By Doug Porter
Los Angeles Times columnist Michael Hiltzik has been on a tear recently, rolling out essays challenging the validity of claims made by those who claim privatizing retirement is the way of the future.
At the core of these conservative/libertarian arguments against public support for defined pensions is a fundamental belief in the supremacy of the “market” as a force in society.
The problem with this viewpoint comes when actual results for those programs participants are measured. The market has no obligation other than profit, which is only guaranteed for those managing the transactions.
Hiltzik started on Friday, challenging the fiscal logic behind Carl DeMaio’s proposed 2016 ballot measure, namely that governments should shutter traditional defined benefit plans and place all new employees in a 401(k)-style defined contribution plan instead.
The measure, which would end defined benefit plans for new employees as of Jan. 1, 2019, was praised by the Wall Street Journal as one that would “end defined-benefit pensions and save taxpayers billions of dollars.”
As it turns out, the Journal — and the drafters of the initiative — have the math exactly wrong. The experience of states that did exactly that shows that taking these steps sharply increases pension costs to taxpayers while providing employees with markedly poorer retirement benefits.
He makes this assertion based on data from a study by the National Institute on Retirement Security, examining the experience of West Virginia, Michigan and Alaska. All three states closed their defined benefit public plans, placed new employees in defined contribution plans and are now reexamining those decisions based on poor performance.
Hiltzik concludes:
The National Institute’s report is a reminder that it’s wise to ask who benefits in a shift in public employee pensions from defined-benefit to defined-contribution plans. Not the taxpayers, and not the employees. That leaves the major promoters of public-pension panic: Wall Street investment operators, such as billionaire John Arnold. Wall Street collects billions in fees from big public pension funds, but its take from millions of individual retirement accounts is potentially much higher. The lesson for taxpayers and public employees alike is clear: when you hear “experts” talking about how ending defined benefit plans will save everybody money, keep your hands on your wallets.
Do What in THIS Market?
On Monday, as the stock market yo-yoed, he went after the proponents of privatizing the Social Security system, as “hawked by several of today’s aspirants to the Republican nomination for President, including George W.’s brother Jeb, Sen. Ted Cruz (R-Tex.), Sen. Rand Paul, (R-Ky.), Mike Huckabee and Rick Perry.”
The privatization idea was born during the go-go years of the 1980s and ’90s, when everyone seemed to think that the bull market would go on forever. Individual workers, it was argued, could do a lot better over a 45-year working career by putting some or all of their 12.4% payroll tax into the stock market (counting their and their employers’ contributions together) than the stodgy old Social Security Administration did by investing its surplus in Treasury bonds, its only legal investment. “This isn’t a game-show fantasy,” gushed Sam Beard, a leading promoter of Bush’s privatization plan beginning in 2001. “Whoever earns at least the minimum wage can become a millionaire in 45 years…”
… It’s certainly true that, over the long run, stocks return more than bonds. But the best way for workers and Social Security recipients to profit from the difference is to do so via the Social Security Administration, which has a long-term outlook and therefore can ride out downturns. By pooling its investments, moreover, the program can keep its transaction costs low. Numerous proposals have been floated over the years to allow the program to invest a limited share of its revenue, perhaps 40%, in equities. Congress has never seen fit to allow it, but it could do so at any time.
The privatization alternative would result in investment fees being paid each year by millions of individuals; is there any doubt why Wall Street is universally in favor of privatization? The idea would turn the safest, most efficient retirement program in American into just another investment scheme vulnerable to every market downturn, every misguided snap decision and every promoter lurking in the weeds.
What the pitchmen for market-based retirement schemes fail to take into account are the things their “product” doesn’t cover: disability insurance, lifetime retirement pay, and inflation protection. And the actual returns for a pensioner would depend on timing and luck of the draw.
Hiltnik points out “the average worker who invested $1,000 every year in the stock market starting at age 20 in 1954 would have $470,000 when he or she was ready to retire in 1998. But the worker who started just five years later, in 1959, would end up with only $234,000 at age 65–half as much–despite investing exactly the same sum over the same time span.”
On to other news… As long as we’re talking about the supposed primacy of the marketplace, let’s take a look at what some of the movers and shakers in that arena are up to these days.
H&R Block Really Wants Your Money (If You’re Poor)
At Vox.com, they exposed the despicable lobbying actions of the company making the ad claims about allowing you to “keep your money.”
H&R Block’s entire business model is premised on taxes being confusing and hard to file. So, naturally, the tax preparation company has become — along with Intuit, the company behind TurboTax — one of the loudest voices on Capitol Hill arguing against measures that make it easier to pay taxes. For example, the Obama administration has pushed for automatic tax filing, in which the IRS uses income information it already has to fill out your tax return for you. That would save millions of Americans considerable time and energy every year, but the idea has gone nowhere. The main reason? Lobbying from H&R Block and Intuit.
But H&R Block’s latest lobbying effort is even more loathsome than its opposition to automatic filing. At the company’s instigation, the Senate Appropriations Committee has passed a funding bill covering the IRS whose accompanying report instructs the agency to at least quadruple the length of the form that taxpayers fill out to get the Earned Income Tax Credit.
GEICO Busted for Discrimination
GEICO’s gecko will have to pay out some green to the tune of $6 million for giving misleading and discriminatory quotes to state consumers as part of a settlement with the California Department of Insurance.
From NBC7:
The Consumer Federation of California filed a petition against the insurance giant alleging it violated civil rights and insurance laws by targeting unmarried, low- and moderate-income motorists with higher lowest-limit quotes.
According to the CDI, GEICO’s website misrepresented bodily injury liability limits of $100,000/$300,000 as being as the lowest-limits quote to some customers when in fact they were not. California law requires insurers to offer a minimum limits policy of $15,000/$30,000.
The federation also alleges GEICO only gave these incorrect quotes to certain customers based on education, occupation and gender.
American Airlines “Circus Monkeys”
The Washington Post has a story about 80 minority employees of American Airlines who’ve asked US Attorney General Loretta E. Lynch for an investigation into workplace practices.
Employees at Reagan National and Philadelphia International airports say they have been subjected to racial taunts and are routinely assigned unsafe equipment and the most difficult tasks.
Philadelphia attorney Brian R. Mildenberg is representing the employees:
“There’s a group of them that allege retaliation for their challenging the discrimination, but then there’s also workers who allege retaliation or threats of retaliation over safety issues when they’ve tried to tag out the unsafe equipment,” Mildenberg said. “The race-based part is that the minorities are the ones who are forced to use the worst equipment.”
In the letter to Lynch, Mildenberg says that American Airlines has rebuffed the requests of black workers who seek additional training that could advance their careers. The airline, he said, also “has discriminated against minority employees by subjecting them to harassing and degrading treatment” and subjected them to “disproportionate discipline and retaliation for raising civil rights complaints.”
At both Philadelphia International and National Airport, Mildenberg writes, workers are “in the midst of what they believe is a crisis of workplace racism and discrimination.” He writes that in Philadelphia, black workers have been referred to as “circus monkeys” and that the break room where they gather has been called the “chocolate break room” and the “Black Panther break room.”
ACLU Seeking Amazon Employees
Lest you get the impression that only old school companies are bad actors, the American Civil Liberties Union is prepared to represent workers at Amazon who may have gotten the short end of the stick in the company’s Game of Thrones workplace culture.
From Courthouse News:
The American Civil Liberties Union took out a full-page advertisement in Friday’s Seattle Times offering to represent Amazon employees who have been allegedly mistreated for taking family or medical leave.
The ad asks Amazon employees “who believe they were unlawfully penalized because of their decision to have children, or because they were caring for a sick relative or recovering from an illness of their own, can contact us at GenderEqualityAmazon@aclu.org by Oct. 1, 2015, to explore the possibility of legal representation.”
The ad, in the form of an “open letter” from ACLU Executive Director Anthony Romero, references an investigative New York Times article published on Aug. 15 about Amazon’s employment practices.
Stupid Stuff Republicans Not Named Donald Did
Hillary Clinton’s campaign has reported on attempts by a James “Acorn” O’Keefe-linked group affiliated with Students for a Conservative Voice to set up “stings” whereby undercover agents video volunteers accepting illegal campaign donations. So far, no luck.
Jeb Bush blew it in trying to explain away his use of the pejorative “anchor babies” term, saying he was referring to Asians, not Hispanics.
Scott Walker demonstrated his manhood by asserting the US should cancel the upcoming state visit of Chinese President Xi Jinxing in retaliation for that country’s stock market crash.
Jeb: “I don’t think Planned Parenthood should actually get a penny because they’re not doing women’s health issues.”
— Eli Stokols (@EliStokols) August 25, 2015
Napa Valley’s [White] Wine Train
On the heels of an apology to 11 black women kicked off the Napa Valley Wine Train for laughing too loudly, a group of Latino women have come forward with a similar story.
From Slate:
Ruiz described the group as being made up of “all Latino individuals,” the majority of whom were local University of California–Berkeley graduates. She now sees the incident as one of racial bias.
“I think it was just that person complaining and then the manager seeing that we were Latino, basically decided to discriminate [against] us because we were Latinos and [a big] group,” she said. “Now that I hear about this event with a group of African American ladies being kicked out of the train, I’m seeing a pattern. I’m realizing that how I was treated was not normal.”
Over the weekend, a group of black women were kicked off of the train after a noise complaint, raising hackles on social media and questions about prejudice. The company’s CEO, Anthony Giaccio, has since apologized personally to Lisa Johnson, the woman who reported the incident occurring to her and her book club, according to a spokesman for the company.
On This Day: 1902 – “Al-Hoda” began publication in New York City making it the first Arabic daily newspaper in the US. 1925 – The Brotherhood of Sleeping Car Porters was founded at a meeting in New York City. A. Philip Randolph became the union’s first organizer. 1975 – Bruce Springsteen’s album “Born to Run” was released.
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Doug Porter
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There is so much disinformation about defined benefit vs defined contribution plans. First of all the nomenclature is misleading. It should be the corporation is liable for your pension vs you’re on your own, kid. And this has nothing to do with social security which is a entirely separate issue. Whether to privatize SS so the employee can invest it in the stock market vs letting the SSA invest it in Treasuries is a completely bogus issue. First of all the SSA does not invest the money in Treasuries. It is a comp-letely pay as you go system with the “investment in Treasuries” being entirely IOUs. If an employee invested his SS taxes privately, he or she would be investing 2 streams of money in the stock market – his pension money (his “defined contributions”) and his FICA taxes. There would be no guarantees from either stream of investments. Only Wall Street would win.
With defined benefit plan a pension manager, a professional, invests the money. With 401ks the individual, you, invests the money.
Don’t you want to pour your cabernet all over those white shirts?