s budget: Key part being:

    “Connecticut is on the hook to contribute what the independent fund analysts report is necessary. That’s because in 2008 the legislature and then-Gov. M. Jodi Rell approved about $2 billion in borrowing to bolster the teachers’ pension fund that suffered from decades of inadequate contributions. In the bond covenant — the contract between the state and its investors — Connecticut pledged to contribute the full amount recommended annually by fund analysts.”

    You always say governments can just choose to not pay what the actuaries recommend into the pension funds, like what Christie has done recently. But this is one way to force governments to be contractually required to pay, i.e. make it part of a bond contract. I wonder if something like this will start becoming more widespread in NJ and elsewhere.


    • Posted by Anonymous on November 2, 2016 at 5:17 pm

      Or I guess the State could violate the covenants and tank their bond rating, oops NJ’s already done the latter. But seriously, at least in NJ’s situation, it’s cheaper to find the money and pay the bondholders then contribute what’s “necessary” to satisfy the covenants. Also, NJ didn’t issue the POB it was done by one of its quasi governmental entities (NJEDA), not sure how CT handled theirs?


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