Sunday, March 06, 2011

Social Security as a National Pension, Part 2

First, a satirical take on the disparity between how wealthy people (business and financial executives) see their compensation versus what their employees and public service employees should receive:


Back in 2007, I proposed that Social Security should become a full pension system. Interestingly, policies are now proposed to allow states to disregard their promised deferred compensation contracts because they are allegedly cost prohibitive. Here is a snippet from the linked Forbes article:

The pension plan is the direct result of deferred compensation- money that employees would have been paid as cash salary but choose, instead, to have placed in the state operated pension fund where the money can be professionally invested (at a lower cost of management) for the future.

Many of us are familiar with the concept of deferred compensation from reading about the latest multi-million dollar deal with some professional athlete. As a means of allowing their ball club to have enough money to operate, lowering their own tax obligations and for other benefits, ball players often defer payment of money they are to be paid to a later date. In the meantime, that money is invested for the ball player’s benefit and then paid over at the time and in the manner agreed to in the contract between the parties.

Does anyone believe that, in the case of the ball player, the deferred money belongs to the club owner rather than the ball player? Is the owner simply providing this money to the athlete as some sort of gift? Of course not. The money is salary to be paid to the ball player, deferred for receipt at a later date.

A review of the state’s collective bargaining agreements – many of which are available for review at the Wisconsin Office of State Employees web site - bears out that it is no different for state employees. The numbers are just lower.


As has been the case for some time, there are two rules in the United States when it comes to compensation: one rule for executives at the top of the income scale, and another for those who work for them.

Many years ago, it was common for workers to live in the same place their whole lives and they would also work for the same employer substantially that entire time. However, mobility is now a premium as workers now need to move -- across country, at times -- if they want to stay employed or advance in their careers. Our country's retirement system should reflect this reality. As such, Social Security best meets that goal. It is already set up as a portable -- albeit supplemental -- pension system, designed to prevent "destitute poverty" in old age. However, because Congress "borrowed" from the Social Security Trust Fund in the 1980s -- when it allegedly was "over-funded," the Trust Fund is now supposed to be "in crisis."

It is interesting that workers who borrow from their 401Ks are required to pay back what they borrowed with interest, but Congress is supposed to skate when it does the same thing with the Social Security Trust Fund? That borrowing "financed" tax cuts for the top tax brackets.

It is time that that "borrowed" money be paid back. People who paid into the system by working substantially all of their lives deserve to receive what they paid in. That is why Social Security is called an entitlement program; and the U.S. Government has a contractual obligation to make good on its promises. This is also true of the states. In all of this, actuarial calculations were made (admittedly, with unrealistic calculations in order to bring down required expected contributions) wherein workers changed their positions on their then present salary and wage increase demands. Now thirty years later, we have seen the result of these sacrifices by working men and women. Here is graph from Mother Jones magazine that creates a visual depiction of the changes:


The other reason why Social Security should be a national pension is that both private employers and states have shown that they cannot be trusted to contribute to their pensions like they are required to, and both have sought to shirk their obligations through bankruptcy protections. Furthermore, it is an outrage that corporate executives should be allowed to divvy up the company's contributions to those plans through what is known as a "bleedout."

As I said in the previous post, I am not opposed to the Trust Fund being allowed to invest in the stock market based on the worker's age, as long as the investment is made directly from the market and not through Wall Street. There are plenty of talented Wall Street traders who are hungry enough (especially now) who would be willing to accept a government salary for security. I realize there is a danger of a "revolving door" just like there is now with regulatory agencies such as the SEC. But with the right regulation, those problems could be minimized.

The time has come to create a guaranteed retirement system for all Americans that cannot be taken away at the whims of corporate executives or the pressure of political interest groups. And as Ronald Brownstein has opined: the problem isn’t that public-sector workers have too much retirement security. It’s that everyone else has too little.

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