The student loan deal is badly needed. It should have just been extended -- duh! But the 1 percenters took it hostage and demanded their pound of flesh before We, the People can preserve even this little bit of what we do for ourselves. So as part of the "sweetener" for those 1 percenters there is a corporate pension giveaway in the deal that has nothing to do with student loans. It appears they are going to let companies underfund pensions -- money that should be set aside for worker pensions tomorrow will instead go into 1 percenter pockets today -- and are setting up for a taxpayer bailout (or just stiffing retirees) later.
This is kind of tricky, so bear with me. When companies (and governments) put money into pension funds they have to calculate how much will be needed to pay the promised pensions. This involves estimating things like how long (and how many) people will live, and how much "return" (interest, stock price increases, dividends...) to expect as the money is set aside. Key point: If you expect a too-high rate of return you can set less aside now (and put it in your pocket), but when the time comes to pay the pensions you won't have enough.
This is supervised by government standards and regulations. They say how much of a rate of return is allowed to be used in these calculations. A higher expected-rate-of-return allowance means less has to be set aside, so more money can go into 1 percenter pockets. So there is a lot of pressure from corporations to let them get away with overestimating, and therefore putting more in their pockets today. Since this is complex, it is easier to get away with diverting promised-worker-retirement money into 1 percenter pockets.
This student loan deal apparently lets corporations claim a higher expected rate of return, thereby diverting more money today into 1 percenter pockets.
For a long time the government has been allowing pension funds to use a too-high estimated rate of return, with the result that many pensions are now underfunded. Money that should have gone into savings to pay worker pensions was diverted into 1 percenter pockets, either through improved corporate bottom lines in the case of companies, or through lower taxes in the case of state and local governments. (Of course, many companies shifted worker-pension promises into 1 percenter pockets using the 401K scam -- you fund your own retirement, on your own, with little help, and have to know how long you'll live, and it turns out badly every time -- but that's for another post.)
In fact, this worker-set-asides-for-later vs. 1 percenter-pockets-today issue is similar to what happened with the Social Security Trust Fund. Money from workers was set aside into the fund but was used to pay for tax cuts (and massive military increases). Now 1 percenters are demanding austerity -- cutbacks in the things We, the People do for each other -- instead of workers getting the money back from where the money went, namely the 1 percenters.
And since this is about money for worker retirees, and retired workers don't have big, influential PR firms while 1 percenters do, it is convenient and easy to blame workers when the promised money isn't there for their retirement.
The supposed public-employee pensions crisis is partly the result of state and local governments not setting aside enough money to pay up on pension promises (because of tax cuts). It is also partly caused by Wall Street scamming on those same governments as they got into riskier investments trying to get a high enough rate of return to make good on their pension promises. But the blame is being placed on the workers themselves.
The post "Discover the Network Out to Crush Our Public Workers" traced just a few of the corporate-conservative think tanks (really just PR firms) promoting the idea that public-employee unions are responsible for pension shortfalls. Almost all of these organizations traced back to Wall Street firms and individuals for their governance or funding. They are engaged in a campaign to divert attention and blame the workers themselves for pension shortfalls:
These corporate/conservative organizations are very good at manipulating the media and public opinion -- it is their purpose. Their "experts" are well paid and always available to talk to reporters, appear on TV and radio shows and write articles and opinion pieces for newspapers, blogs and for their network of similar organizations. Their "reports" and "studies" reach the conclusions that fit the strategy, and are crafted to sound just right. And there are so many of them! The result is development of "conventional wisdom" about what is going on in our society. This is why that conventional wisdom more and more reflects the corporate/conservative line. And right now the corporate conservative line is that we should think that public employees and their unions are responsible for state and local budget shortfalls.
See also Understanding The Attacks On Public Employees, Ten Holiday Attacks On Public Employees and Are Public Employee Unions Strangling Us? Also, Rick Smith And Dave Johnson Counter The Attack On Public Employees.
An NY Times editorial, The Deal on Student Loans stated:
The pension provision is not ideal. It could mean that more companies will underfinance their pension liabilities, shortchanging employees down the road. Lawmakers have tried to address that potential shortfall by strengthening the agency that insures private pensions with more money from higher premiums.
Thus from the Competitive Enterprise Institute, usually a most unreliable source. (The check from the big corps who want to underfund pensions must have been late.) In this case it is the same gimmick but added the the highway bill, as they wrote in "Threat of Pension Fund Bailouts Lurks in Senate Highway Bill":
The bill... would amend the Employment Retirement Income Security Act (ERISA) to allow for an accounting gimmick known as "pension smoothing," whereby pension managers spread losses out over several years, while overestimating projected investment returns.
Specifically, this provision would expand the range of allowable projection figures, starting this year at a 20 percentage point range, to 60 percentage points after 2015. This is essentially a license to make up numbers for income projections four years out from now...CEI Transportation Policy Analyst Marc Scribner said: "... This accounting trick will likely expose taxpayers to potential pension fund bailouts in the future. " ...
CEI Labor Policy Analyst Ivan Osorio said: "It would further remove pension investment return projections even further from reality, by expanding the range of allowable projections so broadly as to render them meaningless."
To get a deal that keeps student-loan interest rates low enough for more people to afford to go to college, we had to pay off the 1 percenters with this "pension-smoothing" deal. Such is the way of Washington since we shifted from a democracy (rule by the people, for the people) to a plutocracy (rule by the rich, for the rich). Or, in this case a 1 percenter kleptocracy (rule by the rich, stealing from everyone).
But make no mistake, this deal makes the country's future pension problems even worse. It diverts even more money from promised pensions into 1 percenter pockets. The result will be clear in 10, 20 or 30 years when people are retiring and the money isn't there. Taxpayers will be asked for ever more "austerity" to cover money that was diverted to the 1 percent.
This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
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The first wave of baby boomers started to retire in 2011. They are retiring at about 10000 a month. This "pension smoothing" is another attempt to get "baked in to law" a reason for companies not to pay the liabilities they owe.
Thank you for sharing.
We are living in a country and in a time when we are told that contractual rights of corporate and financial institutions and their highly compensated executives must be honored to preserve the integrity and trust of the economic system; while the contractual rights of everyone else can be trampled with impunity.
The power brokers and their corporate friendly media have launched an attack on public sector pension obligations that is a preliminary step in attacking the pensions for every American worker in the country.
No, it is the squandering of money invested that gets transferred to the so called top talent.
They are the ones who contribute not a dime, yet the taxpayer is,on the hook for millionaire pensions. How dumb is,the general public?
Keep the strawmen coming.
What you "conveniently" leave out - if the investment rate of return is being assumed to be too high, that means we are under counting public sector employee's compensation. In other words, all those studies that show "public sector employees are undercompensated relative to their private sector peers" is bunk because public employee compensation is higher than reported.
That is comical given that the left wants the $40 billion underfunded USPS post-retirement liabilities to become further underfunded simply so that the company can turn a profit today.
The point is the appropriate amount of funding. The USPS is made to look worse by an over funding requirement while other companies will be allowed by law to under fund and then your taxes and mine will be used to offset these shortfalls while cash is stripped out of the companies by owners.
Even in the good times, many pension funds were under-funded.
And a lot of risky stock market investing also decimated many pension funds on top of it.
The politicians and their economic advisers did such a poor job of funding pensions....so now they have to blame the workers for being too greedy so they can cut their pensions......
When things go wrong, the ordinary workers are the first to be blamed and get the shaft.
The politicians and 1% aren't going to admit to anything OR pay the bill.
Though I generally disagree with your mercantilist, pro-union, pro-Keynesian gimmickry views, and though I disagree that the US needs more subsidized subprime student loans, your point on the pension stabilization provision is correct. The US government, through taxpayers should not be in the business of bailing out companies for not funding their pensions.
Kai
Thank you for taking the time to write to me. I have always enjoyed your consistent, passionate and principled approach in making your case for ‘fair trade’
However, at the heart of your fair trade approach, lies a host of mercantilist protections, subsidies, supports, etc. that you think makes trade ‘fair’. It is like saying that we need to get HIV to fight HIV. I disagree.
I believe, as Bastiat said 4 days before his life, ‘Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.’
In this case he is right, with manufacturing making up about 12-13% of our GDP, trying to protect this industry against the best interests of consumers who work in other industries that make up the other 87% of the economy seems a bit backward looking. Especially considering that the decline in manufacturing mirrors declines in other modern economies, even Germany and China. Even they have a smaller percentage of their workforce in manufacturing today than they did in the 1970’s, and our decline mirrors the broader trend on average. Yet despite that, we still make up about 21% of global manufacturing output, about what it was in 1980. We make more stuff but with less people. That is a good thing.
I feel for the rust belt, but that does not mean the person working as a car washer in San Francisco has to pay more for his/her products and live a worse standard of living so that those that live in the rust belt can be propped up through protectionist measures and live a better standard of living. In most cases you are simply taking from the poor to fund this largesse of government protections.
Kai