I think you’d have to go some ways to find a government program less popular than the Pension Benefit Guarantee Corporation, described by Alex Pollock at RealClearMarkets:
The Ways and Means Committee of the House just approved a bill for a big taxpayer bailout of private multi-employer/union-sponsored pension plans. Many of these plans are hopelessly insolvent. In other words, they have committed to pay employee pensions far greater than they have any hope of actually paying. In the aggregate, the assets of multi-employer plans are hundreds of billions of dollars less than what they have solemnly promised to pay.
There is an inescapable deficit resulting from past failures to fund the obligations of these plans. This means somebody is going to lose; somebody is going to pay the price of the deficit. Who? Those who created the deficits? Or instead: How about the taxpayers? The latter is the view of the Democratic majority which passed the bill out of committee in a 25-17 straight partyline vote on July 10.
It combines just about everything that’s wrong with contemporary American government. Inadequate benefits. Welfare for the rich. Inadequate oversight. Short-sighted construction. Political cowardice. Taxing people who have no pensions to pay other people’s pensions. Nobody likes it but it’s indispensable. Read the whole thing. And weep.
What would be necessary to fix it? The list is so long it’s hard to know where to stop. Better oversight. Higher premiums. Making it a real insurance program with premiums proportionate to risk. Clawbacks. None of which will happen.
What would be necessary to fix it? […]
You could use the FDIC model. Only members are covered, and the members cover the bailouts in addition to regular costs.
The FDIC is self-funding, and special levies are required when the fund runs low or in anticipation of the fund running low. It is in the interest of member banks that nobody is shut down. To ensue this, the FDIC has regulatory power to enforce solvency.
Like FDIC coverage, there would need to be an individual limit, and like the FDIC, coverage only applies to members. Another similarity, the FDIC was created during a crisis.
In theory that’s how the PBGC works. In practice the fees aren’t enough to cover the shortfall.
Does it have a regulatory function? If not, it cannot change the behavior of existing pension funds. If so, it needs a house cleaning.
If a pension fund (public or private) is making bad decisions, it should be restructured, and the company or governmental agency should be required to make up the deficit in their fund. If they refuse, they will lose coverage, and there will be no refunds.
If unionized, the union can decide if coverage is required as part of the contract. At one time, the lack of the FDIC decal on a bank’s door meant you were gambling with your money.
Maybe, this is supposed to be happening.
I think that’s the basic problem.
As far as I can tell there is not much downside for the executives at these companies who mismanage retirement plans. If the personal savings of those execs were at risk, including clawbacks, maybe we would see better management of those funds.
Steve
Does this open the door to the bailout of public non-federal pensions?
Not defending executives — but the root problem is these pension promises were made 30+ years ago, under assumptions that turned out far different then was the case.
If you were a Sears executive negotiating pensions 30 years ago, the assumption underlying the negotiation is Sears still exists (which turned out to be false).
This is where PBGC is different from FDIC. A bank loan liability tends to go towards 0 as the loan reaches maturity. A pension liability tends to increase as time goes on as workers increase tenure (higher wages -> bigger pension), companies are likely to die (less funding), and people live longer (bigger pension).
Basically the premiums charged need to account for increasing risk (of companies going bust, demographic assumptions being wrong) as the promises go out further in time. At the range of 30+ years, it’s probably so expensive no company can afford it. So PGBC should force companies to shorten the terms of their pension promise, but that defeats the whole point of pensions.
It’ll never pass the senate anyway, and maybe not the house.
No pol wants to be Primaried (I think AOC made this a verb) by an opponent who can point to the pols vote to give taxpayer dollars to union thugs.
Interesting though, Dave, didn’t you just have a graph up showing that working people (or even most Americans), hardly pay any Federal taxes at all. Which would be a useful point to make it a vote to take from the 1% to give to those who used to work for them.
Another thing is that the bill doesn’t actually propose to tax anybody but simply use the time-honored American system of limitless debt.
And yes, I actually got through to Ne Senator Deb Fischer whose primary sticking point on the bill was the precedent it set for public pensions.
Like I said, It’s got a snowball’s chance in hell and the only reason it made it past Ways and Means is the committee chair (D. Richard Neal, Mass.) wrote and sponsored the bill.
Not quite. People who earn under $50,000/yr pay little federal INCOME TAX. They pay 6.2% of their income in payroll tax (FICA). The total amount of FICA that’s paid is just a little less than the total amount of personal income tax paid.
I recently linked to the numbers, but the bottom 10%-20% pay about half (as a percentage of income) of higher earners. Once you get past that bottom group taxes are much more even. Conservatives always forget about not just FICA, but also sales taxes, sin taxes and state taxes. People at the higher end of income are able to save quite a bit so they dont pay sales taxes at the same percentage of income.
Steve
A bailout of some sort is probably necessary – too many contracts were negotiated that assumed PBGC would function.
That’s an example of how moral hazard operates. The existence of a backstop may encourage the taking of additional risks.
“Conservatives always forget about not just FICA, but also sales taxes, sin taxes and state taxes. “
Only in your mind. It’s front and center in most debates. As I recently snarked, do you issue income ID cards that you present at point of purchase for sales taxes? You can’t equalize it through income taxes; the lower income tax persons pay no or little in taxes.
Speaking of always forgetting. The FICA tax debate is disingenuous. Those taxes are paid in, but later paid out as benefits. You need to talk about the net number. It’s an inconvenient truth.
The fact of the matter is that the well off carry the load. And it’s bad public policy to have three wolves and a lamb debating what’s for dinner.
“the well off carry the load.”
Then we have to talk about who has all the money, and how the wealthy have manipulated policy for their own benefit. At best we now have crony capitalism and looking more like a plutocracy/kleptocracy. The wealthy used to stay in the background and pay lobbyists or provide jobs to the families of politicians to get the policies they wanted. Now they just run the government directly. (Which to their credit, is probably more economically efficient, eliminating the middle man and all that.)
Steve
No. It can be rendered graduated by prebating some of sales tax paid monthly, based on income statements filed for the previous year. It (or a VAT administered in a similar way) wouldn’t be perfect but it would be better than the status quo.
“The fact of the matter is that the well off carry the load”
And should. Earned income means different things to different people.
But if you are a person who serves on the board of several corporations, and you are compensated in stock, or stock options, I, at least will assume that you are gaming the system to your advantage to the detriment of most Americans who have no clue how this game is played. Your connections allow you to float above the herd of humanity, and that, in a Democracy, leaves you in a position of responsibility, and accountability. Yes, pay your taxes, and if there’s anything left, make payments on that yacht, or Caribbean orgy island. You see, your income is not “earned”, in the ordinary sense but delegated, as authority or responsibility is. Yes, you should pay more.
Tell me how I game the system, Grey. Please be specific.
Guarneri: I didn’t mention you by name, but since you asked, you must sit on the board of at least one corporation, or sup with someone who does. Insider trading is illegal. But you have to be dim to get caught, and YOU are not dim. I suspect that insider trading is a way of life for people who sit on boards, or sup, or sleep, with those who do. And, I strongly suspect that THAT is why some are rich, and most are poor.
Tell me I am wrong. It flies against human nature if I am.