STUMP » Articles » Multiemployer pensions, Social Security, and Public Pensions: Choices Have Consequences » 6 December 2014, 07:10

Oh, look. Something in the NYT:

When people are old, should governments guarantee they have incomes?

…..
Forty years ago, President Gerald Ford signed the Employee Retirement Income Security Act, which enshrined the concept that pension promises were sacred.

Companies could change, or even eliminate, pension plans, but workers were entitled to the benefits they had already earned. A government agency was set up to guarantee that pensions would be paid even if the sponsoring company went broke.

This year may well be remembered as the one when the fundamental tenet of Erisa, as the law came to be known, was abandoned.

The Pension Benefit Guaranty Corporation, the agency set up 40 years ago to guarantee those pensions, made clear in its annual report released last month that one group of pension funds would most likely run out of money within a few years. Absent new legislation, the already modest pensions of some retired workers will be eliminated.

There’s a lot behind the PBGC’s insolvency, part of which is that the money being charged plans to build up this fund was always insufficient.

But multiemployer plans are an especially sticky subject, because of all sorts of bad incentives baked into how these plans are regulated.

Here is one bit of info: when pensions (whether single employer or multiemployer) are put onto the PBGC because they’ve gone bankrupt, the pensions are guaranteed only up to a certain amount. Those with small pensions may get their full amount, but those with higher amounts get whacked down. A lot.

From the NYT piece:

When those funds run out of money to pay benefits, it will be up to the P.B.G.C. to step in. It now pays a maximum of $12,870 a year for workers who spent 30 years digging coal or driving trucks, even if the plan called for larger payouts. A worker with only 15 years of service gets half of that.

That is specifically for MEPs. Not single employer plans.

Single employer plans have a higher guaranteed amount:

For 2014 the maximum guaranteed amount is $4,943.18 per month ($59,318.16 per year) for workers who begin receiving payments from PBGC at age 65. The maximum guarantee is lower if you begin receiving payments from PBGC before age 65 or if your pension includes benefits for a surviving spouse or other beneficiary. The maximum guarantee is higher if you are over age 65 when you begin receiving benefits from PBGC.

However, it’s not happy for highly-paid employees like airline pilots (many of whom are forced to retire earlier than age 65, btw) — that’s why they’re really not happy when their plans get put to the PBGC.

Still, MEP guarantees are especially skimpy.

You know what also has a very small amount? Social Security benefits.

In 2014, if you retire at age 66, the maximum amount you will receive is $2,642.

At least those in MEPs are qualified to receive Social Security benefits. Not necessarily so for public employees.

But back to the NYT piece. He not only talks about MEPs and the incipient disaster there. He also mentions public pensions, which are not covered at all by any backstop. No PBGC for them. If you’re a Prichard, Alabama retiree, you can tell others that yes, the money can run out and you get nothing.

Let’s see what this guy has to say:

The baby boomers now retiring — a group that includes me — may be the last American generation to leave work assured of adequate income in old age. In place of defined-benefit pensions, future generations will be left with their own savings.

[pause for me to laugh]

Oh honey, you will find out exactly how assured y’all are within a decade. Good luck with that.

And the evidence is that most people are not saving much money. In “Falling Short, the Coming Retirement Crisis and What to Do About It,” a book to be published next week by Oxford University Press, Ms. Munnell and two co-authors, Charles D. Ellis and Andrew D. Eschtruth, argue that retirees need more money than ever before, with health care costs rising and life expectancies growing at the same time that low interest rates mean savings earn little income.

They say the typical household nearing retirement has only $110,000 in a 401(k), an amount that will not go far.

They want to raise payroll taxes to shore up Social Security and to make it automatic for workers to join 401(k) plans. Employees could still opt out, but research shows inertia leads people to stay in if they are in and to stay out if they are out. They think we should work longer and save more.

All that makes sense. But it is a far cry from the spirit that defined the progress toward income security of the previous two centuries. Then there was a willingness to believe that those who had failed to navigate the road to comfortable retirements deserved at least some minimal level of public support. Now, with retired coal miners in danger of losing meager pensions, the political system seems unwilling to even consider a taxpayer-supported solution.

WON’T SOMEBODY THINK ABOUT THE POOR RETIREES?!

Not as compelling as to think about the children, is it? Children, at least, are faultless when adults impose on them. The ant and the grasshopper comes to mind when it’s an adult after decades of work has nothing saved up.

Because there were so many other things they wanted to buy in the interim.

The reason the boomers are going to find out that they’re going to get a lot less than they thought is because of choices they made:

1. They didn’t save up enough and
2. They didn’t have enough children

That second one is a manner of saving for the future, btw.

The reason taxpayers will not boost them up is because there’s not going to be enough of us. And bringing in a bunch of low income once-illegal aliens is not going to do much for them, either, except perhaps provide some low cost workers for their assisted living centers.

This explains Zeke Emanuel’s death wish, more of a death wish for all his fellow boomers, who are too numerous and would live into their mid- to late-80s if they weren’t “helped” along.

Here is a good picture of the situation:

You see that dip? I’m in that dip. They call us Gen X now, but back in the day we were the Baby Bust. There’s a new Baby Bust on right now, btw.

Anyway, boomers, no, the money is running out right now for y’all. Not just my generation and younger. It’s running out for y’all due to choices y’all made.

So yes, I expect there will be some higher taxes to try to fulfill the retirement obligation to boomers, but it will not be at 100% promised. Some of the changes will be indirect, so that it won’t be so obvious — reduced COLAs, increased taxation of retirement benefits (including Social Security) — but some will be direct whacks, because indirect gets you only so far.

Those who made good choices in terms of saving up for tomorrow, like the ants, may be able to have a comfortable winter. Some of the public pensions are in a fairly strong condition, because they did not overpromise and undercontribute. More on that in a later post.

No matter how much accounting/actuarial trickery one tries, reality is going to win out over all the theories. We ain’t got the money of. So moderate your appetites.

Or take up some really exciting hobbies.