U.S. retirement plans are able to meet 74 percent of their future obligations, down from 89 percent five months ago, after global stocks fell and contributions were delayed, according to Mercer’s Financial Strategy Group, a Marsh & McLennan Cos. unit. DuPont Co., Caterpillar Inc. and Lockheed Martin Corp. are among the companies that say they expect higher pension costs in 2009.The piece goes on and on like that. My simple question:
If the free market is always always always better than the horrible awful bloodsucking gummint, then why is Social Security relatively healthy compared to the private retirement plans?
Part of the answer, I suppose, concerns illegal immigration. A lot of people pay into the Social Security system who will never take a dime from it. But that hardly explains everything, does it?
4 comments:
A lot of SS beneficiaries die. It's a fragile cohort. The Grim Reaper is on old people like a wet suit. Until the 1990's, life-expectancy was maybe mid-70s for the SS cohort. Private annuities and pensions you can start drawing down when you have 10-20 years or more to keep drawing, they need more outflow, they're riskier. If everyone lives forever, life itself is a Ponzi scheme?
Corporate pensions are defined benefit programs, and have to be pre-funded so that annuities can be bought for the people who retire.
Social Security, on the other hand, is an insurance program, where benefits were at first paid out of current revenues. But baby boomers and we pre-boomers have been making extra contributions since 1983, in anticipation of our retirement.
So we not only paid for our parents' retirement, we paid for our own. George Bush then gave our overpayments to arms manufacturers and Bill Gates. All we got in return were some IOUs from the Treasury, which Bush tried to convince us were worthless.
As baby boomers retire, right wingers will try to convince us that too bad, so sad, the money's all gone, so just hop on that ice floe over there, you old geezer.
Carolyn Kay
MakeThemAccountable.com
I'm with you philosophically on this one, as I believe plenty of government programs work better than their private sector counterparts.
One problem with private pensions is that the big money corporations got the government to help them change the rules, so that the companies were allowed to take (maybe 'borrow out' but I think, flat-out TAKE) what were called OVER-FUNDINGS of their obligations. Now, as asset values drop, we find out there probably were no overfunded obligations to afford that taking.
However, it is ironic to note that the prior analysis of Social Security shortfalls (meaning from the '90s), using the probably wrong 'low growth' analysis, showed about the SAME NUMBER as this private pension number.
To wit, assuming that the gdp growth was as low as the low growth analytical option (below 2.1% average gdp growth), the shortfall of revenues to payouts provided about a 75% payment (at the then-achieved cpi-adjusted monthly figure) to SS recipients.
Must be a new magic figure or something, to show up in both places?
XI
I think, but am not certain, that companies are prohibited by the IRS from "overstuffing" their pension plans, which is viewed as a form of tax avoidance, because it's a business expense which reduces profits and thus is tax deductible. So when pensions are flush, firms are not allowed to contribute. This is highly pro-cyclical, though as the times when they're flush are usually in economic booms, when credit losses on bonds are low and stocks are highly valued. Then a recession starts, stocks and bonds collapse in value, and companies have to contribute to their pensions putting a greater drag on earnings, leading to further credit losses and stock declines.
Also, unlike the government, stakeholders don't have the authority to jail corporate executives for not contributing to a firm's pension plan, whereas the same can't be said of Treasury if people don't contribute to SS.
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