Friday, January 16, 2004

A word about pensions

In a yet another lament to the good old days of defined benefit pensions Jacob Hacker writes in NYT:

The truly staggering changes, however, are taking place in the private sector. The number of Americans without employment-based health benefits has been rising for decades. Employers are also restructuring workplace benefits to impose more risk on workers. Once, for instance, workers lucky enough to have a pension enjoyed a guaranteed benefit. Now, with so-called defined-contribution plans like 401(k)'s, workers have to put away their own wages and the returns of the plan depend entirely on their own investments[ed. emphasis added].

I always have a problem with the use of word "lucky". I am certainly not clear on why 401-K plans are so-called defined-contribution plans -- they are defined-contribution plans, there is nothing so-called about it. but let's get back to luck. Is the author claiming that US workers were lucky that their kind employers generously gave them health and retirement benefits? I am sure miners and teamsters of old would argue that they earned every penny of those benefits, and luck had nothing to do with it. If indeed it was luck, then it seems silly to argue that we can somehow force the return to the halcyon days of old. If the generous benefits enjoyed by at most 2 (3 for city workers) generations of workers in American history are to be treated as a norm, then what is the point of using the l-word ?

Moving on to the actual subject of pensions. I certainly would like to have a defined-benefit pension, to which I would not contribute but to which I would be entitled. However, if I were studying the subject, I would focus not only on what would be great to have, but what the costs of it would be. For example, does Mr. Hacker know what happens to these defined pensions when companies go bust? He could ask the steeel industry pensioneers. What happens when GM, formerly called "Generous Motors" by its workers, makes around $200 per some car models but has costs of $2,000-$3,000 per same car in retirement benefits? The answer is simple -- government comes in, bails out the company by either assuming its pension obligations or by trying to somehow improve its competetive position by instituting tarrifs and taxes on its competitors. Oh, and it also cuts these so-called defined-benefits pensions to the bone. Of course, for many political science professors governement just prints money, so it has no problem subsudizing any amount of fudiciary obligations, but for the rest of us it is the taxes that could be used for war, peace, space exploration, or brighter street lights that get diverted to pay for those few lucky ones.

From the Federal Government down, municipalities and companies are promising benefits to their current workers on the backs of their future citizens and employees. I agree that a fundamental reform, or at least a shift, needs to take place. I would not mind at all if my employer took the money they expected to put into a pension plan for me and instead gave it to me personally through a 401K plan. IBM did that. Whatever the investment results of the 401K plans, at least current IBM-ers are not going to be penniless because of an implosion at IBM.

Can I really argue that we, as a country, should not pursue

a new, flexible universal insurance program to protect families against catastrophic expenses and drops in income, before families fall into poverty.

No. I cannot. Nor do I want to. I would very much like to know that my family will be somewhat taken care of if I were to lose my job, my health, or both. And I *can*. I *can* buy insurance today that for a small monthly payment would make sure I never default on my mortgage, and I can buy life-insurance if my company does not provide me with one. I can even buy "wage" insurance, were I so inclined. I have no idea how expensive implementing these things on a national scale would be be, or whether it is truly feasible or desirable. Certainly I am open to the debate on the issues. But please do not call people at the mercy of corporate management even after they stop working for it "lucky".

As a slight aside, I do know/have read that the way IBM decided to shift from defined-benefit to defined-contribution plan may have (and probably did) taken some of the equity from older workers that they would have gotten under the older plan. Injustice laid at the feet or mercurial management, does not that just showcase the inevitable fallacy of defined-benefits pension plans? IBM and every other company are always going to put the least possible amount into their pension plans by jacking up projected investment returns, corporate growth, and delaying putting money in until the last possible moment. Why would one want to rely on the same company for 25 years *after* you retire. Surely there is no loyalty there, and never will be.


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