Today in the Wall Street Journal, a story that is enraging. The people with the best pension in the world want to slash yours!
“The lucky participants in one of the best retirement plans around are coming after yours with a meat cleaver.
“In the early stages of negotiating tax reform, Congress is already considering whether to reduce the benefits of contributing to a 401(k) and similar retirement plans — even as U.S. representatives and senators bask in the safety of the pension system that taxpayers fully fund for federal employees.
Alongside several million U.S. government workers, members of Congress participate in the Federal Employees Retirement System, which wraps their current savings and future pensions in a cushion of comfort that most American workers can only dream of.
“Only about 13% of employees nationwide are covered by both a 401(k) and a traditional pension that assures stable, lifelong income, according to the Center for Retirement Research at Boston College; all 535 members of Congress are.
“In 2015, the average taxpayer-funded annual pension received by recently retired members of Congress was $41,316. A representative or senator retiring in 2014 after 30 years in Congress would earn an annuity of roughly $104,600 to $130,500, according to the Congressional Research Service.
“Retirement savers in the private workforce pay outlandish management fees that can exceed 1% annually on lousy investment choices; members of Congress pay a maximum of 0.039% for funds that all but guarantee matching the market.
“Those expenses on a $10,000 investment can easily eat up at least $100 a year for regular retirement savers; fees on the same amount in a U.S. representative or senator’s account can’t exceed $3.90.
“Fewer than one in 10 corporate retirement plans match 5% of employees’ contributions dollar-for-dollar, according to the Plan Sponsor Council of America. Every member of Congress gets that match — funded by the taxpayers.
“Even if a member of Congress won’t set aside any of his or her own money, the public automatically contributes an amount equaling 1% of that legislator’s salary to the federal retirement fund. Nearly all members of Congress earn $174,000 annually.
“A reliable retirement is “a four-legged stool,” says David Kabiller, co-founder of AQR Capital Management in Greenwich, Conn., and co-author of a recent article on how to design retirement programs. Those four legs are a traditional pension, a 401(k)-type plan, Social Security and supplemental savings in taxable accounts. “Eliminate or restrict any of those,” he says, “and you make achieving a secure retirement more challenging.”
“Yet that is what Congress, perched securely on its taxpayer-funded four-legged stool, is considering for the rest of us.
“In the next round of tax reform, “it’s not really a question of whether retirement plans will get a haircut, but of how much,” says Bradford Campbell, a partner in the law firm of Drinker Biddle & Reath in Washington, D.C., who served as assistant Secretary of Labor under Pres. George W. Bush.
“That’s because the money you contribute to 401(k)s and several other types of retirement plans isn’t subject to current income tax. Nor are your future earnings on those accounts — until you take them out to live on in retirement, when your withdrawals will be taxed as ordinary income.
“If your retirement dollars were treated, instead, like contributions to a Roth Individual Retirement Account or Roth 401(k), they would be taxed before you put them in. You could ultimately withdraw the money tax-free in retirement, but the incentive of getting an upfront tax break would be gone.
“Taxing retirement-plan contributions Roth-style would generate roughly $1.5 trillion over the next decade the way the government reckons the numbers, estimates Mr. Campbell. So giant a pot of honey may be hard for Congress not to raid.
“We definitely need comprehensive tax reform,” says Mr. Campbell. Unfortunately, when lost revenue has to be replaced, “it’s a game of winners and losers, and the retirement system is poised to be one of the losers.”
“It’s hard for most people to save for a goal that glimmers faintly decades in the future. Take away the tax incentive, and many savers might no longer see the point of even trying.
Fully 39% of Americans don’t feel very confident in their ability to fund a comfortable retirement, according to a recent survey. It’s safe to say none of those worried folks are members of Congress.
“Instead of penalizing retirement saving, lawmakers should be making it easier, perhaps even mandatory — as it is for members of Congress.
“For workers struggling to set money aside, says Mr. Kabiller, “mandatory savings could help impose the discipline of giving up compensation today in order to fund your longevity down the road.”
“At a bare minimum, if Congress is going to hack away some of the tax advantages of private retirement plans, it should make matching cuts to the cushy federal system.
“There should be equal sacrifice,” says Mr. Campbell. “It’d be very hard for them to justify not doing that.”
“If you have a pitchfork in your garage, keep it handy. Your 401(k) might need defending.”
Write to Jason Zweig at intelligentinvestor@wsj.com
Diane Ravitch's blog 
I do not have a 401(k) but I know that financial advisors were earning big bucks for recommending them as if “no problem.”
As with the health care the congress receives and now the 401K – what ever plans and benefits they derive, we who elected them should also get the same plans….
There’s a method to Congress’s madness:
And what Congress is really up to is revealed in the comment by Bradford Campbell: “At a bare minimum, if Congress is going to hack away some of the tax advantages of private retirement plans, it should make matching cuts to the cushy federal system.” And along with the federal retirement system, which is a public employees’ retirement plan, ALL public employee retirement plans will be axed and that will spun as being “in the interest of fairness.”
The attacks on public employee pension plans has been long and hard fought, and this is just another strategy to kill public employee pension plans: The nationwide attacks on public pension plans are because Wall Street banks and brokerages want to convert the $3 trillion nationwide in public pension plan assets into 401(k) accounts from which banks and other investment firms could earn billions of easy dollars in various “management fees” on the accounts.
The tactic Wall Street is using to get its hands on pension plan money is something called an “unfunded liability.” Only actuarial accountants really know what an “unfunded liability” is, but the clear impression that Wall Street and its media minions give to taxpayers is that it’s a huge amount of current debt that taxpayers owe to the pension plans. But it isn’t.
Take California, for example, the state with the largest public pension plans, the California Public Employee Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS). Wall Street’s media minions are trying to scare California taxpayers by claiming that the state is currently in debt some $270 billion in “unfunded liability” to its public employee pension plans…but what is an “unfunded liability” anyway? One thing it is NOT is that it’s not a current debt.
To find out what a so-called “unfunded liability” actually is, we begin by looking at California’s current state budget: The 2016-2017 state spending budget is $171 billion. Of that, $4.8 billion, which is only 3% of the state’s $171 billion budget, goes to meet the “unfunded liability” difference between what CalPERS gets from active employee payroll deductions and interest on investments to pay out to retirees; the state contribution to meet the CalSTRS “unfunded liability” is $2.5 billion, which is only 1.5% of the budget. So, altogether the retirement plans’ cost is only 4.5% of the state budget. That less than 5 cents of the budget dollar, and that’s right in line with the non-political Boston College Center for Retirement Research report that the national average state annual contribution to public employee pension plans is only about 5% of the typical state budget.
Five cents on the dollar each year is not going to bankrupt California…or any state.
So, just how is an “unfunded liability” calculated? Well, in simple terms that a non-accountant can understand, you take your state’s current year contribution to the pension plan, then increase it for inflation and other factors each year for the next 30 years, then add up the sum of all those 30 years of 5-cents-on-the-dollar contributions, and the resulting sum is the “unfunded liability.” The sum of those 30 years is a large amount, which is great for scaring taxpayers who are led to think it’s a huge amount of debt they’re in right now instead of being merely the sum of 30 years of small future payments. It’s not a current huge debt.
Moreover, if you apply the same actuarial projection to your state’s budget for the next 30 years, you find that each year’s budget increases in line with the annual pension plan contribution increase, so that the annual cost remains right around 5 cents of the budget dollar for each of those coming 30 years.
And there’s something else you should know: Most of the “unfunded liability” amounts in these made-for-the-media scary headlines can be reduced by as much as 75% simply by changing the accounting method used to calculate the “unfunded liability.” Wall Street uses a method known as the “Historical Return” method for marketing stocks to investors, and that’s also the standard method that should be used for assessing pension fund stock assets — but the scary “unfunded liability” figures that show up in headlines are typically created using an accounting method known as the “Riskless Rate” method. You can slash those scary headline “unfunded liability” figures by 75% just by using the standard Historical Return accounting method. Poof! Three-fourths of the “unfunded liability” gone, just as it was created by the magic of a non-standard accounting method for the purpose of scaring voters.
Moreover, the “Governmental Accounting Standards Board (GASB — pronounced “Gasbee”) that oversees which methods are used to calculate an unfunded liability sounds like some federal government agency. But it isn’t: GASB a private organization operated by state and local governments — governments which these days want to get rid of public pensions, so GASB is biased against public pensions.
Now, that you know what an “unfunded liability” is, let your lawmakers know that you know what an “unfunded liability” is and that they should keep your fixed-benefit retirement plans and not switch to Wall-Street-friendly and retiree-unfriendly 401(k) plans whose benefits aren’t fixed and reliable because they go up and down with the stock market.
Something else you should know and let lawmakers know that you know: Those small annual state contributions to our public employee pension plans are actually the best investment that your state makes: In our example state of California, even the anti-public pension Los Angeles Times reported that the California Public Employees’ Retirement System (CalPERS) brought $12 billion into the California economy and generated a collateral $26 billion in economic activity while supporting over 93,000 jobs.
CalSTRS makes a similar large positive contribution to California’s economy and is estimated to generate about $10 billion in economic activity and support more than 60,000 jobs with state and local governments reaping over $600,000,000 in annual revenues from the economic activity generated by consumers spending their CalSTRS benefit income.
That’s a combined economic contribution to the state of $36 billion. Not bad for the state’s investment of $7.5 billion in the pension plans; in fact, that’s a return of about 500%.
The dirty little secret that taxpayers aren’t told is that if the states cut public pensions, tens of thousands of private sector jobs will be lost and taxpayers will see their taxes raised to make up for the $36 billion in lost economic activity. Former Rockefeller Foundation head Peter Goldmark has warned that cutting off public employee pension plans is for states “the economic equivalent of having a stroke.”
Hi Scisne:
Please accept my heartfelt thanks for your generosity in using your precious time and knowledge to explain very clearly about technical term of an “unfunded liability.”
Most importantly, you show all readers the secret of benefit for the state and citizens in term of economy and jobs from public employees’ retirement plan
I hope that more readers will follow you and Dr. Ravitch’s footstep re: generosity in knowledge to cultivate readers. I cannot articulate well enough to express what I know about the basic of time and money management which has helped me to adapt well with any situations in the past 40+ years.
One word of contentment that can sum up the time and money management is to know our OWN advantages and drawback in three dimensions: body, mind and spirit. May
“CalPERS brought $12 billion into the California economy and generated a collateral $26 billion in economic activity while supporting over 93,000 jobs.”
That’s real job creation & a load of money going into average people’s pockets. Do any TIFs that developers allege promote “jobs” and “economic growth” comapre to this king of return on investment?
“Wall Street uses a method known as the “Historical Return” method for marketing stocks to investors, and that’s also the standard method that should be used for assessing pension fund stock assets”
That’s a terrible idea, unless your goal is to come up with a way for lawmakers and trustees to underfund pensions even more than they have been. “Look, if you just double the expected annual returns, this pension fund is actually overfunded. So, as you can see, a ‘pension holiday’ is totally justified.”
I am no fan of the 401k . They were originally a corporate perk whose adoption by the labor movement in the early 80s served to help weakened the defined benefit pension system. Its great I have both. But honestly few who have them are adequately able to fund them except for the privileged workers who usually have both and the elite workers who they were designed for. Corporations boast about having a retirement plan while usually contributing little to them. The individual worker usually has little clue as to a good investment strategy. Under paid workers use their inadequately funded 401k as a piggy bank to get them through hard times….
They have since their inception been invested mostly in funds that seek higher returns by lowering the wages of American workers . So simply your defined contribution account is being used to attack your defined benefit pension. A complaint that Weingarten made about Dan Loeb with the investment of Teacher pension funds. At least the AFT could shift investment Strategies to be more labor friendly. Many private sector unions are only in bonds. Millions of American workers seeking the highest yield they can return in speculative markets are self annihilating. IMHO.
PS Japanese corporations in the past did not rely on speculative markets as their primary
source of funds . Banks were used to do that funding for most of the last century.
So there are many ways to fund corporations and many ways to fund pensions including national pensions as are found in many countries. Social security has a long way to go,
Of course the Republicans are not interested in Americans pension system the truly wealthy do not rely on a 401k the contribution limits are too small.
When most people retire, they enter a lower tax bracket. If the government wants substitute a Roth IRA with tax paid up front instead of the typical tax deferred IRA, they will be raising taxes on the middle class. Congress also plans to give the very wealthy a huge tax break, and many of these wealthy people are also members of Congress. This is another example of the manipulations to shift more tax burden on the working class, and hurts working people trying to save for retirement.
I am not sure how true that is when dealing with effective tax rates . Also with flattened tax brackets most are unlikely to jump out of the 25 or 28% bracket.
But undoubtedly if the Republicans can screw the working class to benefit the wealthy they will.
Everyone needs to see the excellent, all-telling PBS (either from 2014, 15 or 16) Frontline episode, “The Retirement Gamble.” It should still be available at pbs.org
Watch it, quick, before it disappears w/their funding (or is kaboshed by the investment/banking industry)!
It is available on You Tube. 2013
When only 50 percent of profits were returned to share holders companies could afford pensions,healthcare and decent wages. Today 93 percent of profits are returned to share
holders . So the problem is not pensions it is a “Rigged ” system. Decisions are made every day to decide who the winners and losers will be .
As Nick Hanauer says
“From the point of view of their 99%, the median Republican voter, the last 35 years have been a disaster, and their party has caused it. Because if you are a working- or middle-class white Republican-leaning man, your party has completely and totally screwed you.
They screwed you by holding down the minimum wage.
They screwed you by almost completely eliminating overtime pay.
They screwed the union that used to defend your interests.
The screwed you out of the pension on which the middle-class once retired.
They screwed you a thousand ways on trade, and exported your job.
They screwed you on tax policy by lowering taxes on the rich.
They screwed you on infrastructure and education investment.
They screwed you by deregulating the banks.
They screwed you out of your home during the housing bubble and subsequent collapse.
They screwed you on health care costs.
They screwed you on the cost of college and on student debt.
They screwed you (and sent your kids to die) in the Iraq war. …
Since 1980, 95 percent of the benefits of growth have accrued to the top one percent of earners. The share of income for the top one percent has tripled, from about eight percent of national income to about 22 percent over this time. “…
I would add blame to.the Clinton/Obama NDC as well.
Joel,
You are so right. The Dems screwed us just like the Reps. Why do we go to those some wells and expect anything different other than poison?
We may as well just forget the deformers and do what we know is best for our students.
Yvonne Siu-Runyan
We go to that well because that is our only choice . Change will have to come from within the democratic party . Neo liberal Democrats think that their town halls should be a love
fest dedicated to fighting the Republican Agenda . If my Rep was a Republican I would do just that . He is Democrat who saw fit to vote with republicans on De-regulatory bills . That will effect Health ,Safety and finance one of a handful who did he was and will be confronted.
The Democrats want to make the Republicans the problem and they are. But as they used to say “if you are not part of the solution you are part of the problem”. The Booker’s , Clinton’s and even Obama’s have to be shown the door.
Keep pushing the Robot stories(liberals) about the American job market,while making drugs more expensive in India and see what that brings you .
It brings you Trump . Because when Robots replace humans productivity rises and if productivity rises so should living standards .
The question then becomes how are the fruits of that productivity are distributed and who really owns those advances in technology .
The Richest man in America neither invented the computer ,software or even the Dirty Operating System (DOS) he sold to IBM. Apple did not invent the touch screen . Multiple inventors were working on the light bulb at the same time ,17 across the world. Like humankind technology evolves and given a certain set of circumstances invention will develop. If Edison owns the light bulb does he also own the glass blowing concept that enabled it. . So as Salt sad about the polio vaccine “the people own the patent can you patent the sun”.
On my way to a Science march
After I change Salt to Salk
“That’s why, when Chaffee meets Trump, she wants to emphasize the importance of investing in public education ― for both traditional and charter public schools. ”
That’s the national teacher of the year and what she wants to tell Trump.
The problem is this literally NEVER happens.
Show me the ed reformer in which state who invested in “both” traditional schools and charter schools. Show me that.
The ed reform response to Ohio’s traditional schools losing funding every single year since 2009 was to lobby for more charter funding. They did absolutely nothing for public schools. That wouldn’t matter so much except they absolutely DOMINATE policy in this state. The end result? Charters get more state funding every year and public schools get less. That’s the reality. Then we add in voucher-mania and it’s off to the races and we end up with no one acting as an advocate for 90% of kids in the state.
This sentiment is lovely but it has no relationship to reality. Ed reform ISN’T “public education” in any real sense. It’s charters and vouchers.
People voting Republican (who aren’t the richest 0.1%) allow their fear of external threats and their resentments toward their neighbors, to destroy both their own and the world’s future.
Here’s another story likely to enrage, from IBT:
http://www.ibtimes.com/political-capital/how-billionaire-trump-adviser-evades-ethics-law-while-shaping-policies-make-money
“As Donald Trump develops his economic policy, Blackstone CEO Stephen Schwarzman has emerged as one of the new president’s most influential advisers — one who has boasted of his work shaping the administration’s agenda. An International Business Times review of Trump policies and Blackstone investments show that Schwarzman’s rise to political prominence has coincided with recent White House moves that could enrich his company. The moves that help Blackstone have occurred while Schwarzman has been able to simultaneously sculpt federal policy and circumvent conflict-of-interest laws.
In recent weeks, Trump has moved to halt a Department of Labor rule that could complicate Schwarzman’s dream of expanding Blackstone’s business into the multi-trillion-dollar market of retail retirement savings products. Trump has also promised to roll back Dodd-Frank regulations passed in the wake of the financial crisis — a cause Blackstone has lobbied on and that could benefit the larger private equity industry.”
And, just as Trump is gearing up for that trillion dollar infrastructure project, Blackstone is getting ready to move into infrastructure – who’d a thunk? The model is one where private and public sectors combine – sound familiar?
Hi Christine Langhoff:
Thank you for the link. After reading it, I wonder if Trump’s administration and his circle “BILLIONAIRE” advisers will be a reflection of today Chinese Government?
Would Trump, his family members, and all of his “billionaire” associates be uniquely Western culture, or just like TODAY Chinese through three points, as follows?
1) Appearances often tell a very different story from the reality they conceal.
2) In this Op-Doc, he is not a poker-faced bureaucrat or a talking head.
3) How his leadership leads to striking success and failure in terms that are uniquely Chinese
[start article]
Manufacturing China’s Future
By QI ZHAO and HAO ZHOU APRIL 26, 2016
It is human nature to seek out information that confirms beliefs and biases we already have; that approach can be much easier than having to seek deeper, more complicated truths. We find this tendency to be particularly common when it comes to our country, China, where appearances often tell a very different story from the reality they conceal.
So when we had a chance to explore the story of a controversial mayor in the ancient city of Datong, we knew we had a chance to go far beyond traditional reporting on China, and challenge ourselves to see more. (13COMMENTS)
We are pleased to have made a rare film that captures a Chinese mayor as authentically and intimately as possible. In this Op-Doc, he is not a poker-faced bureaucrat or a talking head. Instead we see him as a real man, with dreams, emotions, dilemmas and ego. Here he exposes both his triumphs and failures, and notably has allowed us to capture them on film — and we see how his leadership leads to striking success and failure in terms that are uniquely Chinese.
And we see how his decisions affect both his relationship with his government and with his family. We followed him to the front line of endless pleas and appeals on the streets, which reveal a China that defied years of what we’d thought about our nation, and challenged our opinions about many issues.
This is a country with great dynamics, complexity and classes of people, with various wants and needs. The capacity for different points of view is so large that it is impossible to generalize.Now it is time for us, as citizens, to understand China in different perspectives, between preservation and progress, individuality and collectivism, government and people, present and future. The world should take note. With this film, we are sharing everything we’ve learned about our society and its government with you — and we hope it makes you think, and talk.
Qi Zhao and Hao Zhou are Emmy- and Golden-Horse-Award-winning documentary filmmakers who focus on China. This film is inspired by their feature film “The Chinese Mayor,” which won a special jury award at the Sundance Film Festival.
Op-Docs is a forum for short, opinionated documentaries, produced with creative latitude by independent filmmakers and artists. Learn more about Op-Docs and how to submit to the series.
[end article]
I hope that some readers will have time to read the link that you provide and give it a thought. Love you. May
Reblogged this on David R. Taylor-Thoughts on Education.
Suggestion: Put a search engine on your dianeravitch.net site to make looking through your myriad of postings more manageable.
Barclay,
Google does the search for me