We’ve already discussed the recent “discovery” that many people urged to opt in to 401k’s as their primary source of retirement funding are rocking woefully underfunded portfolios. With this, it will get much, much worse:
Lawmakers and governors in many states, faced with huge shortfalls in employee pension funds, are turning to a strategy that a lot of private companies adopted years ago: moving workers away from guaranteed pension plans and toward 401(k)-type retirement savings plans.
The efforts come as the governors of Wisconsin and Ohio, citing dire budget problems, are engaged in bitter showdowns with public-employee unions over wages, pensions and collective bargaining rights.
The new plans allow states to set a firm, upfront limit on the amount they will contribute and leave it up to the employee and the financial markets to make the money grow. In a traditional pension system, the employer promises a certain benefit, then must find a way to pay for it.
Like private employers, which in droves have terminated traditional pension plans, many government officials like the idea of shifting much of a pension plan’s risk to the worker. And some workers prefer a 401(k)-type system because it gives them more control over their retirement assets, including the ability to take the money with them when they change jobs.
What I find most amazing about all of this is that while these changes are being made, no one seems concerned about the regulatory side of the equation. You would think that if governments are pushing potentially millions of people into the market, there would be some concern about the recent multiple financial crashes brought on by the perfidy of our Galtian overlords in the market. It’s really quite a good scheme if you are one of the Wall Street grifters- someone is sending you marks, and promising to look the other way. You don’t exactly have to be Nostra-fucking-damus to realize that in about a decade, a couple million Americans of retirement age are going to be wiped out by the same class of greedy pricks that just vaporized the economy a few years ago.
As noted last night at the Oscar’s, not one financial executive has been sent to jail. Their punishment is apparently bail-outs, millions of new customers, the unflinching support of the money party and frequent reach-arounds from the White House to make sure Jamie Dimon doesn’t have hurt fee-fee’s.
cathyx
And then cut social security benefits too.
WyldPirate
There’s always multiple ways to skin a cat. Dubya couldn’t get the privatization of SS for the Wall St. thieves. The diversion of public workers out of pension funds like the poor bastards in the private work force is a decent, but “smaller” consolation prize.
Chuck Butcher
Rail. Tar. Feathers.
freelancer
This kind of thing causes my BP to redline.
New Yorker
Somewhat related, but a headline at Yahoo right now reads, “Gov. warns of ‘dire consequences’ for Wisc. if Dems don’t return”.
“Dire consequences?” Sounds like Walker is using Muammar Qaddafi’s playbook.
freelancer
OT – In other Wetsuitesque news…
Phyllis
Shovel.jars.cash.backyard. My granddaddy was right.
gypsy howell
The Wisconsin unions should put a time limit on their concessions to Walker, and when he doesn’t relent, they should refuse to agree to insurance premium hikes, wage cuts an whatever else they’ve conceded so far. Fuck these republicans — why should the unions give an inch at this point?
Svensker
@freelancer:
Because having gay sex with consenting adults is SO much more horrible than jacking off while watching little kids play.
The ick factor, she is beeeg on this one.
Linda Featheringill
@freelancer:
[LOL]
Southern Decadence. Right. While watching the children play. Yup.
God invented sex so that self-righteous assholes could be brought down.
[still chuckling]
MikeB
Yeah, I heard this BS (more control) from friends with 401K’s a few years ago. Now that they have 201K’s, my guaranteed union pension is looking pretty good to them.
sublime33
Wait until all of these retirees start pulling money out of their 401k plans and discover that they have to pay income tax on the principal as well as investment earnings. In other words, if they need $10,000, they will have to withdraw $13,000 out of their account to offset the taxes. Then there will be an outcry of “nobody told me I would have to pay tax on that!” The teabaggers will have a new set of recruits when this dawns on retirees.
FlipYrWhig
I don’t think banker-types have been punished nearly enough. That said, I don’t see much evidence that the Obama admin. cares terribly much about bankers’ _feelings_, and that’s the (ahem) climax of this piece. Markos Moulitsas and Jed Lewison, among others, were pushing very hard the idea that Obama’s meeting with business leaders was an “apology” to “Wall Street,” but the substance of the actual meeting didn’t reflect that.
So I think there’s a difference between “Obama et al have not been hard enough on them from a legal and ethical standpoint” (true) and “Obama et al are overly concerned with not offending them in tone and optics” (false). We’ve read a thousand Politico stories about how the bankers are miffed and want Obama to stop demonizing them. I don’t remember Obama either demonizing them _or_ promising to stop.
marcopolo
This is all about shifting risks from larger organizations like corporations and the government to the individual. With the understanding, of course, that larger organizations have a bit more resilience/flexibility in dealing with unanticipated risks as well as, “theoretically”, a better capacity to understand and plan for said risk–except when they don’t.. Jacob Hacker was probably the first person I read who really linked all the dots together for me.
Take a gander at either The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream or The Great Risk Shift: The Assault on American Jobs, Families, Health Care, and Retirement–And How You Can Fight Back. Warning, pretty depressing stuff.
ruemara
The only reason my mates 401k stayed afloat is because I am damned good with money. What do we have to do, burn a few banks? Publicly neck punch a hedge fund manager every hour on the hour until these rich bastards get the point? Quit fucking with us you rich arrogant twatsquatches!
jeff
I’m would not necessarily be opposed to such a program in each and every case; but what is obvious as fuck to me is that this is just a pushing of local responsibility onto the Federal level. Every unfunded retirement (which is what the 401K is in most cases, after all) is yet another burden of the Federal government. There will be no savings under these “privatization” plans, since all they do is defer the cost of labor a decade and out of the state to the Federal level.
Disgusting.
WyldPirate
Jesus H Christ strapped to a motherfucking Saturn V rocket, Flip. Pretzel logic much?
Kryptik
Amazing, the movement to push the burden of risk onto those least suited to handle it. So the financial institutions make a giant fuck up. The answer is to…not only make everyone ELSE pay for their fuck ups but rejigger the whole system to ensure that future financial burdens will be left on the customer, not the huckster selling bad plans and unstable futures. Brilliant. Ownership Society indeed.
lawnorder
Bernie Maddoff went to jail
Change from “not one” to “only one” wall street con artist went to jail. It makes my accuracy senses go haywire :p
FlipYrWhig
@WyldPirate: Um, where’s the logic flaw? A meeting with business leaders is not an apology to Wall Street unless all meetings are apologies and all business leaders are bankers. If you meet with Caterpillar and jawbone them into hiring more people to make more tractors, is that politically offensive?
I don’t think it’s that difficult. Banking interests should have been punished more. Is the reason they weren’t punished more really concern for their delicate “fee-fees”? I wouldn’t say so, no. Is the reason the admin. didn’t push harder against Hosni Mubarak concern for his feelings, or concern that the effect of a tougher line would be to worsen the situation? In both cases, it might still be The Right Thing to be tougher; I’m not denying that, I agree with that. But the reasons for not doing The Right Thing aren’t about tone and feelings.
Davis X. Machina
The Holy Grail, though, is SS. All that lovely money. Extracted under legal compulsion. From damn near everyone.
And right now it’s just sitting there — generating no management fees, no sales commissions.
No wonder it’s driven people mad.
Violet
@lawnorder:
Allen Stanford is/was in jail too. He got beat up by other inmates while awaiting trial. Now I think he’s mental state is so bad they aren’t sure if he can stand trial. Not sure if that’s a stalling tactic or what.
BGinCHI
@lawnorder: And notice who he stole from….
Villago Delenda Est
@ruemara:
Neck punching won’t do it.
Head rolling might.
Corner Stone
Awesome troll post amigo.
Villago Delenda Est
@lawnorder:
Yes, he did.
Because he stole from the rich.
That was his mistake. Stealing from the rich is a crime. From the other 99%, not so much.
Dennis SGMM
@Davis X. Machina:
I’d say that anyone who thinks that there won’t be a grab for the SS Trust Fund might want to think again. It is the only big chunk of money still slated to go to the people and that just drives our overlords insane. There already a lot of voices conflating Social Security with the Medicare debt and they’ll continue to conflate it with the deficit in general until they “have do something about Social Security,” and they’ll discover to their surprise that Goldman Sachs is just the outfit to do that something.
Corner Stone
@BGinCHI:
A lot of innocent (otherwise) investors. But also a hell of a lot of people who knew god damn well and good what Madoff was up to and went for the long con anyway. Hoping to cut bait at the right moment.
Corner Stone
@WyldPirate: It’s not really logically flawed. Flip just can’t quite wrap his head around the fact that this admin has done whatever they can to get along to go along with the bankster class.
MattF
Here’s a little wager: I’ll bet anyone that the legislators in the various state houses all have pensions rather than 401(k)-type plans. And I’ll bet that the winger legislators who are now in charge aren’t planning to change that. Any takers?
Villago Delenda Est
@MattF:
Sucker bet, Matt. :)
Belafon (formerly anonevent)
So, lets say 5 Wisconsin Republicans declare that they will not vote for the bill in question. How would Democrats know that it’s not a ruse to get them back and cause a quorum? It’s not like the Republicans would get punished for lying.
Corner Stone
When the crowd applauded, do you think it was in irony?
Davis X. Machina
@Corner Stone: Considering the number of producers in the room, relief.
Zelma
Why does nobody underline the point that state governments consistently either failed to make their required contributions to their employees’ pension funds and/or raided them on a regular basis? This is what happened in NJ, primarily if not exclusively under REPUBLICAN governors, starting with Christie Whitman and Tom Kean and continuing under Christie. When a Democrat – Jim Florio – was elected governor after Whitney and tried to put the state’s fiscal house in order, he was pilloried by the Republicans as a “tax and spend” librul. And he lost his reelection bid. Corzine – the absolutely worst politician ever – also tried to get things under control and we all know what happened to him.
Isn’t it fascinating that it’s the Democrats that are the fiscally responsible politicians (pace Bush senior) but they don’t get any credit for it?
Regarding moving people to 401Ks, I spent my career with a 403, fortunately with low cost TIAA-Cref, as did my husband. We ended up very well off but mostly because we got out of the stock market before both the 2000 and 2008 collapses. We were historians; we knew a demand drive stock market when we saw it. But interestingly, many of my colleagues – college profs, supposedly among the brightest – got skunked. I cannot imagine how most people will have the ability to figure out how to deal with the vicissitudes of investing and I have no confidence they will be well treated by the money people. Just recall all the scandals a few years ago about “money managers” who churned accounts for the fees.
I’m not saying the pension system doesn’t need some reform. But 401ks are simply not the answer.
BGinCHI
@Corner Stone: Charlie Sheen was applauding for more coke and hookers.
Sly
Let me put it this way:
By itself, the New York State Teachers’ Retirement System holds around $77 billion in investment assets (it was a lot bigger a few years ago). Mostly in domestic equities. And the vast majority of current benefits are paid out from investment income. The NYSTRS has about 430,000 members, as of the last report in June.
Now divvy the contributions of individual members (excluding the current beneficiaries who are no longer paying into the system, which is comparatively small number) into separate 401(k)s. Then multiply that number by the amount 401(k) “investors” pay in investment and administrative fees to mutual funds, insurance companies that offer variable annuities, and the like.
Now add in every other state pension system in the country.
They. Want. That. Fucking. Money.
You know that scene in Trading Places where Randolph Duke is explaining a commodities brokerage to Eddie Murphy, asks if he understands, and Eddie Murphy says “Yeah, it seems to me like you guys are a couple of bookies”? Single best description of investment firms ever made.
Villago Delenda Est
@Sly:
Mortimer Duke: Tell him the good part.
Randolph Duke: The good part, William, is that, no matter whether our clients make money or lose money, Duke & Duke get the commissions.
Dennis SGMM
@Sly:
If I’m reading their web page correctly CALPERS has just over $225 billion. You can bet that the Masters of the Universe are having wet dreams over that as well.
Baud
I’d support moving everyone to 401k’s if the other side would agree that only Democrats can be president. My 401k did a lot better under Clinton and Obama than it did under W.
pto892
The single best decision I have ever made in my career as a fed was when I decided to stick with CSRS (Civil Service Retirement System) instead of switching to FERS (Federal Employee Retirement System). CSRS is the traditional old school pension plan, while FERS (brought to us by Reagan) is the 401k style plan brought in to cut the costs and obligation of the feds towards their employees. At the time they kept pushing how much more flexible FERS is, and how you can manage your money, retire in style, etc. Bull effing crap…even then in 1984 I knew that this meant that the government was turning people over to the tender mercies of Wall Street for their retirement and wanted nothing to do with it. I’m sure it’ll be my turn soon to become the new public enemy as I near my own retirement-I will become the new face of the elite federal parasite class living high and mighty off the sweat of the taxpayer. All that sweet sweet CSRS money is just sitting there, waiting to be taken away, err, managed better by the invisible hand.
FormerSwingVoter
The frustrating part of this is that pension plans aren’t any better anymore. Your employer will declare “bankruptcy” and “restructure”, slashing away more than half of your pension, or they’ll simply lay you off a few years before you’re due for a full pension.
Saving for retirement is now a game of Three Card Monte. It doesn’t matter which plan you pick – they’ll just palm away the money card no matter what you decide on.
Corner Stone
@BGinCHI:
Well, who isn’t?
pto892
The single best decision I have ever made in my career as a fed was when I decided to stick with CSRS (Civil Service Retirement System) instead of switching to FERS (Federal Employee Retirement System). CSRS is the traditional old school pension plan, while FERS (brought to us by Reagan) is the 401k style plan brought in to cut the costs and obligation of the feds towards their employees. At the time they kept pushing how much more flexible FERS is, and how you can manage your money, retire in style, etc. Bull effing crap…even then in 1984 I knew that this meant that the government was turning people over to the tender mercies of Wall Street for their retirement and wanted nothing to do with it. I’m sure it’ll be my turn soon to become the new public enemy as I near my own retirement-I will become the new face of the elite federal parasite class living high and mighty off the sweat of the taxpayer. All that sweet sweet CSRS money is just sitting there, waiting to be taken away, err, managed better by the invisible hand which always favors Republicans.
Alan
The United States is fucking awesome.
pto892
The invisible hand loves Republicans.
Big City Mary
Unfortunately, “they” make it sound like you have control, as an employee, with the investments of your retirement savings through a 401K versus SS. Which of course is just an outrageous lie.
The whole kit & kaboodle has been designed to eliminate any responsibility by corporations for retirement compensation whether it be a defined pension plan and/or SS, overturning the new deal & prior union/labor victories. When SS was enacted, the corporations were forced to match the employee contribution. SS continues as an obligation of the federal government with no income opportunity for corps nor means to somehow shift that money back to the corporate or Wall Street coffer.
In theory, defined pension plans were protected by fed guarantee, but the guarantee cost the corporation a fee (like unemployment insurance) and there was alot of scrutiny of the portfolio – corporate contribution and investments. The LBOs of the 1980s taught the grifters that filling Chapter 11 to avoid future pension benefits (because the cash was long gone) did not work as pension benefits was a senior priority creditor.
Some where along the line, I am unclear on the time line or the legality, it became kosher to freeze the pension benefit and to no longer offer the benefit to new employees and to no longer contribute to existing employees and the 401K became “your retirement savings”. The 401K was eased in through the “matching” ruse, and the “greater return” than SS ruse which said if you did not put up an appropriate share, no matching for you, and later, not even the matching. Yet at no time did the employee have a say about the investments being made in their name, or the fees paid to the “handler” and of course no fed guarantee. You got to choose between an increasingly bizarre group of funds which historically (or so you were advised) had offered enormous return for enormous risk (and surprise, surprise-negative return once you selected them) to MM funds with little risk which were the same or recently much worse than passbook savings accounts because passbook savings accounts do not charge a “handler fee”. At no time to my knowledge, were employees given any control to actually select a single stock (outside of the stock of the company they worked for) for investment purposes.
When you think about it, with the company pushing so hard for you to join a 401K plan back in the day, when initially all companies matched; did they ever really match? You have got to think that kickbacks were prevalent to get a company to sign up with your 401K management firm and then 10 years down the road-you have less than your own contribution, forget the company match, which I really have to believe never really happened. It was from the beginning, a monumental con. And SS will go the same way.
shawntos
Yea, I remember when I got laid off two years ago, the first thing the HR guy told me was to get my 401k out as soon as possible.
Villago Delenda Est
@Big City Mary:
This is why I call them the parasite overclass. They are blood sucking vampires.
Villago Delenda Est
@Big City Mary:
This is why I call them the parasite overclass. They are blood sucking vampires.
burnspbesq
@MikeB:
“my guaranteed union pension”
Sorry to be Johnny Buzzkill, but have you looked at the balance sheet of the PBGC recently? Your pension is anything but guaranteed.
sukabi
Why Do Market Forces Always Feel Like a Stick-up?
because the phrase “Market Forces” is used as a tool to facilitate the stick up…
if it looks like a duck, sounds like a duck, and quacks like a duck… chances are it’s a duck.
taylormattd
This has been going on for decades actually. Here in Washington State, public employees haven’t had an actual pension program since the late 1980s I believe. That was called “PERS 1” and it was a wonderful program.
Given our state has a fucked up, regressive, and unsustainable tax structure, however, the Legislature, in its infinite wisdom, decided to “save” $$ by ending PERS 1 enrollment. Starting sometime around the late 1980s, all state employees were eligible only for PERS 2, which is essentially just a state run 401K where the state contributed a certain percentage of money.
But of course, it didn’t stop there. Because again, god forbid we implement some kind of progressive tax structure to pay for benefits. Instead, they rolled out PERS 3 in 1996 or 1997. PERS 3, which all new state employees are required to use, now has a minimum required 5% mandatory deduction into the 401K.
MikeB
@burnspbesq: They’ve been paying
monthly for 3 years now, hopefully I won’t need the PBGC. Anyway, 3 years
of payments is more than a lot of people can expect…
Maude
@burnspbesq:
Wall Street isn’t in jail because what they did was legal.
There were people from hedge funds charged with crimes.
Deregulation was great when everything was going well.
The Bush SEC wasn’t concerned about financial institutions’ irregularities.
The investment bankers do what they do. If there was a way to make moeny, then they did and a lot of it.
They had the problem because they didn’t understand that when the housing prices stoped rising, the CDOs and other securities would go belly up.
I’m sure you know this, but I’m one who doesn’t trust Wall Street or employers.
Bill H.
I thought Barney Frank has been telling us that Democrats passed landmark financial regulation reform that is going to prevent all of that.
Yeah, I know I’m a right wing asshole, but didn’t Barney Frank actually make claims along those lines?
Elia
Does anyone ’round here consider this country an actual democracy right now? Are we even a Republic anymore? I think Citibank (or was it Goldman?) had it right — Plutonomy Forevah.
David Brooks (not that one)
@sublime33:
What is more alarming to me is: wait until these retirees (the baby-boomers are starting now) start pulling money out of their 401K plans and thus increase the supply of equities and bonds floating around the market. That sounds to me like a simple supply/demand shift, and a clear setup for collapsing stock prices. The Ponzi scheme that is the 401k market will need ever-increasing numbers of young people willing to throw their money at the market, just to keep the prices from collapsing.
Shinobi
Charles Koch wants you to know that the free market economy is good, deficits are bad, subsidizing jobs is bad, and he and his brother are just some nice concerned citizens. Pay no attention to the piles of money in the corner.
(shameless self promotion link)
Maude
@Bill H.:
Finreg isn’t all set up yet and the Republicans are trying not to fund it.
Finreg will do a lot of good, but it doesn’t solve all of the problems.
I like that you brought that up.
cat48
@Maude:
GOP is not funding the SEC right now. They can’t travel or work on the investigations that were in process when they cut the funds by stripping it in Senate Appropriation Bill.
liberal
@Maude:
AFAICT the consumer protection stuff is relatively good. The stuff on reforming the system is very weak tea.
Maude
@liberal:
Yes, I agree and Wall Street called it draconion. It is good that anything got through. It’s better than what CLinton left behind.
@cat48:
Thank you for telling me. The cheaters must be so happy. This allows the investigations to be slowed way down.
Bet we won’t hear about this on Fox.
Nick
@MikeB:
don’t worry, they’ll vote for somebody who will take it away.
Nick
they would have to actually break laws first, or break laws where our justice system had jurisdiction. (Remember that many of these fraudsters worked out of London)
Most of what they did was legal when it shouldn’t have been.
Snarki, child of Loki
Please note: for state/municipal employees, participation in SS is not automatic; many states and municipalities are in SS, but by no means all of them. Is WI? Not sure.
So for a state employee that is NOT on SS, the state pension seems much larger than a “normal” job-pension because it has to cover BOTH the SS and the job-pension level of benefits.
Of course states don’t want to pony up defined benefits, but in fairness they should just join SS coverage, so that their retirees are not left totally destitute when the market tanks.
burnspbesq
@Big City Mary:
“The whole kit & kaboodle has been designed to eliminate any responsibility by corporations for retirement compensation”
No, not quite. There is no such “responsibility.” Read Title 1 of ERISA carefully. No private employer is required by any Federal or state statute to provide any retirement benefits of any kind (other than paying the employer’s share of Social Security). If they choose to do so, they become subject to a highly complex regulatory framework.
MikeB
@Nick: I have my sign ready:
“Keep your hands off my garanteed unoin pensin!!!”
Lawnguylander
Do I understand this correctly?
So the White House is fucking bankers and they think that if they give those bankers reach-arounds Jamie Dimon’s feelings won’t be hurt? What is he, sitting over in a chair, watching and crying? That’s not how I party but, ok.
hamletta
@Nick: I was wondering when someone would point that out.
Remember when Phil Gramm (ptui) called us “a nation of whiners”? Well, he was the one who led the charge for financial deregulation in the Senate.
Caz
If you’re so pissed about how they almost ruined the country, and pissed that their punishment consisted of, in part, bailouts, then why were you progressives so in favor of bailout after bailout of these evil-doers??
Wouldn’t it have been better to just let them go bankrupt? Wouldn’t that have been more appropriate punishment?
You can’t have it both ways.
Gustopher
Well, when the alternative is to have the pensions pillaged by Republicans, I can see the attraction to a 401k.
Then, take it all out when you retire, go to Vegas, put it on black, and you can either afford to retire, or just wander off into the desert and die of exposure.
bob h
On the other hand, the Obama Bull Market has been very good for 401k’s, as was the Clinton Bull Market. If we just let Democrats run the economy, the 401k retirement model might well be a good one.
Commenting at Balloon Juice since 1937
Why is there never a discussion of the effect of dumping many more billions into Wall Street will have? Isn’t this in itself a distortion of the market?