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Archive for Monday, March 28, 2011

Pension plaint

Public employees should temper their criticism of the kind of 401(k) retirement plans that are the only option for many employees in the private sector.

March 28, 2011

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It is understandable that teachers and other state employees want to fight a proposal in the Kansas Legislature to move their retirement system from a pension plan to a 401(k)-style plan.

However, they should be careful not to seem out of touch with current financial realities.

Recent comments surrounding the 401(k) discussion have left some observers questioning whether state employee groups fully understand the challenges facing private sector employers and employees.

For example, a March 8 Associated Press article quoted a lobbyist for the Kansas Organization of State Employees. “Do you really want to take your retirement security and gamble it on the stock market?” the lobbyist asked while opposing the 401(k) plan.

That, of course, is what many private sector workers do each day. It is not that private sector workers necessarily want to take that gamble, but for their employers, traditional pension plans are quickly becoming nothing more than a memory of a different time. In an era when profits are highly unpredictable, especially for small businesses, it is unreasonable to expect a company to offer a pension plan that guarantees a certain retirement income regardless of what else happens in the economy — or in the stock market, where many of those pension funds are invested.

Whether the state should move to a 401(k)-style retirement system is a question that requires more study. The details of how such a switch would be made and how the state would finance it should be carefully examined. It is a complicated and important issue.

We expect the leaders of state employee groups to remain engaged and closely follow the process. But we hope that they will do so in a way that acknowledges that private sector workers already have had to adapt their retirement strategies to new economic realities.

If leaders of state employee groups maintain their current rhetoric, dwindling pension funds won’t be their only concern. Public sympathy will quickly dwindle as well.

Comments

George Lippencott 3 years ago

$$$ come from people. Do we care about the source?

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salad 3 years ago

Still waiting for all those self-righteous conservatives to charge out there and take all those jobs in education and social welfare; thus changing the system from within. I guess you have to actually give a **** about your fellow man first. At least care about people more than $$$.

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George Lippencott 3 years ago

Well, if the cause of our state and national fiscal problems (differs only by deficit spending at the feds not allowed here) is the financial community, what has Mr. Obama done to fix that.

The governors of the many states, mostly required to balance their budgets, have only two choices - raise taxes or reduce benefits. We have already raised taxes.

Private industry (not fat cats) has been experiencing pension declines for decades (you think they traded a defined benefit pension for a 401K).

Now if I were making all these arguments I would suggest the real choice is to expand benefits to all or cut benefits relatively equally for all. Now, here in Lawrence - populated by the last holdouts of the communist revolution - the notion is to cut benefits (not to the wealth donors) but to the people just above us in order to get more money for ourselves. That might work for a while but eventually those who you are being selectively cut will become the majority (if they have not already) and then - well things may not be platonic – remember Reagan.

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JHOK32 3 years ago

Spoken like a true Republican. Remember when W wanted everyone to sink our social security into the stock market? It would have sank allright. Do we really need to know anymore?

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Ken Hunt 3 years ago

The question should not be who gets what....right now it is a race to the bottom for so many workers in our country. Instead of debating whether or not my neighbor earns too much or their benefits are better than mine shouldn't we all want to benefit from increased wages/benefits?

How much are you paying in fees for your 401 or 403b plan? Most workers do not have a clue. Any fee schedule above 1% has not shown to increase yield. Do you have 12b-1 charges? Again, most workers have no clue.

A defined benefit plan worked for previous workers and it still can. Most industrialized countries still use this model.

Be careful when a financial advisor creates an investment plan for your benefit. It is rarely the case.

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K_Verses_The_World 3 years ago

Up in the morning trying to find a job of work Stand in one place till your feet begin to hurt

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bobberboy 3 years ago

lj - take a flying leap !!

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Richard Heckler 3 years ago

America owes a debt of gratitude to such insightful Republican governors as Walker of Wisconsin, Kasich of Ohio, Snyder of Michigan, and Christie of New Jersey.

Were it not for them, many Americans – myself included – would still be thinking that today's state budget messes are mainly the product of a national economic crash caused by the reckless greed of Wall Street banksters and rich speculators, as well as the abject failure by political leaders to tax their super-wealthy campaign contributors in order to meet the growing needs in education and other essentials. Luckily, the GOP guvs have set the record straight by explaining that the budget woes are the fault of teachers who have health coverage and firefighters who get pensions.

You see, it's these greedy public employees, pulling down $30,000 to $50,000 a year, who're sapping the economy and draining government treasuries – NOT billionaire casino dealers in Wall Street hedge funds who pay far lower tax rates than a firefighter and contribute far less to our nation than a teacher.

It has literally been incredible to hear these learned governors lecture us that fixing state budgets is simple: deregulate corporate power, cut taxes on the superrich (again), fire tens of thousands of middle-class public employees, eliminate state programs even as the need for them rises, and – just to boost the morale of teachers, firefighters, and others – take away their democratic right to bargain collectively for workplace fairness.

Unfortunately for the governors, the public still doesn't get it. By overwhelming margins, the people oppose these gubernatorial assaults on workers, worker rights, and America's middle-class dream. The governors can flim and flam, deceive and deflect, but they should remember that two and things not long for this world, are dogs that chase cars and politicians who lie to the people.

"Letter to the editor by Robin S. of Austin," Austin American Statesman, March 6, 2011.

"Putting Teacher in the Firing Line," The New York Times," March 8, 201

Jim Hightower

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Richard Heckler 3 years ago

Every sale of stock on the stock market includes the disclaimer: "the return on this investment is not guaranteed and may be negative"--for good reason.

During the 20th century, there were several periods lasting more than 10 years where the return on stocks was negative.

After the Dow Jones stock index went down by over 75% between 1929 and 1933, the Dow did not return to its 1929 level until 1953(24 years).

In claiming that the rate of return on a stock investment is guaranteed to be greater than the return on any other asset would be lying. If an investment-firm broker made this claim to his clients, he would be arrested and charged with stock fraud. Michael Milken went to jail for several years for making just this type of promise about financial investments.

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Richard Heckler 3 years ago

Fixed Annuities: These are unequivocally safer than a stock market investment because they offer guaranteed rates. And although even a guaranteed rate can drop 1-2% after the guarantee period ends, a fixed annuity can never lose principle. That's why fixed annuities are ideal for retirement.

Variable Annuities: These are safer than stock market investment too, but aren't as secure as their fixed counterparts. Variable annuities are a collection of different kinds of securities, which could include bonds, stocks, and treasuries. There is risk of principle loss, but less so than with straight-up stock investing. Because a variable annuity disperses your money across a wide range of conservative growth equities, chances for loss are greatly reduced. Compare this to buying stock in a handful of specific companies, which are prone to failure and market volatility.

There’s that other saying: safety in numbers. By having your money in many investments, some may go down, but others will go up. In this way, the overall trend can be upward, and you make a better return and preserve capital if the stock market tumbles.

Managing a handful of volatile stocks is a job unto itself, and should be handled by a professional unless you have time to stay in tune with the market on a daily basis. A fixed or variable annuity, like a CD or 401(k) is relatively hands-off. In the case of a fixed annuity it's invest and forget. In the case of a variable annuity, you have the option to manage your own sub-accounts, but have the insurance company's broker do it for you.

Annuities Benefits Besides having less potential risk, annuities offer many great benefits over stocks and mutual fund investing, especially for retirees.

* Less paperwork
* No tax statements generated from constant selling and buying
* Backed by State reserve pools (in case of insurer insolvency)
* Death benefit options
* Annual withdrawal allowances upwards of 10%

If getting access to your money is important, annuities can oddly be better than stocks. Although annuities are long-term investments, with penalty fees for early withdrawal, many allow for partial withdrawals penalty-free. In contrast, stocks are always liquid, but in reality if the market is down, your cash is committed, and cashing out could be more costly than any withdrawal penalty tied to an annuity.

Managing Retirement Risk

Retirement investing demands a careful, judicious approach. As you get older and amass more and more savings, its wise to scale back on equities (stock market) and place more funds in interest-base vehicles like bonds, treasures, and high-quality mortgages. Annuities are designed to do just that, with tax-deferred growth and many other highly-desirable features for future retirees.

Take a peek: http://www.sierraclub.org/giftplanning/life-income/default.aspx

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emu 3 years ago

A little history: 401(k)s were introduced as a supplement to conventional retirement plans, not a replacement for them. Corporate America very quickly seized on them as a way of getting rid of conventional pension plans. 401(k)s are inherently undependable and unreliable, and were never intended to be the primary retirement plan for working people. Yet that is what they have become. The fact that the non-government work force has mostly lost its pension plans and been forced to accept 401(k) plans in their place may be a trend, but it remains morally wrong. The loss of pension plans will ruin the final years of millions of Americans. 401(k) plans are a craps shoot. If you happen to retire (perhaps are forced to retire) at a time when the stock market is down, too bad. You lose. It's just irresponsible that people are being put in this position by high-level corporate clowns who retire with millions .... often even get millions for being fired.

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sully97 3 years ago

Comparing the public to the private sector is a false equivalence and will prove quite damaging over the long run:

1) The public sector's is service-driven mission, not a profit-driven one. If we want our public institutions to be profit-driven, then they will be forced to operate in terms of socializing risk and privatizing gain. They will be driven to provide the least amount of service for the highest attainable cost.

Government agencies must address the entire public, not just paying customers. For example, government agencies must take the capability of all into account. Capabilities and services are often hindered by the lowest common denominator as a result. If we're talking about something like access to government information, we have to think about rural populations without modern access. Granted, this example has little to do with pensions, but if we're going to compare the public and private sectors, we have to ask ourselves why the private sector hasn't connected our rural residents to the internet while government is attempting to? If government is run like a business, it will act like one.

2) Pension programs, benefits, and employment protections provide stability and security for employees, which is exactly what you want when it comes to public service. You want to attract talent and you don't want high turn over. Imagine an emergency management agency with a 50% turn-over rate and a constant flux of new employees during a crisis and you begin to see why steady, secure public-sector jobs are important.

3) A good number of pension programs were already invested in programs similar to 401Ks. That's why they came up short when the market crashed. It was a failure and we are hemorrhaging talent and capability as a result.

4) Those in the private sector took the risks associated with higher gains and, like most gamblers, come up short now and again. We're asking our public sector workers to assume an equal amount of risk without the associated chance of wealth, esp. when we consider the suppression of their wages and bargaining power.

5) Wage suppression and high levels of risk lend themselves to corruption. Without job and retirement security, we will see a growing number of public sector employees make decisions to ensure that security.

We either want a democratic government or we want a corporation, but we can't have both. The two are not the same. Their missions and objectives are different. Their structures are different. The laws governing them are different. Their decision making is different. The expectations of them from the public are different. All of which are reflected in differences in their models of compensation, as they should be.

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optimist 3 years ago

Is it just me or is it everywhere that you see a union you see large under funded pension plans. The unions have gotten powerful not by fighting the corporate interests for the betterment of their membership but have rather joined the corporate interests and sold their membership down the river in favor of their own political power.

They weren’t dumb enough to think that these pensions would remain solvent ad infinitum while being under funded. They were so aware of this that many of the pension plans became backed by the federal government (paid for by the rest of us) through the combined lobbying efforts of corporations and unions. Does GM or United Airlines ring a bell? United Airlines defaulted on their pension plan; neither United nor the Air Worker’s Union accepted any responsibility for creating the pension monster or the fall-out when the federal government agency responsible for managing the defaulted pension plan cut pensions to already retired employees by 20-50%.

All of these follies simply defer the cost to future generations. Raising taxes will only further dampen opportunities for our posterity. This is simply put legalized generational theft. Anyone that thinks this is all okay should go into their children’s bedroom pick up their piggy bank and raise it above your head. Now throw it against the floor as hard as you can for effect, collect all of the money and go out and buy yourself that new TV or other material item that you value so much you are willing to steal your children’s future for it.

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toe 3 years ago

Do away with all employer provided pensions. It is like pinning money to a kindergartner for lunch. Employees should provide for their own retirement. Let the market decide what wages should be.

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notanota 3 years ago

I think it's actually time for the LJW editorial staff to ask Dolph why they don't have a better retirement package rather than demanding that public employees who sacrificed wages for deferred compensation get a worse deal.

I can do ok on a 401k (to which my contributions are voluntary), but it's not the way I'd prefer to plan my retirement, because I don't like gambling on stock market stability. However, I'm stuck with what I have right now. By the end of 2008, the largest 100 companies underfunded their pensions by $217 billion. And we expect workers to just roll over and take it? Are states supposed to emulate private companies and keep underfunding their obligations, too?

State workers did not get lavish bonuses and compensation from stock options during the best of times, because they sacrificed the pay for stability, and now we foolishly spent that money on other things instead of funding the retirement system we promised to deliver them.

We're also making long-term decisions based on a short-term revenue crunch, unless you believe we're in a permanent jobless recession and will never recover. Do you believe that? If so, teacher pensions are the least of our worries.

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Charlie Bannister 3 years ago

I am always amazed when I read the comments of many on here who are just out of touch with the way things are. It is not that I necessarily like it, but we have some realities to face, and the article touches on them very well. I am a blue collar worker in the private sector. Always have been. I have never been covered under a defined benefit pension plan. I feel lucky to even have a 401k. High corporate taxation and greedy unions drove jobs out of the country. That is just a fact. Some corporate greed was involved too, to be sure. These public pension plans have unfunded liabilities going way into the trillions of dollars (Federal) and to a lesser extent on the state levels, but still very serious. Grow up people. This is reality. I have been living it all my life. (51 years old)

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Phillbert 3 years ago

Why is the solution to declining wages and benefits for private sector workers always that the same should happen in the public sector? In an era of outsized corporate profits and huge executive compensation, why is the solution never that private sector workers should be better compensated?

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deec 3 years ago

When I've had jobs that offered 401K retirement plans, I could opt out of contributing. Will government employees be allowed to opt out if this goes through? Just because private employers do it does not mean it is the best way.

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