A writer for the Los Angles Times has voiced the opinion that the latest proposal by the House of Representatives will be very destructive in the labor markets. Congress wants to amend labor law that would allow the trustees of pension funds to take action that would include reducing retiree pension payouts and benefits. The import here is that this would allow a good many union funds to come under such proposals. True, the union membership would need to vote their assent at such changes but in voting to affirm such changes it would pit retired members against working members. Thus the unions would lose the cohesion of its former and present members. The writer also believes that the pensions do not need to be amended since the recent upturns in the economy will insure that there will be sufficient returns on investments.
I don’t know what planet that man is living on but it can’t be earth. The actuarial math does not lie, 2 + 2 still equals 4 no matter how much sunshine the city of L.A. may get each year. When planning for a pension payout three items must be considered. The first is the actual payout in the future, or just how much can I count on receiving if I work for thirty or forty years at one employer. The second is how long am I expected to live after my retirement? And the third is how much money is Being put aside in the pension fund? Then there are a couple of assumptions that are made in regard to the monies set aside. The first is who will not work long enough to get a pension assuming that one must work say fifteen years to be invested in a pension. Some individual workers may leave after several years and those monies that had been set aside for them may go into the general fund. If a worker does become invested then what is the payout if he leaves after such investment but before retirement? I believe in the old Bell System one had to work a minimum of ten years to acquire any pension pay out and had to wait until age 65 to take that yearly income. Usually it was calculated as one percent per year of one’s wage, so that a worker who left after fifteen years would receive a 15% pension payment at age 65.
But the real problem for pensions is that the usual actuarial calculations assumed a 3 to 4% income on investment of these pension fund monies. Unfortunately when accounting rules were changed to allow the pension fund to invest monies in higher yield investments like junk bonds and assume rates of return at eight ten or even twelve percent then the real trouble came. Routinely Calpers has done just that and right now there is a pending shortage in funds that means the coverage of the retirement pensions will be around sixty percent. If you are a teacher and want to seek retirement after the next ten years then you may only receive six dollars or less than the ten you were promised. And the greater the number of teachers reaching retirement the less monies there will be to go around. The cities and counties have been shorting the contributions using creative accounting, the kind that would get a CPA of a private company ten to twenty in Leavenworth. But public officials seem to be immune to the grossest of accounting scams. Not that the mayors of other officials get to take all the blame.
When public employees such as teachers, police and firemen, and all the other workers that were hustled into the Service Employee International Union or its various derivatives such as teachers unions, police unions, firefighter unions, ans such, then now only did wages start to escalate dramatically but so did benefits such as full medical care in retirement. And since pension payout is usually based on the last five highest years wage including all those sick days one saved up, then the monthly pension could be as much as 80% of one’s yearly wage. Unfortunately there was never enough contributions that would have paid those benefits without causing future retirees a loss of income in the future. Those who have retired now stand to gain far more than their share in relation to those who will retire in ten or fifteen years from now. And it is not just the public employees, it is most pension plans in the private sector as well. The steel workers, the auto workers, the trade union workers, all those union workers will, as retirees never see their full benefits. And if you are a retiree now, unless you die in the next ten years you will see your own retirement and benefits decline and decline rapidly.
So what happened? One word, debt. When one does not pay for the future and depends on others paying for him then the system is broken. We have seen wage and price inflation caused by excessive amounts of credit being issued. Let us take the auto workers as an example. Back in 1966 I wanted to go to work for GM in Norwood Ohio where I could count on 3 dollars an hour and over 40 hours a week. The best I was making at that time was $1.35 an hour. If I had waited until age 65 to retire then I would have been making clost to $50 an hour, that includes the benefits. That would be 165 percent increase in my wage. If my pension was figured to be 80% of my highest average wage and if we add in overtime earnings, that means my pension is worth about $40 an hour. Do you think GM put aside that much money in the last five years of my retirement? Even if we use the conservative estimate of 4% return on that money put aside for my pension I doubt that GM put more than an average of five bucks an hour each year towards my pension payout. And what about me? The ira did not come about until the 80s and the 401k right after that. In the 70’s some companies had matching savings accounts of up to 6% of ones wage. In the Bell System if I save 6% of my wage in the company account they put in 3% because they could deduct that contribution from gross earnings.
We are now reaching a point where the future is almost here demanding payment. And it is not just America, it’s the entire world. I don’t care how pro union you happen to be, those glory days are about to collapse and with it your over promised pensions and benefits. The union never told you that yon had to save for you own retirement and medical bills, so you didn’t. Kind of sad, ain’t it?