Jim Crum and Chris Johansen both forwarded an e-mail containing Ron Holland's article "Prepare Now to Escape Obama's Retirement Trap." Holland offers a nightmare scenario for the private employee benefit system. While I don't think it will happen, it very well could. I was interested that Theresa Ghilarducci and Alicia Munnell, two pension researchers from academia, figure in this scenario.
My reaction to this scenario is that while it is certainly possible, there are three stumbling blocks: the political power of plan sponsors, the lack of value added to the government of confiscation of plan assets in the event of a crash (there will be little to confiscate) and the potential aggravation of middle class voters.
First, the political power of corporate America and labor unions combined, both of which interests have heavy investments in the current employee benefit system, will likely forestall attacks on the system as now constituted. Nothing has ever been done to the US pension system that was completely unpalatable to either of these two interests. Note that the recent health care proposal met with some labor union resistance. If health reform ever passes, the limits on rich union health plans will be deleted. Perhaps more so for pensions, which have advocates on Wall Street and in the banking and insurance industries as well as big labor and corporate America generally. While politicians are greedy fools, they respond quickly to their corporate bosses.
Munnell and Ghilarducci can devise plenty of benefit schemes, but when big business calls and calls heavily, Congress listens carefully.
Holland notes that the dollar's days are numbered because of federal debt. He writes that the US government is thrashing about, looking for additional revenue. All true. Holland argues that "wealth confiscation" is a realistic likelihood, that there is $15 trillion in retirement assets, and Congress might well tax or otherwise confiscate this money. Holland states that Alicia Munnell proposed a mandatory federal retirement system that would be financed by taxing existing pension assets.
Teresa Ghilarducci, another pension researcher now at the New School, advocates putting $600 up to $12,000 plus 5% of your compensation above $12,000 into a "Guaranteed Retirement Account". This would be accompanied by a cap of $5,000 on contributions to 401(k) plans and a tax on retirement plans' income. Also, there would be a prohibition on international investments (I'll bet commodities too, but that's just a guess).
Holland suggests that a "crisis" such as a downgrade of US treasuries or a run on the dollar could trigger a move like this. He notes:
"At some time during the next decade, a global run on treasury debt and the dollar will also likely take the American stock market down past lows not seen since the financial meltdown crisis in 2008 and 2009. The 50% to 75% stock market pullback during the actual bankruptcy of the Washington debt and paper dollar will send shock waves through retirees and current plan participants as their private retirement plan balances plummet." Upon the stock market crash, argues Holland, the American public will be bamboozled into switching to Ghilarducci's retirement concept, a new federal plan.
I agree that the stock market is capable of falling by 75%. However, confiscation of the $15 trillion in retirement assets is unlikely to be very helpful. To retire Baby Boomers in an acceptable way will cost $15 trillion. Let's say there are 50 million boomers earning an average of $40,000. If each retires at age 67 and receives an annuity of $30,000, the cost will be (not really but an order of this magnitude): $30,000 x 10 x 50 million = $15,000,000,000,000, $15 trillion. So I'm not sure what the Federal government would gain by taking the $15 trillion from the retirement funds and putting it into a government plan. It's a wash.
Of course, the current allocation of the 15 trillion on deposit is skewed heavily toward the higher income earners. But do you believe that this massive number of potential higher-income retirees, with tremendous voting power (much more than the people who don't have assets) will quietly watch the government take its assets, even given an emotional crash? And if the stock market falls so that the pension assets are worth half that, how would the government benefit?
This scenario assumes that the chief goal of the US government is to impoverish the affluent. While I do believe that the government is in the process of impoverishing us, rich and moderate income, I do not believe that they will do this in a heavy handed way. They can destroy the nation simply through the Fed and inflation.
Thus, I think the more realistic scenario is inflation. Inflation was invented to limit tax revolts. It slams people on pensions the hardest, and Americans have docilely accepted bankers' propaganda via university academics and media sources that inflation helps them. Since Americans have behaved like drooling idiots about inflation since World War II, it seems a safe bet that they will continue to do so.
It is the duty of the Federal Reserve Bank to extract wealth from the hard working and give it to the non-working, both as welfare for the poor and mostly welfare for the rich, especially stock holders and derivatives investors. Why bother with directly confiscating pension money when all the Fed needs to do is print money, hand it to commercial banks, who in turn lend it to government, hedge funds and investment bankers, who then repay the loans in depreciated dollars as everyone else in the country sees their savings and wages decimated? I think something like that is more likely than confiscation of pension assets. Confiscation is too messy and too controversial. Inflation is a good way to get the suckers to thank you for stealing from them.
Nothing beats a nice healthy inflation to feed government and Wall Street snakes.
Showing posts with label pensions. Show all posts
Showing posts with label pensions. Show all posts
Tuesday, February 2, 2010
Friday, September 19, 2008
Progressivism Bankrupts New York State---Again
As a Brooklyn College professor, I am an employee of New York State. Nataly Billings just forwarded me a Newsday article noting public pension fund losses due to the Lehman Brothers bankruptcy. The article states that 37% of New York State's pension fund is in domestic equities, which seems conservative. But:
"Well before this week's corporate mega-collapses, the state's counties and big cities were sounding their own alarm bells. Lucille McKnight, president of the New York State Association of Counties, said several months ago that lagging population and economic growth, higher costs, fewer jobs and inevitably higher property taxes, drawn from a shrinking base, were components of a 'perfect storm.'"
The article also notes that Wall Street accounts for a full twenty percent of the State's entire tax revenue. Hence, in a bear market there is an automatic decline in the State's most important industry.
What the article doesn't mention and is actually a bigger problem is the unfunded retiree health insurance plan. Such a plan, funded on a pay-as-you-go basis, is feasible only if new firms can replace bankrupt ones like Lehman. But New York suffers from the disease of a century of Progressivism: high taxes, high labor costs, unfriendly regulations, and an anti-business culture. What business would want to open and stay in New York? The state employee unions have not thought this through, with relentless pressure to expand government services, as in the case of Dennis Rivera's Local 1199. The result of government bloat, high taxes, Progressive policies that squash small firms and hostility to entrepreneurship is going to be disappointment when all those state employees retiree in 10-20 years.
"Well before this week's corporate mega-collapses, the state's counties and big cities were sounding their own alarm bells. Lucille McKnight, president of the New York State Association of Counties, said several months ago that lagging population and economic growth, higher costs, fewer jobs and inevitably higher property taxes, drawn from a shrinking base, were components of a 'perfect storm.'"
The article also notes that Wall Street accounts for a full twenty percent of the State's entire tax revenue. Hence, in a bear market there is an automatic decline in the State's most important industry.
What the article doesn't mention and is actually a bigger problem is the unfunded retiree health insurance plan. Such a plan, funded on a pay-as-you-go basis, is feasible only if new firms can replace bankrupt ones like Lehman. But New York suffers from the disease of a century of Progressivism: high taxes, high labor costs, unfriendly regulations, and an anti-business culture. What business would want to open and stay in New York? The state employee unions have not thought this through, with relentless pressure to expand government services, as in the case of Dennis Rivera's Local 1199. The result of government bloat, high taxes, Progressive policies that squash small firms and hostility to entrepreneurship is going to be disappointment when all those state employees retiree in 10-20 years.
Friday, October 12, 2007
Hillary Clinton Shines Shoes
In 2005 President Bush proposed the establishment of 401-k type stock investment accounts for Social Security. The idea came under attack from the Democrats and was stopped. At the time, the stock market was coming off its 2002 lows. Now, the stock market is reaching new highs. It is therefore curious that the Democrats, notably Hillary Clinton, would choose to propose the very same idea during this presidential primary season. I wonder if there is some kind of financial manipulation lurking behind Clinton's proposal.
In an October 11 editorial, the New York Sun points out that Hillary Clinton opposed establishing Social Security investment accounts two years ago but now she is proposing "private accounts" (separate from Social Security) for all Americans. The Sun editorializes
"Given, this isn't giving workers back the money the government is taking in Social Security taxes as President Bush (and most of the Republican candidates for president) would do, but the accounts — even as add-ons to Social Security — are a huge victory in principle for the Bush view."
I find the Clinton proposal odd for several reasons. First, since 1982 I have been putting previously $2,000, now $5,000 (I believe $4,500 if you're under 50) into Individual Retirement Accounts. The idea was created in 1974 as part of the Employee Retirement Income Security Act of 1974. Paul J. Yakoboski of the Employee Benefit Research Institute notes that:
"The Economic Recovery Tax Act of 1981 (ERTA) extended the availability of IRAs to all workers, including those with pension coverage. The Tax Reform Act of 1986 (TRA '86) retained tax-deductible IRAs for those who did not participate in an employment-based retirement plan (and if married, whose spouse did not participate in such a plan), but restricted the tax deduction among those with a retirement plan to individuals with incomes below specified levels. In addition, TRA '86 added two new categories of IRA contributions: nondeductible contributions, which accumulate tax free until distributed, and partially deductible contributions, which are deductible up to a maximum amount less than the $2,000 maximum otherwise allowable."
Hence, there is absolutely nothing new about retirement accounts for anyone. They are currently available to anyone and everyone, and if you don't have a 401(k) or pension plan, they are tax deductible. It is true that the $4,500 limit is a low percentage of income for anyone earning over $65,000. But there also is such a thing as a SERP, self-employed retirement plan, which serves high earners. As the financially savvy know, Roth IRAs also are available to those who earn less than $150,000. It's not clear to me that the Clinton proposal is more than vacuous, which makes me suspicious. Hillary has to know that IRAs exist, so why would she make this proposal now?
Perhaps Hillary aims to improve benefits for those earning over $65,000 (this is not clear from the Sun article) and doesn't want to say so, but any extensions of the IRA concept will probably have next to no effect on private savings, so this idea would also be vacuous. USA Weekend Magazine pointed out in 2004 when the IRA limits were raised:
>"Even though retirement planning tops the list of Americans' money concerns, astonishingly few people contribute to individual retirement accounts -- a mere 6% of eligible Americans, according to a recent study by the Congressional Budget Office."
Given the small interest in IRAs, what help would extending the IRA concept be? High earners likely save anyway and, more so, typically have access to either a 401(k) (with limits that might bother those earning over $100,000) or a SERP. SERPs have high limits.
An intriguing question that comes to mind is why Hillary would make a proposal which may be a first step toward permitting private accounts in social security at this point in time.
Quoteland.com attributes the following quote to Bernard Baruch, the Wall Street tycoon, in 1929:
"When beggars and shoeshine boys, barbers and beauticians can tell you how to get rich it is time to remind yourself that there is no more dangerous illusion than the belief that one can get something for nothing"
Incidentally, Quoteland also attributes Baruch with the statement "Bears don't live on Park Avenue" (which may explain why I live in West Shokan).
In 2005 the stock market was coming off its 2002 lows. In 2007 the market is at or nearing all-time highs, especially if you have been investing in gold stocks as I have (Randgold (GOLD) courtesy of Howard S. Katz has had a tremendous run and I am breaking out my cigars and champagne.)
The question to ponder is why Hillary would begin to speak about expanding stock market accounts just when the market is reaching all time highs; the dollar is reaching all time lows; inflation is going from very warm to hot; the Chinese are beginning to sell dollars, portending increased inflation; and public awareness of monetary expansion, which has been going on since the 1980s, will result in political pressure to limit monetary expansion aka Fed counterfeiting aka raising the Fed Funds interest rate. That is, inflation will stimulate a declining stock market (the stock market goes up and down because of Fed interest rate policy, i.e., whether the Fed is counterfeiting many new dollars or just a few) because inflation causes public pressure to stop the Fed's counterfeiting; the Fed will then raise interest rates; and the stock market will then decline. Since 1981 the Fed has been counterfeiting many new dollars, which it calls "lowering the Federal Funds rate", and which Howard S. Katz calls "counterfeiting". With increasing inflation, now that the Chinese are tiring of giving billionaire hedge fund managers in the U.S. large welfare subsidies, the risk of a stock market collapse is increasing.
All this makes me wonder why Hillary would begin to think about encouraging small investor interest in the stock market at this point in time.
Several bloggers such as Captain's Quarter's , Cao's blog as well as talk radio have been discussing a nexus between Hillary and speculator George Soros. Whether Soros or others on Wall Street have an interest in seeing an exogenous shock to stimulate stock prices just as the fundamentals are working toward a weakening stock market is a question that deserves some scrutiny.
Another question is what will be the effects, both in terms of actual economic redistribution and in terms of psychology, of the Bush/Clinton proposals to expand stock ownership. The Fed does one thing, increase the money supply. This in turn has two effects: (1)make the rich richer by boosting the stock market because of lower interest rates and (2) make the poor poorer by causing inflation. There is probably some tipping point at which effect (1) becomes outweighed by effect (2) in fact. There is also probably a different tipping point at which effect (1) becomes outweighed by effect (2) in peoples' minds. The two are likely different. If someone has a $100,000 stock account they may be worse off from the net effect of lower interest rates and the higher price of grapefruit, but the higher stock account may be more salient or apparent to them, and they may see themselves as better off. It would not be a far stretch to imagine that Hillary's proposal is linked to the idea of encouraging this kind of wealth illusion, which would have the effect of moderating but not fundamentally changing the effects of Fed policy.
In an October 11 editorial, the New York Sun points out that Hillary Clinton opposed establishing Social Security investment accounts two years ago but now she is proposing "private accounts" (separate from Social Security) for all Americans. The Sun editorializes
"Given, this isn't giving workers back the money the government is taking in Social Security taxes as President Bush (and most of the Republican candidates for president) would do, but the accounts — even as add-ons to Social Security — are a huge victory in principle for the Bush view."
I find the Clinton proposal odd for several reasons. First, since 1982 I have been putting previously $2,000, now $5,000 (I believe $4,500 if you're under 50) into Individual Retirement Accounts. The idea was created in 1974 as part of the Employee Retirement Income Security Act of 1974. Paul J. Yakoboski of the Employee Benefit Research Institute notes that:
"The Economic Recovery Tax Act of 1981 (ERTA) extended the availability of IRAs to all workers, including those with pension coverage. The Tax Reform Act of 1986 (TRA '86) retained tax-deductible IRAs for those who did not participate in an employment-based retirement plan (and if married, whose spouse did not participate in such a plan), but restricted the tax deduction among those with a retirement plan to individuals with incomes below specified levels. In addition, TRA '86 added two new categories of IRA contributions: nondeductible contributions, which accumulate tax free until distributed, and partially deductible contributions, which are deductible up to a maximum amount less than the $2,000 maximum otherwise allowable."
Hence, there is absolutely nothing new about retirement accounts for anyone. They are currently available to anyone and everyone, and if you don't have a 401(k) or pension plan, they are tax deductible. It is true that the $4,500 limit is a low percentage of income for anyone earning over $65,000. But there also is such a thing as a SERP, self-employed retirement plan, which serves high earners. As the financially savvy know, Roth IRAs also are available to those who earn less than $150,000. It's not clear to me that the Clinton proposal is more than vacuous, which makes me suspicious. Hillary has to know that IRAs exist, so why would she make this proposal now?
Perhaps Hillary aims to improve benefits for those earning over $65,000 (this is not clear from the Sun article) and doesn't want to say so, but any extensions of the IRA concept will probably have next to no effect on private savings, so this idea would also be vacuous. USA Weekend Magazine pointed out in 2004 when the IRA limits were raised:
>"Even though retirement planning tops the list of Americans' money concerns, astonishingly few people contribute to individual retirement accounts -- a mere 6% of eligible Americans, according to a recent study by the Congressional Budget Office."
Given the small interest in IRAs, what help would extending the IRA concept be? High earners likely save anyway and, more so, typically have access to either a 401(k) (with limits that might bother those earning over $100,000) or a SERP. SERPs have high limits.
An intriguing question that comes to mind is why Hillary would make a proposal which may be a first step toward permitting private accounts in social security at this point in time.
Quoteland.com attributes the following quote to Bernard Baruch, the Wall Street tycoon, in 1929:
"When beggars and shoeshine boys, barbers and beauticians can tell you how to get rich it is time to remind yourself that there is no more dangerous illusion than the belief that one can get something for nothing"
Incidentally, Quoteland also attributes Baruch with the statement "Bears don't live on Park Avenue" (which may explain why I live in West Shokan).
In 2005 the stock market was coming off its 2002 lows. In 2007 the market is at or nearing all-time highs, especially if you have been investing in gold stocks as I have (Randgold (GOLD) courtesy of Howard S. Katz has had a tremendous run and I am breaking out my cigars and champagne.)
The question to ponder is why Hillary would begin to speak about expanding stock market accounts just when the market is reaching all time highs; the dollar is reaching all time lows; inflation is going from very warm to hot; the Chinese are beginning to sell dollars, portending increased inflation; and public awareness of monetary expansion, which has been going on since the 1980s, will result in political pressure to limit monetary expansion aka Fed counterfeiting aka raising the Fed Funds interest rate. That is, inflation will stimulate a declining stock market (the stock market goes up and down because of Fed interest rate policy, i.e., whether the Fed is counterfeiting many new dollars or just a few) because inflation causes public pressure to stop the Fed's counterfeiting; the Fed will then raise interest rates; and the stock market will then decline. Since 1981 the Fed has been counterfeiting many new dollars, which it calls "lowering the Federal Funds rate", and which Howard S. Katz calls "counterfeiting". With increasing inflation, now that the Chinese are tiring of giving billionaire hedge fund managers in the U.S. large welfare subsidies, the risk of a stock market collapse is increasing.
All this makes me wonder why Hillary would begin to think about encouraging small investor interest in the stock market at this point in time.
Several bloggers such as Captain's Quarter's , Cao's blog as well as talk radio have been discussing a nexus between Hillary and speculator George Soros. Whether Soros or others on Wall Street have an interest in seeing an exogenous shock to stimulate stock prices just as the fundamentals are working toward a weakening stock market is a question that deserves some scrutiny.
Another question is what will be the effects, both in terms of actual economic redistribution and in terms of psychology, of the Bush/Clinton proposals to expand stock ownership. The Fed does one thing, increase the money supply. This in turn has two effects: (1)make the rich richer by boosting the stock market because of lower interest rates and (2) make the poor poorer by causing inflation. There is probably some tipping point at which effect (1) becomes outweighed by effect (2) in fact. There is also probably a different tipping point at which effect (1) becomes outweighed by effect (2) in peoples' minds. The two are likely different. If someone has a $100,000 stock account they may be worse off from the net effect of lower interest rates and the higher price of grapefruit, but the higher stock account may be more salient or apparent to them, and they may see themselves as better off. It would not be a far stretch to imagine that Hillary's proposal is linked to the idea of encouraging this kind of wealth illusion, which would have the effect of moderating but not fundamentally changing the effects of Fed policy.
Wednesday, May 23, 2007
Interview Aired on WCBS All News Radio 880 in NYC
Ginny Kosola: Experts Explain the Pension Issue
NY State Law Requires New Tiers for any Changes
Dec 19, 2005 1:49 pm US/Eastern
NEW YORK (WCBS) A two-tier pension system like the one being sought by the MTA in talks with the TWU is not unusual, says human resources expert Mitchell Langbert, an associate business professor at Brooklyn college.
The pension proposal, perceived as the main sticking-point in the talks between the union and MTA is actually not legally negotiable, says Edmund McMahon, director of The Manhattan Institute think tank.
Langbert says multiple-tiered pension plans have existed in New York state for many years, "I myself as a professor at Brooklyn college, part of the City University of New York, am part of a multi-tiered pension plan." Langbert says his benefits are not as generous as those of colleagues who have worked for the city longer.
The reason there are multi-tiered systems, and the MTA is seeking the two-tiered plan, is New York State's constitutional prohibition on reducing accrued benefits for existing workers. For the government to save money, it can only offer different benefits for new hires.
"What's unusual about this is that, in fact, pension benefits are not dictated by labor contracts in New York City and New York State government. Penison benefits are actually set by state law," says McMahon.
The state constitution absolutely guarantees that there can't be any reduction in a pension benefit for an employee who is on the payroll, says McMahon. The union is actually correct in making its argument to the Public Employment Relations Board (PERB) that pensions actually are not a bargaining issue. PERB, he explains, acts as a mediating panel between the government and unions.
"Although the Taylor Law clearly outlaws negotiations, formally, around the issue of pension benefits, unions have been happy in the past to negotiate side benefits and side deals for changes in the laws to increase their pensions." But, McMahon explains, those side agreements must then be approved by the state legislature and signed by the governor.
As for where he stands on the pension issue for new MTA hires, McMahon believes the best solution would be to pay the workers more now, and give them a "defined contribution pension," such as a 401-K. "Very few of the people who ride subways and buses and pay the taxes to subsidize them can dream of retiring at age 55 with a full pension," he notes.
Ginny Kosola
NY State Law Requires New Tiers for any Changes
Dec 19, 2005 1:49 pm US/Eastern
NEW YORK (WCBS) A two-tier pension system like the one being sought by the MTA in talks with the TWU is not unusual, says human resources expert Mitchell Langbert, an associate business professor at Brooklyn college.
The pension proposal, perceived as the main sticking-point in the talks between the union and MTA is actually not legally negotiable, says Edmund McMahon, director of The Manhattan Institute think tank.
Langbert says multiple-tiered pension plans have existed in New York state for many years, "I myself as a professor at Brooklyn college, part of the City University of New York, am part of a multi-tiered pension plan." Langbert says his benefits are not as generous as those of colleagues who have worked for the city longer.
The reason there are multi-tiered systems, and the MTA is seeking the two-tiered plan, is New York State's constitutional prohibition on reducing accrued benefits for existing workers. For the government to save money, it can only offer different benefits for new hires.
"What's unusual about this is that, in fact, pension benefits are not dictated by labor contracts in New York City and New York State government. Penison benefits are actually set by state law," says McMahon.
The state constitution absolutely guarantees that there can't be any reduction in a pension benefit for an employee who is on the payroll, says McMahon. The union is actually correct in making its argument to the Public Employment Relations Board (PERB) that pensions actually are not a bargaining issue. PERB, he explains, acts as a mediating panel between the government and unions.
"Although the Taylor Law clearly outlaws negotiations, formally, around the issue of pension benefits, unions have been happy in the past to negotiate side benefits and side deals for changes in the laws to increase their pensions." But, McMahon explains, those side agreements must then be approved by the state legislature and signed by the governor.
As for where he stands on the pension issue for new MTA hires, McMahon believes the best solution would be to pay the workers more now, and give them a "defined contribution pension," such as a 401-K. "Very few of the people who ride subways and buses and pay the taxes to subsidize them can dream of retiring at age 55 with a full pension," he notes.
Ginny Kosola
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