So how does it look for 2014 and beyond for public employee pension plans, such as ours? The short answer is not much change in the near future. But pension plans aren’t about the near future.
Looking back at private sector pension plans, we can see a general trend that may be the road map that financial-plan policy-makers will use into the future. Big companies, such as 3M had pension plans that paid a defined monthly payment for the retiree’s life—a defined benefit plan. Over time, most of them dropped any cost of living increases. My mother’s Honeywell pension, for example, was $140.40 when she retired in 1976 and was $140.40 when she died in 2011. In more recent times, those pension plans went away, and employees may have gotten matching contributions to their own contributions to personal IRAs, usually 401(k) plans. In many cases, just as in Minneapolis Schools’ case, such matches were dropped under the argument of the need to put the money into salaries in order to retain staff, converting an employee benefit into the company’s productivity—profit protection. At this point all the workers were on their own, anteing up for retirement poker.
Who benefits and who is at greatest risk under this system? Well, employers benefit in two ways. First they are saving 5% to 7% on their human resource costs, their greatest expenditure in most cases, and then they benefit from disconnecting workers from the idea of job loyalty. What is the value of the second? Companies can reconfigure their staffs to be low-paid workers, and higher paid in upper management with less in between. And the lowest paid? They will tell you; they don’t ever expect to retire. They work too close to subsistence, especially while paying loans to overpriced colleges and universities—where millions go to sports. These low-end workers cannot afford to divert much if anything into savings during the years of their lives when it would have the greatest long-term benefit. Furthermore, moving out to a new career seldom means moving up the pay range. Often it means starting over at lower income with additional training and investment costs. Dickson might recognize this economy.
So could this be the eventual future for defined benefit plans, such as the Minnesota Teachers Retirement Association or Social Security? Well, why not? How many billions of dollars are going to retired workers? Into public servants’ paychecks? Going to normal people? How can the masters of greed ignore that? They don’t want to contribute “tax-payers’” dollars to people providing services to tax payers. Public services mean little to the financial industry—the folks who make money off your money. They pay lower taxes, of course, so maybe they shouldn’t benefit from police and fire protection, good roads, education, or a healthy workforce. The wealthiest are so removed from the realities of the lives of real people they might as well live in foreign countries. Oh, wait! They do.
The marketplace forces are working hard to get their hands on your money, and it isn’t just by selling you something. One reason the wealthiest don’t want public employees to have defined benefit plans is that it is a financial liability to the state, and that means the same as tax burden. The argument against funding liabilities is the same as the one by House Republicans used just yesterday. That argument says that the government can’t afford to pay 1.3 million unemployed workers—a result of Wall Street economy crushing greed—their unemployment insurance. “Our low taxes are more sacred than your family’s dinner.”
The second reason to kill defined benefit plans is that public pension funds are currently managed by state investment bureaus who have state salaries, not slices of your savings and investments. If public employees shift to individual plans, they would have a personal investment advisor, or risk much more by trying to manage on their own. (see The Cost of Bad Financial Advice) And how well do financial advisors do? That would be your money. Shifting money out of state and federally run pension plans puts the responsibility into the hands of millions of public workers and at the mercy of a financial industry whose job it is—you remember—to make money off your money.
And there is a third reason to kill any benefit of working for a public agency. If you have a private jet, you don’t really need or benefit from police and fire protection, good roads, education, or a healthy workforce. Cutting benefits of any kind to workers, such as teachers, who are already under-paid, means you save tax money in benefits and you save tax money in reduced job loyalty—leaving newer, cheaper workers, and you save tax money with a reduced workforce from which more is demanded—a 60 to 70 hour work week and classrooms with 40 or more students.
The Great Recession exacerbated economic inequity. So who has benefited from the loss of American benefits or salary or jobs? The free market forces are gearing up for change. They see more defined contribution (DC) pension plans on their horizon (see UBS pins hopes for growth on DC plans of the future), and DC plans have been the step ahead of NC (no contribution) plans. And if no employer contribution means saving taxes, there’s no reason to think the money will come back in salaries.
There is difference in the attack on public employee pensions however: the difference is us. Change must go through government decision and they affect relatively large, somewhat cohesive and more than a little activated groups. Going through governmental processes slows things down, and lets voices and views be heard. Teachers, principals and all the other education workers must stand together. State, county and city workers must stand together. All Social Security eligible workers and retirees must stand together. We all earned our pensions; it was part of the deal.
Will our governments treat the working people the same deplorable way they treated the Indians with the treaties they never meant to honor? Will the courts claim that pension promises in lieu of decent salaries weren’t really binding? Will it be the American way to say, just kidding?
Teachers and other public sector workers are in the right. We have been promised a defined benefit pension. We have contributed to a defined benefit pension. We have accepted low pay in exchange for a defined benefit pension. Now we need to speak up for a defined benefit pension.