STUMP » Articles » Happy New Year! Prediction Reactions and Upcoming Features » 2 January 2020, 05:35

Where Stu & MP spout off about everything.

Happy New Year! Prediction Reactions and Upcoming Features  

by

2 January 2020, 05:35

Happy 2020, y’all!

I’m not really expecting anything new for STUMP, but I do have some things to clear away from last year’s drafts:

  • Commentary on the multiemployer pension bailout/reform bills in Congress
  • Follow-up on the French pension protests
  • 2019 stats for the 80% funding watch
  • The year of Dickens wrap-up

And a few more.

But first….

A LOOKBACK AT 2019 AND A HAPPY NEW YEAR

A couple of my kids joined me for this one:

It turns out I had forgotten to properly log the Ulysses lectures and some of the George Eliot books, so I fixed that and made it over the 150 mark.

And yes, it does help to log comicbooks for the count (no, not all were graphic novels, though the Sandman series and Order of the Stick books were. They are quite long…. but do read quickly.)

OTHER PEOPLE’S PREDICTIONS

I’m somewhat lazy (more accurately: I’m tired.), so instead of coming up with 2020 predictions, I’m going to use other people’s predictions and react.

First, Elizabeth Bauer: Three Retirement Predictions For 2020 – Plus A Bonus Wishlist

Prediction one: MEP reform/bailout package will get passed:

First, I’m going to very cautiously predict that Congress will pass some sort of rescue for multi-employer plans.

Yes, I know it’s been over a year since I first wrote about the woes of multi-employer plans, and since the Joint Select Committee on Multiemployer Pension Plans dissolved without finding a way forward. And in the meantime, the House has re-passed the Butch Lewis Act promising to solve the problem via loans (with no realistic means for plans to repay those loans), and the Senate has proposed its own version of a rescue plan, which neither the AFL-CIO nor the NCCMP (a multiemployer lobbying group) have signed on to, and which does not yet even have the form of a bill rather than a set of principles and a white paper.

This does not look very promising.

Fundamentally, there are two issues:

How much money should the government kick in to resolve the issue of plans currently forecast to become insolvent? And how much stricter should funding demands be in the future, to balance the twin goals of ensuring plans are well-funded while not burdening them so much that they simply shut down? (The Butch Lewis loans? I don’t give them any credibility.)

Call me naive, but I do believe that both sides know that there’s too much at stake not to negotiate their way through to a solution that takes into account the analysis of actuarial experts rather than just politicians’ desire to provide money to interest groups, however much the opposite is generally true.

Here is my very short take: I do believe that a compromise multiemployer bailout/reform package will be passed.

Just not in 2020.

If it does get passed in 2020, it will be in December.

I will give my full reasoning later, but I’m not feeling hopeful given the positioning on the Democratic side. They want Butch-Lewis or better, and they’re not getting Butch-Lewis at all.

Prediction two: state-run DC plans for private employers

Second, we’ll begin to have enough data about auto IRA experiments in such states as Oregon, Illinois, and California to draw conclusions about those programs.

Actually, I don’t think we’ll have enough data.

The OregonSaves program, the first of these, is still in the process of enrolling employers, with enrollment of employers with fewer than 20 employees now underway. Illinois’ Secure Choice program’s final deadline, for employers with 25 – 99 employees, was reached just last month. (Employers with fewer than 25 employees are exempt in Illinois.) California’s CalSaver’s program has only begun its pilot program, with the first enrollment deadline, for businesses with over 100 employees, not until June 30, 2020.

The reason I don’t think we’ll have enough data is because I remember the Obamacare roll-out. The first month for sure was an operational disaster, and the first year was rocky… it took a couple years for the co-ops to collapse, etc.

Yes, we’ll have something to comment on, just as I had plenty to comment on re: the screwed up Obamacare websites. But I don’t think it will give us enough info as to whether this is even a good idea.

Prediction three: public pensions

Third, with respect to state and local public pension plans in the most-indebted states, that is, Illinois, New Jersey, and Connecticut, and the most-indebted cities, such as Chicago, I’m going to go out on a limb and predict that . . . precisely nothing will happen.

Yup.

I’ll go even farther.

Kentucky is going to get even worse than it is now. And all these places will claim that it’s not a crisis until the pension funds run out… and even then, hey! We can do pay-as-we-go! [This one will be coming back]

As for Elizabeth’s wishlist:

But what’s on my wishlist?

Yes, it may indeed be quixotic, but I will continue to promote my own Social Security benefit commencement flexibility proposal. It’s not the sort of monumental change that so many people want to see, but it’s practical and doable and genuinely a change that can be made without cost. And at a time when it seems that everyone is holding out for a future supermajority that supports their ambitious massive changes, rather than working together to make small changes, it’s a valuable proposal in that respect as well.

I am in agreement, and I would like her proposal in place to encourage the youngest boomers (who are about to turn 60 soon) to stay in the workforce. I think it’s a great idea.

Even if it’s not put in place for the last of the Boomers, and instead is imposed on those of us in the Baby Bust (better known as Gen X), it can help make retirement more of a phased thing than an all-or-nothing thing.

Mark Glennon at Wirepoints has his own viewpoint for the year… or decade, rather:

Instead, this is the time to address the most frequent theme we see in comments on this site and emails we get, which is the coming resolution of Illinois’ state and local fiscal crisis. That crisis will resolve one way or another over the course of this decade. We know that because simple math says it must.

By “resolve” I’m not implying anything benign. I mean what you readers have called it here – a meltdown, big bang, crash, finale. Call it what you want. We’ve used those terms, too, though sometimes in different ways.

Just “let it blow up” is a common sentiment. Why bother suggesting reforms, many have asked, when the political establishment has no interest in reforms? It’s too late anyway now, with or without reforms, others say.

Before I get to his point of view, I completely agree with him that Illinois (and Kentucky and New Jersey and perhaps a few more states) will have their finances unravel due to pensions in the next decade. I’ve got the projections to show it.

I have much more to say about this later — but I’ve gotten into a really dark mood re: these public finance challenges.

I have discovered that nothing but complete disaster will teach many people. So that’s what they’re going to get.

Back to Mark:

Here’s our view, which we emphasize because it’s key to our purpose: The meltdown should neither be accelerated by artificial pessimism nor delayed by artificial optimism. A meltdown, however, is both necessary and inevitable.

By meltdown I mean a crash in Illinois’ state and local public sector severe enough to shock the public and the political establishment into drastic reform. If a crash is artificially accelerated by deliberate action or misinformation, politicians would dismiss it as such. Today, the establishment still covers up the depth of our problems — by lying — and it would be a mistake to arm them with something better.

From my own projections, it doesn’t require anything so bad as spiking benefits or stopping contributions. It doesn’t even require a stock market crash.

And the meltdown indeed must be severe enough to induce shock, because decades of experience show how impervious Illinois voters and lawmakers are to financial reality.

Based on that foundation, we often propose reforms that aren’t politically feasible for now. If we instead limited ourselves to what’s politically feasible today our work would be pointless. Reform proposals today are best thought of as building blocks that will be needed when the time comes. They must be thought through, popularized and put on the shelf, ready to go.

I’ve got my own favored proposal with Gordon Hamlin, Jr.. I’ve got all sorts of proposals.

But, in short, it can’t go on. And it won’t go on.

Four years ago, I said there would be no bailouts. Maybe I need to adjust that, given what I’ve seen proposed for MEPs.

Maybe there will be partial bailouts attached to large reforms, state constitutional amendments, etc. I still stand by my saying that people will not be made whole — there will not be full bailouts of MEPs or public pensions or ….

Detroit was given essentially nothing from the Feds. Rhode Islanders were given nothing. Puerto Rico is getting nothing. Chicago will get nothing.

Chicago will be the first to go in Illinois. Yes, some smaller Illinois municipalities have already gone (Harvey, Illinois comes to mind.) down that path, but they’re small, doncha know.

The funding ramps for the Chicago pensions are such that I do not see that happening at all. But I’ll leave that analysis for later.

I wish the Wirepoints guys well. I wish well many of the people I know in Kentucky and New Jersey, too. But it is going to get nasty, and “later” is happening in this decade.

I’ll pick one last person to piggyback on predictions: Mark Miller at Morningstar. He looked back at how his 2019 predictions fared (so-so), so let’s see what he has to say about 2020.

As you may have noticed, 2020 is an election year, so don’t expect significant policy developments in Washington. The SECURE Act might squeak through—perhaps tacked onto a broader omnibus bill—since its support is fairly broad, but that’s about it.

The SECURE Act actually did pass and was signed right after he published his piece. So that was for 2019. Heh.

Social Security reform will await the next Congress and presidential administration. The program’s combined retirement and disability trust funds, or OASDI, are forecast to be exhausted in 2034. At that point, the program would be able to pay about 77% of scheduled benefits from incoming payroll taxes. That would mean a fearsome across-the-board benefit cut for current and future claimants.

There is still time to fix that problem. The good news, from my perspective: The longer Congress waits, the odds rise that the solution will involve only new revenue, not benefit cuts. This is an actuarial point—the closer we get to 2034, restoring trust fund solvency via cuts becomes much more difficult.

That doesn’t sound good to me at all, really. (FWIW, I think there will be hard-to-understand benefits cuts plus tax increases to cover Social Security costs when the time comes – but that’s farther out than a decade.)

I do agree with Miller that not much re: policy will happen in 2020. Earlier in the piece, he says this about MEPs:

I forecast that Congress would try to avert an insolvency crisis in multiemployer pension plans, which would threaten the retirement of more than 1 million workers and retirees. I was correct—lawmakers did try. But they have not succeeded, and action before the 2020 elections now seems unlikely, as the House and Senate are at complete loggerheads over how to solve the problem.

Yup, 2020 is just going to be about positioning for the election.

UPCOMING NEW INFO

As I released for Christmas, I have a new projection tool, and I’m hoping to set up some pages for the plans so you can pick and see if you don’t have your own version of Excel (or you’re uncomfortable with spreadsheets). Eventually, I hope to have something more interactive people can play with, but that may be in 2021 or beyond.

In addition, the mortality research report I’ve been waiting on has finally been published. There is a mortality projection tool in there, but that will not be my focus — my focus is differing trends by cause of death.

There are some good trends in there… and some very bad ones.

Finally, I am going to set my sights closer to home. As Elizabeth Bauer says, I’m not expecting any real movement in Chicago or Illinois this year re: pensions, but Connecticut may have something going on. I was given a link to all the CT actuarial reports, and there are a few things I want to investigate…

So that’s some stuff to look to for 2020, and perhaps even more to come….

via GIPHY

Thanks for reading!


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