Social Security Recipients to Get Tiny Increase in Benefits

October 18, 2016

WASHINGTON (AP) — Millions of Social Security recipients and federal retirees will get a 0.3 percent increase in monthly benefits next year, the fifth year in a row that older Americans will have to settle for historically low raises.

There was no increase this year. Next year's benefit hike will be small because inflation is low, driven in part by lower fuel prices.

The federal government announced the cost-of-living adjustment, or COLA, Tuesday morning. By law, the COLA is based on a government measure of consumer prices.

The COLA affects more than 70 million people — about 1 in 5 Americans.

The average monthly Social Security payment is $1,238. That translates into a monthly increase of less than $4 a month.

More bad news for seniors: Medicare Part B premiums, which are usually deducted from Social Security payments, are expected to increase next year to the point in which they will probably wipe out the entire COLA.

By law, the dollar increase in Medicare's Part B premium cannot exceed a beneficiary's cost-of-living raise. That's known as the "hold harmless" provision, and it protects the majority of Medicare recipients.
But another federal law says that the Part B premium must raise enough money to cover one-fourth of expected spending on doctors' services. That means that a minority of beneficiaries, including new enrollees and higher-income people, have to shoulder the full increase. Their premiums would jump.

Millicent Graves, a retired veterinary technician, says Medicare and supplemental insurance premiums eat up nearly a third of her $929 monthly Social Security payment. And don't tell the 72-year-old from Williamsburg, Virginia, that consumer prices aren't going up. She says her insurance premiums went up by $46.50 this year, and her cable TV, Internet and phone bill went up, too.

"I just lose and lose and lose and lose," Graves said.

More than 60 million retirees, disabled workers, spouses and children get Social Security benefits. The COLA also affects benefits for about 4 million disabled veterans, 2.5 million federal retirees and their survivors, and more than 8 million people who get Supplemental Security Income, the disability program for the poor. Many people who get SSI also receive Social Security.

Since 2008, the COLA has been above 2 percent only once, in 2011. It's been zero three times.

"This loss of anticipated retirement income compounds every year, causing people to spend through retirement savings far more quickly than planned," said Mary Johnson of the Senior Citizens League. "Over the course of a 25- or 30-year retirement, it reduces anticipated Social Security income by tens of thousands of dollars."

By law, the cost-of-living adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, a broad measure of consumer prices generated by the Bureau of Labor Statistics. It measures price changes for food, housing, clothing, transportation, energy, medical care, recreation and education.

The COLA is calculated using the average CPI-W for July, August and September. If prices go up, benefits go up. If prices drop or stay flat, benefits stay the same.

The numbers for July and August suggest COLA of just 0.3 percent. The numbers for September are to be released Tuesday.

Some advocates complain that the government's measure of inflation doesn't reflect the costs many older Americans face.

For example, gasoline prices have fallen by nearly 18 percent over the past year, according to the August inflation report, while the cost of medical care has gone up by more than 5 percent.

For seniors who don't drive much, they don't get the full benefit of low gas prices, said Max Gulker, a senior research fellow at the American Institute for Economic Research. Many seniors, however, spend more of their income on health care.

Graves said she appreciates lower gas prices, but doesn't drive much.

"I just have to rely more each month on cashing in investments," Graves said. "I'm lucky I can do that."

Obama Sets 2017 Pay Raise for Civilian, Military Employees

What agency has the most employees? Which feds get paid the most? Federal News Radio looks at the latest data from the Office of Personnel Management.

August 31, 2016

FEDERAL NEWS RADIO - President Barack Obama is exercising his authority to give federal civilian employees and uniformed service members a pay raise effective Jan. 1, 2017.

Civilian employees will receive an across-the-board raise of 1 percent, with an additional 0.6 percent adjusted in locality pay.

“I have determined that for 2017, across-the-board pay increases will be 1.0 percent,” Obama wrote in an Aug. 31 letter to congressional leaders. “Also, I will make a decision by November 30, 2016, regarding an alternative plan for locality payments under 5 U.S.C. 5304a. The alternative plan for locality payments will be limited so that the total combined cost of the 1.0 percent across-the-board base pay increase and the varying locality pay increases will be 1.6 percent of basic payroll, consistent with the assumption in my 2017 budget. These decisions will not materially affect our ability to attract and retain a well-qualified federal workforce.”

Uniformed service members will also receive a monthly basic pay increase of 1.6 percent.

“This decision is consistent with my fiscal year 2017 budget. It will not materially affect the federal government’s ability to attract and retain well-qualified members for the uniformed services,” Obama wrote in a separate letter to congressional leaders.

The raise is just slightly above the 1.3 percent Obama approved last fiscal year.

Pension Benefit Guaranty Corp, Which Insures Private Pensions, Wasn’t Really Intended to Be Used

What is a pension? A pension plan is a method in which an employee transfers part of his or her current income stream toward retirement income. In other words it is wages currently earned, held in trust and invested by the company to be distributed at a later date.

The federal insurance fund protecting millions of pensions is running out of cash

May 30, 2016

Washington Post - One of the nation’s largest multi-employer pension funds said that it is out of ideas for ways to save itself from an impending failure.

After the Treasury Department rejected its Hail Mary proposal, which would have substantially cut benefits for some retirees, the Central States Pension Fund has little choice but to turn to a federal insurance program that is supposed to offer a lifeline to troubled pension funds.

But there’s one major problem — that program is expected to run out of money, too.

The Pension Benefit Guaranty Corp., which insures private pensions, is dealing with long-standing financial woes with the fund that protects multi-employer pension plans. The program, which some experts say wasn’t really intended to be used, was set up more than four decades ago to serve as a backstop for private-sector pension plans. But it has been relied on more than expected by large plans on unsteady financial footing.

The fund’s deterioration could pose a threat to the 10 million people in multi-employer plans who could soon be left without a safety net for their pensions. Although most of those workers and retirees are in plans that are financially healthy, about 1.5 million people — including the Central States members — are in plans that are projected to run out of cash over the next 20 years.

In the past few weeks, lawmakers, Central States officials and consumer advocates have called for a legislative solution that would shore up fragile pensions and the struggling insurance fund.

“We need a more comprehensive solution,” said Rep. Marcy Kaptur (D-Ohio), who introduced a bill last year that would provide the insurance program with government assistance. “Millions and millions of Americans are affected by this.”

Previous efforts to bolster the insurance program have failed, or so far fallen short. For instance, a 2014 law that made it possible for multi-employer pension plans to cut benefits for retirees was meant to alleviate the burden on the PBGC. But now that the Treasury Department has rejected the Central States proposal, which was the first test under the law, the insurance agency is back where it started.

With roughly $2 billion in assets, the fund for multi-employer plans does not have enough money to pay benefits for the plans that are expected to become insolvent over the next decade.

The Central States fund alone, which pays about $2.8 billion in benefits each year and is the largest multi-employer plan in financial trouble, would overwhelm the multi-employer insurance program if it went under.

“At this time, only government funding, either directly to our Pension Fund or through the PBGC, will prevent Central States participants from losing their benefits entirely,” wrote Thomas Nyhan, the executive director of the fund, in a letter on why he thinks the fund cannot come up with another rescue plan.

The Pension Benefit Guaranty Corp., which insures private pensions, was created as part of the 1974 Employee Retirement Income Security Act (ERISA) to provide another level of security for the millions of Americans counting on pensions in retirement. The agency has separate programs for single-employer plans, through which one company is paying completely for the costs of financing a pension, and multi-employer plans, which allow businesses to share the costs of providing pension benefits to their workers. The insurance fund for single-employer plans is financially stable, but the fund for multi-employer plans is woefully underfunded.

That’s because when the multi-employer plan insurance fund was created, it was expected that the fund would not be needed much, said Josh Gotbaum, former director of the Pension Benefit Guaranty Corp. and a guest scholar at the Brookings Institution.

The thinking was that multi-employer plans would be able to turn to the other companies in the pension fund if one employer fell short in contributions or went out of business, he said. Because of that, multi-employer plans pay smaller premiums than single-employer plans and receive smaller payments from the PBGC when their funds run out of cash.

But over the past several years, multi-employer plans have faced financial challenges similar to those of the Central States fund, he said. Two severe market downturns over roughly 10 years left the plan without enough money to pay expected benefits. At the same time, many companies went out of business, leaving the plan with a smaller number of employers available to pitch in and cover that shortfall.

“What they didn’t think of was, suppose if most of the companies go away and only a few employers are left holding the bag?” Gotbaum said.

With that shortfall in mind, many of the workers and retirees covered by the Central States plan are rallying behind a bill introduced by Democratic presidential candidate Bernie Sanders and Kaptur that would repeal the 2014 law that made it legal to cut pension benefits and instead lead to government assistance for the PBGC. Over the past two weeks, senators including Sherrod Brown (D-Ohio), Claire McCaskill (D-Mo.) and Ron Wyden (D-Ore.) wrote to Senate Majority Leader Mitch McConnell (R-Ky.) asking him to address the pension crisis before the Senate breaks for the summer.

New Law Gives Treasury Department Authority to Approve Cuts Proposed by a Multi-employer Private Pension Funds

273,000 union workers and retirees brace for pension cuts

May 2, 2016

CNN - The struggling Central States Pension Fund is in such bad shape that it's seeking government approval to cut benefits -- and the ruling is expected to come this week.

It would be the first time the government green-lights pension cuts under a new law giving the Treasury Department authority to approve, or reject, cuts proposed by a multi-employer, private fund as a way to head off insolvency.

Previously, failing pension funds could reduce future benefits for current workers, but they couldn't touch those already being paid to current retirees -- until now.

The Central States Pension Fund covers workers and retirees from more than 1,500 companies across a range of industries, but most of its retirees were truck drivers.

A lot of the fund's companies went bankrupt after the trucking industry was deregulated in the 1980s. That's part of the reason the fund is in trouble now. It's currently paying out $3 for every $1 it takes in, and is expected to run out of money in 10 years.

About 115,000 retirees face pension cuts under the proposed plan, many of which could be severe.
Bill Hendershot, 74, is bracing for a 60% cut to his $3,500 monthly pension check. He's already applied for part-time work, and scaled back his cell phone and cable plans. Bill and his wife rely mostly on his pension and their Social Security checks. They stand to lose $2,104 a month, or about one-third of their income, if the plan is approved.

Bill and Evonne Hendershot stand to lose $2,104 a month if the pension cuts are approved.

"I myself don't have a lot of hope. I don't think the government officials care about Teamsters' pensions, especially in an election year," Hendershot said.

While some in Congress -- including Bernie Sanders -- introduced legislation last year to change the law and prevent pension cuts, no proposal has made it out of committee.

The Treasury Department appointed attorney Ken Feinberg, who's known for overseeing the 9/11 victim compensation fund, to review the plan. He has until May 7 to make a decision. If he approves the plan, it will be put to a vote for the plan's workers and retirees. But no matter how they vote, Feinberg has the final say.

That's because the Central States Pension fund is one of the biggest in the country and if it fails, it could also wipe out the government's pension insurance fund, the Pension Benefits Guarantee Corporation.

The Feds Want You to Think That the 401(k) Crisis is Getting Worse So They Can Come After Private Retirement Accounts

The 401(k) crisis is getting worse

October 21, 2015

Bloomberg - Tim Egan has been working since he was 14. He’s now 56 and has spent most of his career as a restaurant manager. He has virtually nothing saved for retirement and, until last month, never had a 401(k) account.

Little wonder: Only two of the 20 restaurants where Egan has worked in the past four decades had retirement-savings plans.

“The restaurant business is what I’m good at, but few owners, especially of small places, offer retirement benefits, no matter how much money you help them earn,” says Egan, who worked his way up from dishwasher to waiter to bartender before rising to manager 20 years ago.

Egan’s story isn’t unusual among the legions of Americans who work part time, switch jobs frequently or earn their livings at small companies, which generated two-thirds of all new jobs last year. Even as people live longer and must save more for old age than prior generations, most can not depend on any help from employers. Almost half of U.S. workers didn’t have a company-sponsored retirement plan in 2013, compared with 39 percent in 1999, according to an analysis of Census Bureau data by the Schwartz Center for Economic Policy Analysis at the New School for Social Research in New York.

The lack of plans is fueling a retirement-savings crisis. Few workers save anything outside of employer-sponsored plans. Only 8 percent of taxpayers eligible to set aside money in an IRA or Roth IRA did so in 2010, according to the IRS.

Egan set up an IRA in his 40s. In a bid to make up for the years he hadn’t saved, Egan invested mostly in equities and lost a lot of his savings during the financial crisis. He currently has less than $20,000.

Low-income Americans have long relied mostly on Social Security. Now middle-class professionals and managers are increasingly doing the same. But the average Social Security benefit -- $15,700 a year -- doesn’t come close to replacing the earnings of those with mid-five and six-figure salaries.

“There’s a huge coverage gap that needs to be addressed,” says Debra Whitman, chief public policy officer at AARP, the 37 million-member organization for people 50 and older.

Those most vulnerable include both millennials at startups and managers in their 40s and 50s who’ve gone from corporate jobs with benefits to small businesses without them. Some 58 percent of the 68 million wage-and-salary workers without a company-sponsored retirement plan in 2013 worked for a business with fewer than 100 employees, according to the Employee Benefit Research Institute.

“The current 401(k) system was designed for a workplace that doesn’t exist for most people: lifetime careers at big corporations that offer benefits,” says Teresa Ghilarducci, an economist at the New School who researches retirement policies. “Saving consistently -- which you need to do for just a modest retirement income -- isn’t remotely likely.”

With 10,000 baby boomers turning 65 each day, concerns are mounting about how to fix a system that excludes so many. There are plenty of ideas but little consensus among government officials, business executives, economists and others.

Small companies are among the most resistant. Many aren’t convinced it’s their responsibility to help employees save for retirement. And owners often balk at the costs and complications of offering a 401(k), even without a matching contribution. Only 45 percent of companies with fewer than 100 employees had 401(k)s in March, according to the Bureau Labor of Statistics.

Plenty of People Would Really Be Hurt By Raising the Retirement Age for Social Security to 69 or 70

Raising the retirement age for Social Security hurts these workers the most

October 16, 2015

The Fiscal Times - Social Security’s trust fund reserves are expected to be depleted by 2037, and fixing the program is the one issue many of the presidential candidates from both parties agree on.

But just how we should address Social Security’s impending shortfall is a cause of fierce debate. Several Republican candidates want to raise the retirement age for the program. Jeb Bush wants to boost the full retirement age to as high as 70, while rival Chris Christie is suggesting hiking the threshold to 69.

In some ways, such a change wouldn’t be so different from the system that’s now in place. Social Security’s current full retirement age stands at 66 years old for people born between 1943 to 1954, and they can claim for early benefits as soon as they turn 62 – although they’ll take a haircut of as much as 30 percent on their payments.

While the GOP candidates would push the full retirement age higher, Americans would still be able to claim early benefits. So who would really be hurt by a later retirement age? Plenty of people, it turns out.

Americans are living longer, which means every worker is likely to have longer retirement, and therefore potentially receive less from Social Security if they can’t receive their full benefits until they turn 69 or 70. In 1940, the typical American man only lived 12.7 years past his 65th birthday. By 1990, men turning 65 could expect another 15.3 years of life.

Yet there are certain groups who would feel the pain of a delayed full retirement age more than others:

Workers with physically demanding jobs: Americans who are employed in tough blue-collar jobs are 55 percent more likely to file for early retirement benefits at 62, according to a 2014 study from the U.S. Government Accountability Office. These jobs can be found in some of the country’s largest industries, such as construction and farming, the report noted.

Given their tough jobs, it's less likely that some of these workers will be able to make it to the higher age limit for full retirement. That means more blue-collar workers will be faced with lower Social Security payments throughout their retirement years. If they can hold out until 69 or 70, some may be suffering health ailments from the impact on their bodies from additional years spent in their physically demanding jobs.  

The non-college educated: Lacking a college degree is another indicator that an American is more likely to file for early retirement benefits, the GAO found. Given that only one-third of Americans have a bachelor’s degree, this applies to the majority of working adults in the country.

Teamsters Facing Cuts in Pensions of Up to 60 Percent

When pension funds go empty, all bets are off

October 10, 2015

NY Post - Some 407,000 Teamsters are learning a painful lesson: Their private-sector pensions aren’t as safe as they once thought.

Pay attention, government workers — and taxpayers — in New York and New Jersey.

Last week, letters informed these Teamsters they’re facing cuts in benefits of up to 60 percent. Why? Because their pension fund is going broke.

The Central States Pension Fund covers workers from more than 1,500 trucking, construction and other companies in 37 states. Thanks to trucking deregulation, declining union rolls, aging workers and weak stock-market returns, the fund is now paying out $3.46 in benefits for every $1 it takes in. That’s $2 billion a year in red ink.

At that rate, doom arrives in 2026, sinking Central States and maybe even the federal fund that’s supposed to insure such private-sector pensions. Retirees would get even lower benefits — or maybe nothing at all.

Which is why Congress and President Obama last year gave “multi-employer” funds like Central States the green light to restructure if necessary — and slice benefits.

At least a few big pension systems are sure to follow Central States.

And so the retirement security countless workers have long counted on went poof.

Government pensions aren’t immune. Yes, many state constitutions bar pension cuts — and if the funds sink, politicians would find it easier to hit up taxpayers in a crunch than anger unions and their members by trimming benefits.

Easier at first, anyway. But when the well runs dry, what’ll happen?

That’s the nut New Jersey governments have been grappling with in recent years. New York’s situation is better — but it, too, faces a reckoning.

That’s even though Jersey’s funds need a whopping $200 billion to make good on their pension promises, while Empire State funds need $308 billion. Driving the shortfalls: Too many retirees for each current worker, as with Central States; overly generous pension promises pols made to please unions — and governments’ habit of not paying what they should into the funds.

Trouble is, New York and New Jersey taxpayers already bear a heavier load than in any other state and have been fleeing the area for years. Squeeze them too hard to plug pension gaps, and you start losing taxpayers in a downward spiral.

That’s part of what drove Detroit to bankruptcy — and when the Motor City went belly-up in 2013, a judge OK’d cuts in public-worker pensions — never mind what it said in Michigan’s constitution.

Local public-sector unions and their members would do well to rethink their stubborn resistance to reforms and their endless fight for ever-costlier benefits.

“What we’re asking is to let us tap the brakes a little now, and let us avoid insolvency,” says Central States Executive Director Thomas Nyhan. “The longer we wait to act, the larger the benefit reductions.”

That math is the same everywhere.

U.S. Government to Cut Benefits for Hundreds of Thousands of Retirees Covered by Underfunded Multi-employer Private Pension Plans, But It Will Not Cut Benefits for Retirees and Surviving Spouses of the U.S. Government Even Though the Civil Service Retirement and Disability Fund is Underfunded by $800 Billion

Government paves way for multi-employer pension plan cuts

June 16, 2015

AP - The government is preparing to cut benefits over the next few years for hundreds of thousands of retirees covered by underfunded multi-employer private pension plans.

The Obama administration announced on Wednesday that well-known mediator Kenneth Feinberg review applications from pension plans under a law passed last year. The law would cut benefits as a last ditch means to stave off insolvency of troubled plans such as the huge Teamsters Central State Fund.

The new law earned mixed reviews from the unions whose members are covered by such defined benefit plans, including construction workers, Teamster truckers and food service workers.

The Teamsters and AARP opposed the law when it passed last year as part of a government-wide spending bill. But other unions saw it as a solution that was preferable to plans becoming insolvent and getting a federal bailout.

Treasury Secretary Jacob Lew named Feinberg, an attorney, to review applications for fairness. Feinberg has administered the compensation funds for claims from the Deepwater Horizon oil spill and from families of victims of the 9/11 terrorist attacks.

Feinberg said the job is a "very, very difficult, challenging assignment" and said he won't accept compensation for the task.

More than 10 million people are covered by 1,400 or so multi-employer plans, but about 1 million of those are covered by plans expected to run out of money in coming years. They would be eligible under the new system that would cut benefits to people already in retirement.

People 80 years old and over are protected from any upcoming cuts, while those over 75 are partially protected.

Federal Employees’ Retirement System: Budget and Trust Fund Issues Congressional Research Service Summary 

The Federal Office of Personnel Management has estimated the normal cost of the FERS basic retirement annuity at 12.7% of payroll. Employee contributions for FERS employees first hired before 2013 are set in law at 0.8% of pay, so the contributions of federal agencies [taxpayers] are equal to 11.9% of basic pay for these employees [taxpayers contribute 11.9% and the federal employee contributes only 0.8% toward his/her pension]. For employees first hired (or rehired with less than five years of FERS service) in calendar year 2013, employee contributions are set in law at 3.1% of pay, so the agencies’ contributions [taxpayers] for these employees are equal to 9.6% of basic pay [taxpayers contribute 9.6% and the federal employee contributes only 3.1% toward his/her pension]. If the assumptions underlying these cost estimates prove to be accurate, FERS will be “fully funded.”

March 24, 2014

Congressional Research Service - Most of the civilian federal workforce is covered by one of two retirement systems [additionally, they have a Thrift Savings Plan, which is similar to a 401k, and has about $250 billion in combined accounts]:

(1) the Civil Service Retirement System (CSRS) for individuals hired before 1984 or
(2) the Federal Employees’ Retirement System (FERS) for individua ls hired in 1984 or later.

FERS annuities are fully funded by the sum of employee [whose income comes from taxpayers] and employer contributions [taxpayers are the employers] and interest earned by the Treasury bonds held by the Civil Service Retirement and Disability Fund (CSRDF).

The federal government makes supplemental payments [from taxpayers] into the CSRDF on behalf of employees covered by the CSRS because employee and agency contributions [from taxpayers] and interest earnings do not meet the full cost of the benefits earned by employees covered by that system. 

The Office of Personnel Management (OPM) estimated that in FY2014, obligations from the CSRDF would total $80.0 billion, of which $79.4 billion will represent annuity payments to retirees and survivors. Other outlays consist of refunds, payments to estates, and administrative expenses. Obligations from the fund are projected to increase by 3.4% to $82.7 billion in FY2015, of which $82.1 billion will represent annuity payments. OPM estimated that receipts to the CSRDF from all sources would be $95.3 billion in FY2014 and $98.5 billion in FY2015. The year-end balance of the CSRDF was projected to increase from $848.5 billion at the end of FY2014 to $861.8 billion at the end of FY2015.

Feds Targeting Personal Retirement Accounts

White House looking to creep into 401(k)s

February 28, 2015

Last Monday, with Sen. Elizabeth Warren (D-Mass.) at his side, President Obama attacked Wall Street, again, for essentially helping in what the federal government and businesses can no longer provide — a decent retirement.

Under the false pretense of calling for new and tougher so-called fiduciary standards for financial brokers, advisers and retirement plan representatives, the White House once again horned in on Wall Street’s compensation formulas.

However, what the president surely knows is that a vast majority of retirement plans — IRAs and 401(k)s — are in simple fee-based products like mutual funds. The commission-based accounts are for those who prefer to direct their brokers in certain purchases inside some of their retirement products.

The key to the White House’s interference is in its nuanced language.

Investment Advisers Don't Act in the Best Interest of Their Clients: They Siphon from Investors Between $8 Billion and $17 Billion a Year in Fees and Lower Returns

Roughly one-third of all U.S. families have no money set aside for retirement, Federal Reserve data shows. This includes 19 percent of people aged 55 to 64. The average 401(k) balance reached a record high of $91,300 at the end of 2014, Fidelity Investments reported on February 5, 2015. The average balance for employees in the plan for at least 10 years was $248,000. However, the median account size at Fidelity is just $24,600. That means there are a lot of high net worth accounts skewing the overall average far higher. Baby boomers, who are at or near retirement, are 36 percent of account holders, according to Fidelity. The $91,300 record is also just 2 percent higher than a year earlier. That’s actually a pretty puny gain when you consider the Standard & Poor’s 500 index returned 14 percent in 2014 and an average of $9,670 was added to each plan (in a combination of employee and employer contributions) over the year. That implies that investors are either being very conservative with their 401(k) selections or are making mistakes trading in and out of stocks. [Source]

How Wall Street is fighting to rip off your retirement money

February 6, 2015

The Fiscal Times - There’s an imminent fight looming over whether financial advisers should be prohibited from cheating their clients when working with over $11 trillion in retirement savings.

The Department of Labor is scheduled to advance the “fiduciary rule,” which would legally require advisers who offer individual investment advice for a fee to act in their clients’ best interest. Right now, they are subject to a lower “suitability” standard, where the broker must reasonably believe the recommendation is suitable for their client. This standard is vague and easily gamed by the industry.

The new proposal would be the first update to the rule in 40 years and would finally cover employment-based retirement accounts like 401(k)s, which didn’t exist in 1975.

What is Public Service? It's a Sacrifice. It is Supposed to be a Short Term Sacrifice Before You Go into the Private Sector and Produce Real Economic Growth

While some federal, state and local employees have paid into Social Security, others have not (today, most federal employees pay into, and are covered by, Social Security). Given how much we pay into Social Security and how little we get back, that is an exceptional deal.

Traditionally, retirement for all Americans was based on the three-legged stool of Social Security, pensions and private retirement savings (401ks, IRAs). The pension leg has mostly withered away for private sector workers, but they still have the other two legs. Most government workers still have traditional pensions, which are supposed to be deferred compensation, meaning you pay someone lower in the immediate but make up for it by continuing to pay them after they have finished working. It isn’t some extra benefit: it is simply a different form of payment for the services already rendered.

Private citizens watch public employees retire at 55 while the rest of us common people have to wait until 67 (the plan is to move the retirement age to 70) to retire on Social Security that might not even be there. The rest of us must figure out how to retire with our 401k's. Why can't government workers do the same? We are being scammed. We have to figure out how to make SS and our 401k's add up to enough money for us to live in retirement. And to pull it off, a lot of us will need to work past 70. At the same time we're telling government workers this: "Don't worry cupcake, I got your back. You go ahead and retire at 52. Sit there and look pretty for 30 years while I work to assure that your ass is covered. I may not know how to fund my own retirement, but I am happy knowing than I can fund yours. I have no problem working past 70 for you." When the government talks of raising the retirement age, they are talking for us, not them. They are not offering to give up a thing. Sacrifice is only meant for the commoner.  That's why some cities are going broke. How do you pay thousands of people 90% of their salary to do nothing for 30 years or more? Let these people plan their own retirement as the rest of America must. Time to ween them from the government teat. [altair1013]

Readers say state worker entitlement promises have been too generous and that concessions need to be made. Interesting that municipalities across the country continue to file for bankruptcy protection after over-promising to their retirees. This is despite taxing our middle class to death. Middle income in the US is not keeping pace with growth in Canada, Britain and Sweden. The WHOLE story would also include admitting that entitlement promises have been too generous and that concessions need to be made to taxpayers going forward. There have been at least 54 Chapter 9 municipal bankruptcy filings just since 2006, with the largest being Detroit, followed by Stockton, San Bernardino, and Jefferson County, AL, Central Falls, RI and Westfall, PA are some others. Harrisburg, PA filed for bankruptcy in 2011 but the judge denied their petition. NYC-ased hedge fund Bridgewater did a study suggesting that roughly 85% of public pensions will go bankrupt within three decades. US public pensions have $3 trillion of assets with which they are expected to make $10 trillion of retirement payments over the next 30 years. This implies a required annual return of roughly 9%, vs. the current 30 year US Treasury yield of 3.44%. [Source]

Members of Congress ARE workers in the public sector. Government employees in the United States — especially when one includes contractors, lobbyists, and others who qualify as well-heeled and powerful elites — have profited quite well at the expense of the people. It is no coincidence that Washington DC and its surrounding counties are among the wealthiest in the U.S.. And elsewhere, Chicago public school teachers make nearly triple the median income of Chicago.

Congressional leaders unveiled a massive $1.01 trillion spending on December 9, 2014. For the first time, Congress also would allow the benefits of current private sector retirees to be severely cut, part of an effort to save some of the nation’s most distressed pension plans. The measure would alter 40 years of federal law and could affect millions of workers, many of them part of a shrinking corps of middle-income employees in businesses such as trucking, construction and supermarkets. The idea is reluctantly supported by some unions and retirement fund managers who see it as the only way to salvage pensions in plans that are in imminent danger of running out of money. But it also has stirred strong opposition from retirees who could face deep pension cuts and from advocates eager to keep retiree pensions sacrosanct, even in cases when funds are in a deep financial hole. The advocates argue that allowing cuts to plans would open the door to trims for other retirees later.

It's the private sector that is paying the salaries of the public sector, ergo public sector salaries must be inline with private sector salaries. It makes no sense for citizens who average $50,000 a year to pay for public sector retirement packages that run in six and seven figures. Furthermore, if someone in the public sector doesn't think he/she is paid enough, he/she can go out into the private sector and try to earn what they think they're worth. Remember, public sector employment falls under the guise of "public servant" not "master over the commoners". Anyone taking a public sector paycheck is technically on the dole, since it's the private sector taxpayers paying for it all. When those on the dole exceed those paying the taxes to fund their government paychecks, the system collapses. It is not sustainable when government pensions and benefits exceed the private sector's working income. It would be apropo if all college graduates would take that truth into consideration when they decide to opt for the cushy government paycheck. [Source]

Public employees simply don't CARE if they are particularly useful or if the taxpayers can afford them. They seem themselves as an untouchable protected class. [Wildmouse]

Our world is faced with significant budget problems, the likes of which have not been seen since the 1930's. Most public employees do not comprehend this fact, because they have been living in a fantasy land where they earn in the top 10 percentile of all workers. It seems there will be some reversion to benefits and the mean of incomes. The citizens are tapped out, and many are not comfortable paying their civil servants approximately twice the national average wage for their services. They would pay if they could, but they have had wage cuts, 401k cuts, benefit cuts, home value cuts, stock price cuts, etc. And they don't want higher taxes. Most of us in the private sector pay five to six times what public workers pay for healthcare, and we don't have retirement pensions. I am on a 5% paycut for the past two years with no pay raise for the past four years, and I pay over $80 a week for a lousy Blue Cross plan. [Source]

If the county is really paying $33,000 in benefits on a $58,000 salary (56%?) they're getting out-negotiated bad, the taxpayers are getting screwed, and the union is making out like a bandit [public workers are hired to serve the public and that's why we shouldn't allow them to be unionized]. That sounds about right given the way our national and state government is run. As a small business owner it cost me about 33% when I could afford to offer full benefits. Wow, that's 23% difference; I think I just solved their budget problem. Sorry I pointed that out, I guess you'll have to raise my taxes or threaten to not supply us with police and fire protection, maybe take away school lunches, stop bus service, cut off grandma's health care or something else that will force us to pay more instead of the government spending less. How many of you will even get pensions? How many of you can get two pensions? Or actually earn more in retirement that you did when you worked? Yes folks, it is possible thanks to the generosity of our government. These problems are going to become more and more frequent until we get our government in line with the private sector. [Source]

The commoners are starting to wake up with regards to the massive trough feeder pensions. The response from the California legislature is to offer the commoners a bite of the poisoned pension apple like you’ve seen in AB1234, etc…. The politicians are playing the ‘come join us’ card, right out of the union playbook. They want to add the private commoners to government-controlled retirement funds to stop their complaints. Naturally, the private commoners pensions would be nothing like the public pensions we see. They would throw the commoners a few crumbs to shut them up!!! HAH! We’ve got certified morons running this country who couldn’t give a damn about the common good of the people. IT’S ALL ABOUT THEM!!! [Beelzebub]

We commoners fight for scraps and feel lucky if we can make our monthly bills without going into debt. We avoid looking at the growing number of homeless in our city parks. We say a prayer thanking God that it's not us, yet feel queasy that it soon could be. We've forgotten what took 100 years to learn -- only by uniting will the working classes stave off hunger, disease and exploitation. You may feel safe today, but if this "Great Recession" hasn't taught you that your life's circumstances could change in a heartbeat, then you haven't been paying attention. But all of this is so much bloviating. Unless we pass an amendment to the constitution reforming campaign finance NOTHING will change. Most of us are distracted by shiny objects -- and I no longer believe that the root cause will ever be addressed: our politicians are ALL bought and therefore refuse to problem solve. I know...how 'bout another war? Rome, anyone...? I will not "invest" it in the crap game known as Wall St. I've watched my parents lose the majority of their savings during the last THREE crashes of this new century. When it comes to my sisters they will receive about $1200 - $1400 from Social Security if that hasn't been raided by the corporate uber class. Either way none of us will be able to fully retire. I'm sure I'll be living with at least one of them in my old age if we live that long. My story isn't unique. It's the norm. [Teaching Tolerance]

Most of the time, when it comes to issues like taxes and benefits, even "sacrifice" can only be prompted by appealing to self-interest. If people of any group can be convinced, somehow, that short-term sacrifice has a chance of leading to long-term gain, they're more likely to do it.  If the upper-classes thought that "sacrificing" to improve the lot of the broad-range of consumers would eventually increase their own bottom line, they'd be more likely to do it.  If middle-class taxpayers could be convinced that paying more would enhance the benefits available to them in the future, they'd be more likely to do it too. But if people are told that they're just giving away more for the benefit of others with little hope of getting anything out of it themselves, whether they're wealthy or not, they'll naturally resist.

George Carlin Was Right (2005)

There's a reason for this, there's a reason education sucks, and it's the same reason it will never ever ever be fixed. It's never going to get any better. Don't look for it. Be happy with what you've got... because the owners of this country don’t want that. I'm talking about the real owners now... the real owners. The big wealthy business interests that control things and make all the important decisions.

Forget the politicians. The politicians are put there to give you the idea that you have freedom of choice. You don’t. You have no choice. You have owners. They own you. They own everything. They own all the important land. They own and control the corporations. They’ve long since bought and paid for the Senate, the Congress, the state houses, the city halls. They got the judges in their back pockets and they own all the big media companies, so they control just about all of the news and information you get to hear. They got you by the balls. They spend billions of dollars every year lobbying. Lobbying to get what they want. Well, we know what they want. They want more for themselves and less for everybody else.

But I’ll tell you what they don’t want. They don’t want a population of citizens capable of critical thinking. They don’t want well-informed, well-educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That’s against their interests. That’s right. They don’t want people who are smart enough to sit around a kitchen table and think about how badly they’re getting fucked by a system that threw them overboard 30 fuckin’ years ago. They don’t want that.

You know what they want? They want obedient workers. Obedient workers, people who are just smart enough to run the machines and do the paperwork. And just dumb enough to passively accept all these increasingly shittier jobs with the lower pay, the longer hours, the reduced benefits, the end of overtime and vanishing pension that disappears the minute you go to collect it. And now they’re coming for your Social Security money. They want your fuckin' retirement money. They want it back so they can give it to their criminal friends on Wall Street.

And you know something? They’ll get it. They’ll get it all from you sooner or later 'cause they own this fuckin' place. It’s a big club and you ain't in it. You and I are not in the big club. By the way, it’s the same big club they use to beat you over the head with all day long when they tell you what to believe. All day long beating you over the head with their media telling you what to believe, what to think and what to buy.

The table is tilted, folks. The game is rigged and nobody seems to notice. Nobody seems to care. Good, honest, hard-working people: white collar, blue collar, it doesn’t matter what color shirt you have on. Good, honest, hard-working people continue — these are people of modest means — continue to elect these rich cocksuckers who don’t give a fuck about them. They don’t give a fuck about you. They don’t give a fuck about you. They don’t care about you at all! At all! At all! And nobody seems to notice. Nobody seems to care. That’s what the owners count on. The fact that Americans will probably remain willfully ignorant...

Time to scrap public pensions before they all go bust?

Forbes on Fox

August 10, 2013

IN FOCUS: New York City and Chicago may have same fate as Detroit after facing pension problems

JOHN TAMNY: Yes, get rid of them. What is public service? It's a sacrifice. It is supposed to be a short term sacrifice before you go into the private sector and produce real economic growth. The problem now with high government pay and big pension plans is that we are creating lifelong government workers that are a burden to those working in the real economy. If you get rid of them, they will have an incentive to get back into the real world and cities will no longer have pension problems.

RICK UNGAR: In New York, 95 percent of every public employee doesn't contribute a nickel into their retirement, which is not ok. We don't need to scrap these programs, we can't forget about people who have worked their whole career and are expecting their pension, but it is time to reform them.

STEVE FORBES: Unless they do file for bankruptcy, cities cannot scrap most of these plans because of state constitutions which say you cannot do that. So you have to negotiate with these unions to do it. What they should start with is having 401k plans for new workers and then try if you get higher interest rates to annuitize what their obligations have been so far and then cap it in the future.

RICH KARLGAARD: Unfortunately our politicians are mathematically ignorant. For example, take CalPERS which manages the California state pension fund, it is assuming a 7.5 percent annual return from now until Armageddon. No one is getting 7.5 percent today without putting their money at risk. 5 percent is a more realistic assumption today. Pensions should be cut by a 1/3 right off the bat to reflect real market returns.

ELIZABETH MACDONALD: We see reform happening already, you can change the structure of government pensions for future hires, meaning into a 401k. They are doing it in places like Alaska and San Diego, Utah is going into reform, so is DC. You can cut unfunded health care benefits, so they can be cut without going to court, that's already happening in Stockton and Viejo. The irony is that healthcare maybe taking care of this problem already. Health reform is weighing whether to hire new workers or cut back on city services. So do you cut back on city services like police and firefighters or reform pension systems?

SABRINA SCHAEFFER: There is another side of the story which is American taxpayers. There are hard working Americans out there that shouldn't have to shoulder for unreasonable compensation packages. The financial landscape is shifting, Gallup recently found that current retirees are relying largely on pensions and social security, but those approaching retirement, future retirees are planning on relying on their 401k and their IRAs. I think it's important to remember that people are accustomed to doing these private, individualized savings plan and we need to start shifting with those younger workers.

The government is trying to close what it calls a "loophole" so government workers won't have to pay all their health care premiums

STEVE FORBES: If the cooking is so great, why don't they eat it? The fact of the matter is that they don't like it. As for the saying, oh we will have a brain drain, that assumes there are brains to drain and if they are, they should be in the private sector. If these people are so essential, give them a pay raise and let the taxpayers decide if they want to spend that extra money.

RICK UNGAR: This is a made-to-order PR thing for people who are against Obamacare, I get it. It's the result of a little number that a GOP senator pulled at the beginning, it all went in a certain direction, and it was ill-planned and silly. Congress is being treated like a small business; they can go to the exchanges, in fact they still have to. They are entitled to pay a portion of the premiums and pay whatever portion they decide to pay off their employees. It's no different than what happens to anyone working here at FOX, who has their insurance covered by their employer.

SABRINA SCHAEFFER: I think Michael Cannon over at the Cato Institute put it perfectly, he said now we have a ruling class versus the rest of us. Obamacare is for the rest of us, the commoners. All of these people up in Congress are getting out of it; it's not just Congress, what about President Obama and his family? What about the justices and their families, the Supreme Court and their families, federal judges and 1,200 corporations and unions? This is picking winners and losers at its worst.

BILL BALDWIN: Obama said if you have a health care plan and you like it, you can keep it. Why not let these slobs keep their plans. If Steve thinks they are overpaid, let them put a bill through his Congress and cut their pay. Private sector people aren't taking pay cuts.

JOHN TAMNY: Government workers are an economy suffocating burden. The last thing you want to do is create an incentive for more people to go to work for government. If anything, they should have a more onerous health plan so they have an incentive to exit the government sector and not be a burden on us.

MIKE OZANIAN: That's the hypocrisy of Obamacare because when a lot of people in the private sector said that's one of the problems with this bill, it's going to cause a brain drain in the private sector, they denied that, they said no, that wouldn't happen. By the way, lots of people have lost their coverage with Obamacare. It's just one more thing about this that the president said that is not true.

[Watch] Riot Police Take Off Their Helmets in Solidarity with Protesters

December 13, 2013

UFP News - In a rare demonstration of solidarity with the common man, Italian riot police are shown in this video removing their helmets and standing with anti-EU demonstrators in Turin, Italy.

Commoners from all walks of life, from truck drivers to students are out in the street, protesting the state of the Italian economy, the single currency and fuel prices.

The protests grew out of the “Pitchfork Movement,” begun by a group of Sicilian farmers demanding government reforms. It has evolved into a national rebellion against banks, the Italian tax collection agency, “Equitalia,” the European Union, and the Socialist-backed minority government.

Euronews reports “Many share the protesters’ anger and at one point police officers in Turin took off their helmets, in a show of solidarity.”

Giorgio Bissoli, spokesman for the Azione Rurale protest group told Canale 5 television,

“We farmers are on the streets to say ‘Enough!’ to the state, the government, the unions. We just can’t manage anymore. Our main priority is that they all have to go!”

Widespread discontent over fuel prices, globalization and the draconian austerity measures of the European Union are also expected to result in a major anti-EU backlash in next year’s European parliamentary elections.

The protesters claim to represent, “the unemployed, casual workers, pensioners, workers in every sector, students, mothers and fathers,” and see it as their duty “to throw out the criminals who hold power.”

The movement appears to be a genuine populist revolt against policies that have devastated Italy’s economy.
The refusal of the police to abuse their fellow citizens and their willingness to demonstrate through their actions that they share some of the same positions as the demonstrators is encouraging. There have been countless examples where they follow instructions as the oppressive arms of their increasingly totalitarian leadership.

A refusal by the enforcement arm of a nation to commit immoral or questionable acts in the name of upholding the status quo and propping up an unpopular government often leads to social change.

All governments across the globe should pay attention to what is now going on in Italy. Those events may be a precursor of things to come as austerity demands made by the banking forces in control of government policy become more than what the public is willing to tolerate and accept.

 

Brazil has One of the World's Most Bloated Social Security Systems, Spending About as Much on One Million Government Retirees as It Does for 27 Million Private-sector Pensioners

Spending a whopping 12.2 percent of its gross domestic product on social security benefits, Brazil has one pensioner for every three workers. Brazil has tried several quick fixes over the past three decades -- a minimum age for government pensioners, penalties for early retirement -- to curb distortions and boost savings, but all have been dialed back by noisy interest groups. One of the loudest is public employees, who may stop working at a relatively youthful age, 60 for men and 55 for women, and still draw pensions averaged to their career salaries, or slightly less, for the recently hired. Military pensioners have it even better, retiring at full salary, while their daughters count on lifetime pensions, a quaint perk dating back to Brazil's war with Paraguay, which ended in 1870. The result: Brazil spends about as much on a million government retirees as it does for 27 million private-sector pensioners.

Will Retirees Bankrupt Brazil?

November 20, 2014 

Bloomberg - Like their rich world peers, Brazilian politicians have learned to promise the moon while on the stump and, once elected, beam the bill to Earth. So no surprise that all contenders in Brazil's recent presidential race vowed to care for the elderly and provide dignified pensions for all without busting the national budget.

Just how they meant to do that was a mystery. Social Democratic challenger Aecio Neves and Socialist Party candidate Marina Silva drew applause for committing to scrap an unpopular, yet penny-saving rule that discourages early retirement by paying lower benefits to younger retirees. Neither said much about what they'd put in its place, nor how to cover the inevitable shortfall -- roughly 3.5 billion reais, or $1.35 billion, according to economist Marcelo Caetano.

Incumbent Dilma Rousseff defended the current arrangement while discarding proper pension reform. All three ignored the anaconda in the room: one of the world's most bloated social security systems, which spends far more than it collects, devouring the savings of future generations.

Brazil faces a demographic quandary. It is still young, but graying fast. Though perched squarely among middle-income nations, with around $12,000 in gross national income per capita, it splurges on pensions.

"Brazil's problem is that it is getting old before it gets rich," said Caetano, an analyst at the Applied Economic Research Institute, which published a massive new study on Brazilian social security this week.

Spending a whopping 12.2 percent of its gross domestic product on social security benefits, Brazil has one pensioner for every three workers. That's more than all the Group of Seven nations except Italy, where pensioners outnumber workers three to one, Caetano said.

Left untouched, Brazil's loss-making social security system threatens the world's seventh-largest economy with Hobson's choice: make painful adjustments now or rob the kids to tend Grandpa. For now, reform seems unlikely.

With no minimum retirement age for private sector jobs, Brazilians quit the workplace when most societies are still punching the clock: men at age 54 on average, and women, at 52. And since Brazilians are living longer than ever, men can expect to draw benefits for another 26 years and women, for an additional 33, the study shows.

Even at the country's modest pension rates ($665 per month, on average), that's hard on public coffers. This year the social security system, which pays just private sector pensioners, is expected to reach 50 billion reais ($21 billion) in the red.

Hence, pension reform is a perennial emergency. Brazil has tried several quick fixes over the past three decades -- in 1998, another in 2003 and the last in 2012. Each made advances -- a minimum age for government pensioners, penalties for early retirement -- to curb distortions and boost savings. All have been dialed back by noisy interest groups.

One of the loudest is public employees, who may stop working at a relatively youthful age, 60 for men and 55 for women, and still draw pensions averaged to their career salaries, or slightly less, for the recently hired. Military pensioners have it even better, retiring at full salary, while their daughters count on lifetime pensions, a quaint perk dating back to Brazil's war with Paraguay, which ended in 1870.

The result: Brazil spends about as much on a million government retirees as it does for 27 million private-sector pensioners. That same social chasm inspired economist Edmar Bacha to rebrand Brazil circa 1970 as Belindia, a tiny, prosperous Belgium ringed by a vast and destitute India. Now Belindia's putting on its pajamas.

As Brazil grays it also must grow, and with fewer able bodies on the job, that means boosting productivity. A push from the Palace could conceivably turn policy around, said economist Paulo Tafner, a Brazilian social security analyst. Instead, he noted, government has opted to distribute income and credit, hoping to spend its way to prosperity.

Brazil still has a policy window, a decade or so during which workers will still outnumber the young and the old. But with the 60-and-overs outpacing all other age groups, the "sweet spot" is fading fast.

Americans Are 40% Poorer Today Than They Were in 2007; 44% of Senior Citizens Have Enough Savings to Cover Unexpected Expenses Versus 33% of Millennials

Most Americans are one paycheck away from the street

January 7, 2015

Market Watch - Americans are feeling better about their job security and the economy, but most are theoretically only one paycheck away from the street.

Approximately 62% of Americans have no emergency savings for things such as a $1,000 emergency room visit or a $500 car repair, according to a new survey of 1,000 adults by personal finance website Bankrate.com. Faced with an emergency, they say they would raise the money by reducing spending elsewhere (26%), borrowing from family and/or friends (16%) or using credit cards (12%).

“Emergency savings are not just critical for weathering an emergency, they’re also important for successful homeownership and retirement saving,” says Signe-Mary McKernan, senior fellow and economist at the Urban Institute, a nonprofit organization that focuses on social and economic policy.

The findings are strikingly similar to a U.S. Federal Reserve survey of more than 4,000 adults released last year. “Savings are depleted for many households after the recession,” it found. Among those who had savings prior to 2008, 57% said they’d used up some or all of their savings in the Great Recession and its aftermath. What’s more, only 39% of respondents reported having a “rainy day” fund adequate to cover three months of expenses and only 48% of respondents said that they would completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money.

Why aren’t people saving?

“A lot of people are in debt,” says Andrew Meadows, a San Francisco-based producer of “Broken Eggs,” a documentary about retirement. “Probably the most common types of debt are student loans and costs related to medical issues.” 

He spent seven weeks traveling around the U.S. and interviewed over 100 people about why they haven’t saved enough money. “People are still feeling the heat from the Great Recession.” Some 44% of senior citizens have enough savings to cover unexpected expenses versus 33% of millennials, Bankrate.com found.

On the upside, the Bankrate survey found that 82% of Americans keep a household budget, up from 60% in 2012. Even in the age of the smartphone, most people keep a budget the old-fashioned way, either with a pen and paper (36%) or in their heads (18%). Just 26% of those surveyed say they use a computer program or smartphone app.

“A solid majority of Americans say they have a household budget, which is a good thing. But too few have the ability to cover expenses outside their budget without going into debt or turning to family and friends for help,” said Claes Bell, a banking analyst at Bankrate.com.

But while the jobs market is improving and the Affordable Care Act has given an estimated 15 million people access to medical care, the Great Recession does appear to have taken its toll on Americans’ finances; in fact, they’re 40% poorer today than they were in 2007. The net worth of American families — that is, the difference between the values of their assets, including homes and investments, and liabilities — fell to $81,400 in 2013, down slightly from $82,300 in 2010, but a long way off the $135,700 in 2007, according to a report released last month by the nonprofit think tank Pew Research Center in Washington, D.C.

Congress Could Cut Social Security Disability Insurance (SSDI) Payments 19 Percent by 2016

To shore up the SSDI, Congress could redirect payroll taxes from Social Security's much larger retirement fund — as it has done in the past. However, the House adopted a rule Tuesday blocking such a move, unless it is part of a larger plan to improve Social Security's finances, by either cutting benefits or raising taxes. If Congress doesn't act, benefits for 11 million disabled workers, spouses and children would be automatically cut by 19 percent. The average monthly payment for a disabled worker is $1,146, or a little less than $14,000 a year. Advocates for older Americans are warning that the rule could be used to help push through benefit cuts, especially since House Republicans have opposed raising taxes. 

"It is difficult to believe that there is any purpose to this unprecedented change to House rules other than to cut benefits for Americans who have worked hard all their lives, paid into Social Security, and rely on their Social Security benefits, including disability, in order to survive," said Max Richtman, president of the National Committee to Preserve Social Security and Medicare. 

David Certner of AARP said it would be a mistake to eliminate the option of redirecting money from the retirement fund, which Congress has done in the past. Social Security has more than $2.7 trillion in reserves, but the retirement program has been paying out more in benefits than it collects in payroll taxes since 2010. The disability program has been paying out more than it collects since 2005. Social Security is supported by a 12.4 percent tax on wages up to $118,500. Half is paid by workers and half is paid by employers. Most of the payroll tax — 10.6 percent of wages — goes to the retirement fund. The remaining 1.8 percent of wages goes to the disability fund. [Source]

The GOP majority adopted a procedural rule to bar legislators from using Social Security retirement funds to support the disability program unless the move is accompanied by measures that stabilize the overall Social Security system. The Disability Insurance Trust Fund is projected to be unable to pay full benefits at some point in 2016. The 2011 Budget Control mandates automatic spending cuts.

Republican Congress Launches With Back-Door Attack On Social Security Benefits

January 7, 2015

Think Progress - Republicans are starting the new Congress by attacking Social Security funding through a subtle, obscure policy measure buried in the gigantic bill that establishes parliamentary rules for the new session.

The rules measure, passed late Tuesday after other day-one business like formal swearing-in ceremonies for members were completed, escalates the threat of a significant cut to Social Security Disability Insurance (SSDI) within the next two years. The measure bans a common accounting technique that the people who manage Social Security funding have used many times in the past to prevent benefit cuts. The two funds that comprise the Social Security system have essentially borrowed from one another as necessary over the years to ensure that benefits can be paid in full each year. SSDI, which is the primary program for providing federal benefits to people unable to work due to disability, is projected to hit a shortfall in late 2016. Reallocating revenue from the much larger Social Security retirement benefits fund to SSDI would cover the shortfall, and trust fund managers have performed such reallocations 11 times since the late 1950s.

But the Republican rules package prohibits Congress from authorizing such a transfer. That will force a showdown over how to finance disability benefits sometime in the next two years, with the threat of a nearly 20 percent cut to SSDI payments looming over the debate. The measure was overshadowed in the news by a separate rules package measure that threatens to rig the legislative process in favor of trickle-down tax policy, until the beginning of this week when critics began to decry the change.

The Center on Budget and Policy Priorities called the rule an “attempt to pit retirement and disability beneficiaries against each other” that misrepresents how the two funds operate, and pointed out that the only reason SSDI is in funding trouble next year is that it got short-changed by the past two reallocations of funding between disability and retirement benefits. Sen. Elizabeth Warren (D-MA) accused the GOP of “inventing a Social Security crisis that will threaten benefits for millions & put our most vulnerable at risk.” Sen. Sherrod Brown (D-OH) called it “a dangerous new rule” that will “set the stage to cut benefits for seniors and disabled Americans,” and pointed out that reallocating funds between the accounts is so uncontroversial that President Reagan oversaw four of the 11 times it has been done in the past.

Rep. Tom Reed (R-NY), who is taking credit for engineering the rules change, has received significant campaign financing from at least one well-heeled conservative supporter of cutting Social Security. Reed has gotten over $134,000 in contributions from people tied to vulture capitalist Paul Singer’s firm Elliott Management, according to the Center for Responsive Politics. Singer is most famous for his battle to force the nation of Argentina to prioritize debt payments to Elliott Management over public expenditures for its 41 million citizens. But the generous Republican donor is also a sharp critic of American government spending and has called for cutting benefits in Social Security, Medicare, and Medicaid.

Reed told the Associated Press that his rules proposal is intended to force a reckoning over social insurance spending. “We need real reform,” he said, and “this makes that real reform that much more likely.” Leaving aside the question of what Reed means by “real reform,” and the fact that the proposed reallocation would have extended disability funding by 17 years while reducing retirement funding by just one year, the move is raising serious procedural concerns among retiree advocates.

Social Security experts Nancy Altman and Eric Kingson labeled the move “hostage-taking to force changes that the American people do not want to a vital program” in a piece for the Huffington Post. Reed’s rule means that “we could be facing a deadline, and certainly over the last couple of years ,we’ve seen Congress seemingly unable to pass bills, even with deadlines in front of them,” the American Association of Retired Persons’ David Certner told the AP.

The other political ingredient in the debate Reed and the GOP are trying to force is years of skewed media coverage of the disability insurance system. Reports that SSDI is riddled with fraud and overrun with false claims have showed up in an ideologically diverse array of news sources over the past two years, from public radio’s This American Life to CBS’ 60 Minutes to the conservative media machine. The reality is that just 41 percent of those who apply for disability benefits receive it thanks to the program’s uniquely strict eligibility rules and stringent, multi-layered application process. Among those who do clear the program’s hurdles and enroll, fraud is extremely rare. A 2011 Government Accountability Office report found an erroneous payments rate of just 0.6 percent, among the lowest of any government program, and President Bush’s Social Security Administrator estimates waste, fraud, and abuse account for less than 1 percent of SSDI spending. But the reality of the program — such as the fact that disability insurance is getting more expensive because of long-anticipated demographic shifts — has likely already been lost in the trans-partisan furor over a supposed epidemic of freeloading.

Federal Employees are Covered by Two Pension Plans Plus Social Security; Most Private Sector Retirees Who Fund Those Plans Have Only Social Security to Rely On

Because so many people have saved zero money for retirement, it's not too helpful to compare your own retirement savings to those of the average American. Instead, it's more helpful to compare how your retirement savings stack up against others who are also saving. According to the Federal Reserve, the median balance of retirement accounts held by Americans who are saving for retirement totals less than $60,000. As a result, most Americans will rely heavily on Social Security, but Social Security on its own won't allow people to live lives of luxury. According to the Social Security Administration, the average Social Security recipient collected just $1,300 a month in 2014. Add that $1,300 in Social Security payments to the $343 in income from retirement savings, and the typical retiree is looking at a monthly income of just $1,643, or only $19,716 per year. Given those numbers, it's no surprise that the Employee Benefit Research Institute reports that only 18% of U.S. workers are confident that they'll be financially secure during their golden years. If you're one of the 82% that isn't confident, then there's no time like the present to begin making changes that could have a big impact on your retirement nest egg. [Source]

 

The average federal pension pays $32,824 annually. The average state and local government pension pays $24,373, Census data show. The average military pension is $22,492. ExxonMobil, which has one of the best remaining private pensions, pays an average of $18,250 per retiree, Labor Department filings show. "Government pensions are vastly more generous than those in the private sector," says economist Veronique de Rugy of the market-oriented Mercatus Center. "It's no coincidence that if there is a good plan, it's available to federal employees rather than in the private sector." More than 21,000 retired federal workers receive lifetime government pensions of $100,000 or more per year, a USA TODAY/Gannett analysis finds. The six-figure pensions spread across a broad swath of the federal workforce: doctors, budget analysts, accountants, public relations specialists and human resource managers. Most do not get Social Security benefits. Retired law enforcement is the most common profession receiving $100,000-plus pensions, including 326 Drug Enforcement Administration agents, 237 IRS investigators and 186 FBI agents. The Postal Service has 714 retired workers getting six-figure retirements. The Social Security Administration has 444. A retired Smithsonian zoologist has a $162,000 annual lifetime pension. The six $200,000-plus pensions include a doctor, a dentist and a credit union regulator, plus three retirees whose occupations weren't listed. The federal government has two retirement systems: one for those hired before 1984 and another for those hired after. Under the older system, employees did not participate in Social Security. The older system covers 78% of current retirees and accounts for 96% of six-figure pensions. All federal retirees receive health benefits. [2012 Source]

The Federal Employees Retirement System has three elements: (1) Social Security, (2) the FERS basic retirement annuity and FERS supplement, and (3) the Thrift Savings Plan (TSP).

In the FERS, government employees contribute 0.8 percent of pay while U.S. taxpayers put in 11 percent (federal employees who enroll in FERS beginning in 2014 are required to contribute 4.4 percent of their pay toward their defined benefit plan, up 0.8 percent for federal employees who joined government service before that date).

Federal employees who don't invest in the TSP still get a 1 percent contribution from U.S. taxpayers. The first 3% of pay contributed by a federal employee to TSP is matched dollar-for-dollar by U.S. taxpayers, and the next 2% of pay is matched by U.S. taxpayers at the rate of 50 cents on the dollar. TSP has the lowest administrative fees in the business and is the only 401k plan account that offers stocks, bonds and super-safe, never-have-a-bad-day Treasury securities in the G-fund. TSP, used by millions of federal workers, charged an average expense ratio of a mere 0.03% in 2013.

To summarize, in addition to their generous federal pensions funded by U.S. taxpayers, federal employees have a generous financial match from U.S. taxpayers for their TSP, the government equivalent of a 401k plan.

Many, if not most, private employers don't provide any match to employee 401k plans. If they do, it is typically at the rate of 50 cents on the dollar on only the first 3 percent. It is unusual for the employer to match contributions at the 5 percent level of the federal TSP (and no private employer contributes 1 percent if the employee chooses not to participate, unlike the 1 percent U.S. taxpayers contribute to the TSPs of non-participating federal employees). In addition, IRAs or employer-sponsored 401(k)s in the private sector typically charge more than 10 times the amount charged in administrative fees for federal TSP.

How Generous Are Federal Employee Pensions?

September 30, 2011

American Enterprise Institute - USA Today reports that “retirement programs for former federal workers—civilian and military—are growing so fast they now face a multitrillion-dollar shortfall nearly as big as Social Security’s.” USA Today’s figures include both pension and retiree health costs and are inclusive of military programs, so it is a broad figure. Nevertheless, it raises an interesting question: how did retirement costs for a small segment of the population grow to rival Social Security, a program designed to cover nearly all Americans? One big reason is that federal pension benefits are simply very generous relative to typical private sector plans.

How generous? To check, I took a stylized worker and ran his annual salary through both the federal pension programs and a typical plan offered to private sector employees to see the difference in how much they would end up with at retirement.

Since federal workers receive higher salaries than the average private sector worker (more on that here) I assumed the employee earned 150 percent of the average wage each year; that would put his earnings this year at a bit over $60,000. I assumed he entered the workforce at age 21 and worked until age 65; in reality, most people take some time out of the workforce and most federal employees have held other jobs, but for these purposes that doesn’t matter too much.

Most current federal employees are covered by two pension plans (most private sector workers don't even have one): a defined benefit (DB) program known as the Federal Employees Retirement System (FERS) and a defined contribution (DC) program called the Thrift Savings Plan (TSP). For a federal employee who retires at age 62 or older and has 20 or more years of service, his basic FERS benefit will equal 1.1 percent of his highest 3 years of average earnings, multiplied by his years of service.

For FERS, most federal employees contribute 0.85 percent of pay, with the remaining costs covered by U.S. taxpayers.  

The Thrift Savings Plan functions similarly to a private sector 401(k) plan. U.S. taxpayers contribute 1 percent of worker wages to the TSP regardless of whether individuals participate. In addition, the U.S. taxpayers matches employee contributions $1.00 per $1.00 for the first 3 percent of earnings contributed and $.50 per $1.00 for the next 2 percent of earnings. A federal employee contributing 5 percent of earnings to the TSP would receive a total employer contribution of 5 percent of earnings. Most current federal employees also participate in the Social Security program.

In the private sector, a typical pension plan today is a defined contribution 401(k) program, which is generally funded with a combination of worker contributions and employer matches. The most common matching formula is $.50 per $1.00 of contributions, up to the first 6 percent of pay (but that figure is dropping). Around one-third of employers offering matching 401(k) plans use this approach, so we’ll follow it here.

DB plans still exist in the private sector, but they’re shrinking fast: only 13 of the Fortune 100 companies now offer a traditional DB plan to newly hired employees. Some offer so-called “hybrid plans”—which are themselves shrinking—while the remainder offer 401(k) plans.

For both 401(k)s and the TSP, we need to make the risk of the benefits they offer comparable to the guaranteed benefits from a defined benefit plan; otherwise, investments in riskier assets like stocks will seem like “free money.” To do that, I follow the Congressional Budget Office’s approach of assuming that DC plans invest in government bonds, which I assume to have a 4 percent yield. That’s higher than the roughly 2.5 percent Treasury securities are currently paying but lower than the historical average, so you can adjust up or down as you see fit. Once people retire, I convert their DC accounts to a joint and survivor annuity using rates published by the TSP. For both workers, I assume they contribute enough to receive the maximum employer match to their DC account; but in comparing benefits I use only those generated by the employer match, not from the worker’s own contributions.

In both federal and private sector employment the worker would receive the same annual Social Security benefit of around $21,656.

At retirement, the federal worker’s highest three years of earnings average at $60,368; with an assumed 44 years of service (42% of federal workers retire between the ages of 55 and 59 with an average of 34.8 years of service) and a 1.1 percent replacement factor, that generates an annual FERS pension of $29,218. In addition, the annuitized value of the employer match to the TSP generates another $6,960 in annual benefits, for a total retirement income of $57,834. In addition, the federal employee would have whatever income his own TSP contributions generated.

The private sector worker would have a Social Security benefit of around $21,656, plus an annuity payment drawn from his employer’s 401(k) contributions of around $4,175 per year. The total retirement income would be around $25,832, plus whatever he received through his own 401(k) contributions. To make things simple, $25,832/$57,834 = around 45 percent, so the private sector worker clearly is receiving far less.

Now, we can haggle about some of these assumptions. Maybe private sector workers who are comparable to federal workers in terms of education or other skills receive more generous pensions. But even if we assume that the employer matches 6 percent of pay rather than the more typical 3 percent, that brings the private pension benefit up to only 51 percent of the federal level. And bear in mind that these percentage differences are reduced by the inclusion of Social Security; if I looked only at employer-provided pension benefits, the private benefit would be only around one-tenth the federal level.

Put it this way: federal employees have a more generous defined contribution pension than most private sector workers, and on top of this they have a defined benefit plan for which they pay less than 1 percent of salaries. 

State and local workers who participate in Social Security usually have more generous DB plans (a replacement factor of around 1.9 percent of final earnings versus 1 or 1.1 percent for federal employees, according to the Public Plans Database), but they pay far more for their benefits: almost 5 percent of pay versus less than 1 percent for federal employees.

In addition, federal employees are also eligible for retiree health coverage, which is very valuable for early retirees but which in the private sector is shrinking even faster than DB pensions. Based on CBO figures, Jason Richwine and I estimated that eligibility for retiree health coverage is worth around an extra 6 percent of pay for federal workers.

In simple terms, the federal employment package is a great deal for federal employees, and as a former federal employee I was happy to get it. But if you wonder why costs are so high, now you know.