Savings

Will Your Pension Disappear? Find Out How To Protect Yourself Using These Strategies

Opponents of public employee pensions used the threatened 2013 bankruptcy of Detroit and its municipal employees’ pension fund to allege that all public employee pension plans were in serious danger. An article in the Wall Street Journal, “Will Your Pension Disappear—Post-Detroit?” commented: “Experts say that now would be a good time for public-sector workers and retirees—especially those whose employers have underfunded pensions—to revisit their retirement plan, crunch out a few what-if scenarios, and adjust their current or planned lifestyle accordingly.”

A National Public Radio program in the wake of Detroit’s bankruptcy announcement used the scare title “Public Pensions under the Gun.” An otherwise useful New York Times article about actuarial assumptions suggested that Detroit’s pension problems were a harbinger for all public pensions.

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States, unlike cities, cannot declare bankruptcy, which removes their pension plans from that type of threat. But if right-wing forces have their way, that would change. Politicians like Newt Gingrich and conservative media like the Weekly Standard are backing legislation that would allow states to declare bankruptcy. Such a legal declaration would then allow judges to reduce or eliminate pensions. There is, though, not much likelihood that the state bankruptcy campaign will succeed in the near future. State bankruptcy, aside from threatening pension participants, would also threaten the interest of bondholders and stability of financial markets. Both pensioners and bondholders want states to continue to pay their debts and not avoid debt through bankruptcy proceedings.

Given that most private-sector employees lost defined pensions by the 1990s, their continued retention by public employees represents an anomaly to the dominant trend. In the 1980s and early 1990s, that anomaly did not draw much public attention—or ire—because it was thought that pensions were not as good as the shiny new 401(k) plans.

But as the first generation to retire under 401(k)s or precious metal IRAs realized—a realization that increasingly spread to other plan members—their retirement incomes were much lower than those of mainly public employees who still had traditional defined benefit pensions. Then the public employee pensions became controversial. Right-wing think tanks such as Cato and Heritage, which were also involved in the campaign against Social Security, fanned opposition to public employee pension plans, building on traditional American anti-tax sentiment and manipulating pension envy into internal class resentment. It was unfair, according to the narrative, that taxpayers had to fund overly generous pensions for undeserving public employees when they themselves only had 401(k)s. A “class war” is looming, according to one columnist, between taxpayers and retired state employees.

The relationship between conservative think tanks and the financial services industry is one of convenience rather than direct alignment. The think tanks pursue an ideological goal: attaining as pure a free enterprise capitalist system as possible, while the financial services industry pursues the more tangible goal of maximizing profits. Those goals coincide when think tanks facilitate policy reforms such as Social Security privatization that will enhance prospective profits of the financial services industry. But the priorities of the two are not always the same. The think tanks may want to encourage everyone to provide for their retirement with private accounts as a way of promoting the ideological value of self-reliance, whereas the financial services industry may find servicing only the accounts of relatively prosperous clients to be worthwhile.

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The think tanks want to increase individual responsibility. They are opposed to defined benefit plans because such plans absolve individuals of risk. Their position thus coincides with that of private employers, the entrepreneurs favored by conservative philosophy. The financial services industry is not concerned with individual responsibility so long as it is able to profit from retirement plans and savings. It can profit from defined benefit plans so long as their contributions are invested in the private market through investment vehicles that it manages.

The conservative think tanks encounter far less public opposition to their campaign against public employee pensions than against Social Security for the simple reason that far fewer people benefit from them. Combined federal, state, and local government workers make up just 14.4 percent of the labor force. On the other hand, public-sector workers have been much more successful in holding on to traditional defined benefit pensions than private-sector workers, largely because they are much more unionized and able to protect themselves. The rate of union membership for public-sector workers (37.4 percent) is over five times that of private-sector workers (7.2 percent). Byt he way, one of the companies most recommended is Regal Assets. You may find out more information about them in these in-depth customer reviews.

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The Almeida and Fornia study assumes that the contributions are actually made. Public as well as private pension funds have often run into trouble precisely because contributions weren’t made. States and cities have forgone contributions in order to balance budgets during revenue shortfalls. New Jersey Republican Governor Chris Christie in 2011, for example, refused to make a required state contribution of $3.1 billion.

These types of pension payment holidays during fiscal crises would be acceptable if they were considered as loans by public employees that needed to be paid back during better times. Indeed, public employees could then be seen as heroes who were bailing out state budgets during bad times. Instead they are fodder for self-fulfilling prophecies that traditional pensions are unsustainable. No long-term pension or retirement savings plan is sustainable if necessary contributions are not made to it.

Savings

What You Must Learn To Ensure Your Retirement Security

What is of special relevance to us is that Friedman urged that Social Security be abolished on the grounds it created an unnecessary government program that interfered with individual freedom and the private market. Because participation in Social Security was mandatory for most workers, they were being coerced into a government program. In Friedman’s opinion, individuals instead should be free to join or not join private, as opposed to government, plans that would provide for their old age. Social Security contributions were kept in a government-controlled fund rather than being available for investment in the private financial market. Social Security fostered values that were inconsistent with the type of pure capitalism that he advocated. Instead of each individual working hard to accumulate savings that would ensure her or his own retirement security, Social Security relied on a collectivist program that redistributed income to those who contributed less.

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In what was his most bizarre argument, Friedman maintained that even though the program provided more income replacement for lower- than higher-income participants, it was ultimately unfair to them. Lower-income people, he reasoned, did not live as long as higher-income people. They therefore contributed relatively more and collected relatively less than higher-income people. A variation of that argument is employed today by opponents of Social Security when they argue that the program is unfair to African Americans for the same reason.

Friedman was taking on the most successful and publicly supported government social program, a legacy of the New Deal. He would consistently oppose Social Security from the publication of Capitalism and Freedom in 1962, when he first proposed abolishing it, to the last years of his life when he criticized presidents Bill Clinton’s and George W. Bush’s partial privatization proposals for not going far enough. Abolition of Social Security would be a giant step toward the unfettered capitalism that he advocated. For those ideas to advance beyond his classrooms, books, articles, and public speeches—which they clearly did—required organizational and political allies.

Friedman’s free market message first arose in the late 1940s, one decade after Roosevelt’s New Deal, which heavily relied on Keynesian regulatory and redistributive principles. It was very much a contrarian heterodox view with the economics mainstream at that time firmly embracing and refining the Keynesian approach. By the 1950s, Friedman’s views were beginning to gather more followers. Little by little, what was heterodox become orthodox.

What began to take shape in the 1960s during the Kennedy and Johnson administrations, the next highpoint in American liberalism after the Roosevelt years, was a new conservative countermovement. It was composed of intellectuals such as Friedman and William F. Buckley, conservative foundations and think tanks such as the American Enterprise Institute, and politicians like Barry Goldwater, to whom Friedman was an adviser during his 1964 run for the presidency, and then California governor Ronald Reagan.

Friedman’s influence was also growing internationally. In 1956, the University of Chicago economics department, with US government and private foundation support, began a program to train Chileans. By 1963, twelve of the thirteen faculty members at the Catholic University in Santiago were graduates of the program.6 They were fervent apostles of the Friedman free market ideology at a time when the country’s main political parties of the Right and Left embraced an approach to development that relied on state industry and import substitution—anathema to free market principles. One of their most eager students was the scion of a wealthy family, José Piñera. He found Friedman’s comments about abolishing Social Security in Capitalism and Freedom especially interesting and referred to the economics department at Catholic University as “a wholly owned subsidiary of the University of Chicago.”

Two gigantic fissures developed in American politics in the 1960s and 1970s to upset electoral patterns and pave the way for Friedman’s laissez-capitalist message to become government policy. The civil rights movement drove a wedge between northern and southern Democrats, leading to the wholesale defection of the latter to the Republican Party. Legalization of abortion, which was favored by the liberal wing of the Democratic Party, drove a substantial part of its traditional Catholic working-class base into the arms of the Republican Party.

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As a result of the political fissures, Republican Ronald Reagan won the 1980 presidential race with a hard-right domestic policy agenda nurtured by the Friedman-influenced intellectuals, conservative think tanks, and politicians of the New Right. As a reflection of the new respectability of his laissez-faire approach, in 1976 Friedman was awarded a Nobel Prize in economics.

The Reagan revolution sent a shock wave that went far beyond the borders of the country. The United States is the third most-populous country in the world after China and India. It has the world’s largest gross domestic product. It has the strongest military, which has bases in over two hundred countries. Any fundamental shifts in its policy orientation have inevitable international ramifications.

The growing neoliberal influence spread to important sectors of the Democratic Party as well, producing a neoliberal consensus that covered all of the Republic Party and an increasingly powerful, so-called moderate sector of the Democratic Party. In play now were retirement savings not only in employment plans but also those in Social Security, the centerpiece liberal program of the New Deal, which Friedman and his conservative followers had always opposed and which kept the largest portion of retirement savings off-limits to the private financial services industry.