Pensions: TheFive Trillion Dollar Scandal

...Although pension-hiking no longer goes on with happy abandon in New York City, it is still in use in more solvent jurisdictions...

...Increased wages immediately show up on balance sheets...

...even the sizable annual payments they are now making are not keeping up with past promises...

...Some companies (Western Electric, Coca Cola, Proctor and Gamble, and Xerox are examples) have always been careful about pensions and now have fully funded pension systems...

...Military personnel also don’t have to make any contributions to a pension fund, as other government workers do...

...While requirements and benefits vary widely from plan to plan, comparison of government pensions with private plans shows that the government ones are much more generous...

...As everyone knows, there have been drastic population changes in America since World War 11...

...Only five per cent of private workers can retire with benefits before age 65, while all federal workers have that option...

...They also remain eligible for free medical and dental care for themselves and (at nominal fees) for their dependents...

...Retired people’s only income that is subject to federal taxes is money from private pension plans or investments...

...But recurring recession and inflation have made this a difficult proposition...

...In 1976, the last year for which we have figures, the federal government devoted roughly $100 billion of its budget of $360 billion to retirees...

...The total unfunded liability for social security, military, and federal, state, and local employee pensions is about $5 trillion...

...According to the November issue of Fortune, “Ten of the top 100 corporations on the Fortune 500 have unfunded pension liabilities equal to a third or more of their net worth, and total uncovered benefits for all corporations exceed $50 billion...

...Raising the retirement age for federal employees would be especially helpful...

...Ending pension eligibility before age 65 for civil servants and military personnel (save those in highstress jobs, like combat troops, who deserve to retire early) would save billions of dollars that are now going to people who could easily be working...

...There are now 31 retirees for each 100 workers...

...The benefits are largely paid out of each year’s general revenues, although m&t government employees do make annual contributions to pension funds...

...Almost simultaneously with politi- To Some Funded But at least all private pension plans are to some degree funded...

...Military personnel can retire after 20 years, even if they are only in their late 30s or early 40s...

...However, until the recent social security bill was signed, there was no rule against a government retiree collecting social security benefits earned either before, after, or during government service, or benefits due a spouse...

...The argument for giving especially generous pensions to federal workers is that they are not covered by social security...

...in 2030 there will be 52 for each 100...

...So, even if the young workers of 2030 do balk under the yoke of the old, there may be nothing they can do by democratic means to change the situation...

...In other words, all the money that comes into the system in a given year is paid out that year...

...cians, corporate executives, realizing that shareholders have the same low boredom threshhold as taxpayers, began to use pensions to buy labor peace...

...Congress passed two laws in 1977 that could make people think in terms of a later retirement age...

...The conventional answer to the social security mess is to cut back both taxes and benefits, which would stimulate the economy and make social security a financial ‘cushion” for old people, rather than a living stipend...

...Unanticipated Burdens Of course, anything is possible...

...Les Aspin of Wisconsin, who holds a doctorate in economics and is presumably able to understand the logarithmic language of pension experts, has -become the most vocal critic of government pensions...

...We think of old age as a time of desperate financial struggle, and so see it as in our interest to keep pensions outrageously high...

...You do not have to be a mathematician to see that social security taxes will have to rise steeply over the next 50 years...

...If he is married he will receive $7,700 in tax-free social security benefits, so he only needs another $7,986 annually from a private pension plan or investment fund, and this does not take into account any reduced expenses except taxes...

...So, as last month’s Washington Monthly pointed out, the widely held view that social security taxes are actually savings put away in a safe place is far from accurate...

...That’s not $5 billion, but $5 trillion...

...These figures caused Senator Thomas Eagleton to say that the new question facing the military is “guns or pensions...

...military enlisted men, 59 per cent...

...Early retirees from the government routinely end up getting bundreds of thousands-sometimes even more than a million- of the taxpayers’ dollars during the course of their retirement, even if they continue to work for private businesses for much of that time...

...Others propose raising social security taxes so high that the system can be genuinely funded, so that workers get out of it on retirement the actual money they paid in...

...those babies are now 16 to 3 1 years old...

...The portion of the Pentagon’s budget that goes to pensions is rising at an alarming rate...

...Of course, people no longer have to pay social security taxes, and their benefits from social security are not taxed...

...This means that unless the birth rate rises substantially, in the year 2030, when the last of the post-war babies retires, 37.5 per cent of the adult population will be retired...

...At current rates, it’s a debt equal to the total national budget for the next 20 years...

...Kreps’ personal opinion and in no way reflected the administration’s thinking on the matter...

...Will the workers of 2030 carry their burden without complaining...

...This means that their pensions are reduced under a formula that takes into account the social security payments they will receive, so that their total retirement income equals an agreed-upon percentage of their final pay...

...He calls government employees “a privileged elite among our retirees...

...This boredom is largely responsible for the chaotic state of pensions in this country today...

...The expenses of commuting to work disappear...

...And corporate pension costs are rising rapidly...

...The Coming Crisis That’s scary in itself, and it’s made even more so by what pension experts call the “coming demographic crisis...

...Also, elderly voters are highly mobilized politically, and there is no reason to expect they will be any less so in the future...

...That’s money that could be spent to hire the unemployed and heal the sick and feed the hungry- or, if you prefer, to build a stronger national defense or help parents with the crushing costs of higher education or give new businesses a boost and thereby create jobs...

...It’s easy to understand why Judge Frank Johnson was reluctant to give up his pension for an uncertain future as FBI director...

...they increased 20 per cent last year...

...Although only one in ten Americans is over 65, that group spends one of every five dollars in the supermarket...

...military officers, 62 per cent...

...and they may continue to use government-subsidized commissaries, which sell food at 20 per cent below supermarket prices...

...The Associated Press recently conducted a study of corporate pensions and found that many large corporations are paying into their employee pension funds each year more than they are earning in profits...

...If city workers are restless, there’s an election drawing near, and the municipal treasbry is empty, there’s a simple way outraise the workers’ pensions, and let the next administration, Or the next, worry about how to pay for them...

...can be raised with almost no notice by the general public...

...Most people don’t know how bad things are likely to get, but even now they put up with a lot without com40 plaining much...

...In addition, the old stories about the elderly living on “fixed incomes” are no longer true, since social security payments have been tied to the cost of living for over five years...

...In other words, a shrinking band of workers will be supporting the rest of the population...

...The Gray Panthers, in trying to pressure the television networks to present a more realistic view of the elderly, pointed out that retirees spend proportionally more than workers on many of the products advertised on television...

...The 1974 law requires corporations to make sure that their pension funds will be fully funded in 30 years...

...That would be a step of extreme political difficulty, but it would bring the amount of money flowing into (and out of) the social security system down to a sane level...

...Military personnel are fully covered by social security, so after age 65 they all receive at least two pension checks-often three, in fact, since many retire in their early 40s and go on to other careers...

...Looking at all these unfunded government pensions together is a sobering experience...

...but increased pensions, thanks to “creative” accounting, don’t...

...If they do become restive and try to force cutbacks in social security benefits and government pensions, their mission will be a difficult one--while worker-voters will still outnumber retireevoters, the median age will be 50, and workers over 50 can be expected to side with the retirees, giving them a clear edge at the polls...

...Liberals and conservatives can disagree over which of these needs is the most pressing, but they’re all obviously more important than providing generous retirement allowances to millions of people who are still healthy, still vital, and still capable of making a contribution to our society...

...Then there was the drastic drop in the birth rate to its current level of 1.8 babies per woman, not even enough to replace us all...

...and federal judges, 100 per cent...

...Pension funds for the military and federal, state, and local employees are also unfunded...

...More Than Workers A man earning $20,000 who turned 65 in 1976 needs only $15,686 in retirement benefits to have the same spending power after taxes...

...Politicians in New York City finally drew public attention to this practice when they over-used it enough to push the city to the edge of bankruptcy...

...The most prosperous one-year bracket in per capita income is Americans between 55 and 64, and those over 65 are only five per cent below the national norm...

...And as the pension costs of private businesses go up, prices are bound to increase as well...

...A larger percentage of those over 65 votes than of any other age group, as every politician knows well...

...Then, at retirement, expenses rapidly fall away...

...Also, the new social security law contains incentives for later retirement-benefits increase if one waits until 68 or 70 to retire...

...When Secretary of Commerce Juanita Kreps last year said publicly what everyone in Washington was thinking-that the retirement age should be raised-the White House announced coldly that this was Ms...

...Even Ronald Reagan, who takes a back seat to no one in advocating a strong military, has said that some way must be found to cut Pentagon pension expenditures...

...A birth rate of 2.1 is considered the rate necessary to maintain a stable population, or zero growth...

...Income taxes will increase too, to keep up with the spiraling benefits paid to retired government workers and retired military personnel...

...Social security is really a payment from the workers to the retired, not the individual lay-away plan it pretends to be-so why not make these payments only to those who need them, in the amounts they need...

...There is another less drastic move that could lessen somewhat the burden of pensions on the working population: gradually raising the retirement age from 65 to 68 or even 70, thereby saving billions in social security and other pension payments...

...For instance, Uniroyal’s 1976 pension contribution was $79.4 million and its profits were only $20.1 million...

...But a look at the finances of retirement shows that old age is a far more comfortable time financially than is commonly thought...

...Under the 1974 federal pension act, corporations must make an all-out effort to see that their pension systems are adequately fundedthat is, they must try to keep on hand enough funds to cover all current pension obligations, taking into account variables ljke life expectancies and changes in the number of company employees...

...Or will they turn against the elderly...

...they can retire much earlier at a higher percentage of their final pay...

...Many cities and counties also give breaks on property taxes for the retired...

...congressmen and their employees, 75 per cent...

...On the other hand, there is every likelihood that further advances in medical science will extend life expectancies and increase the size of our retired population...

...One reason why is that most of us think we’ll need high pensions ourselves one day...

...we could even have another baby boom for some reason...

...But most large corporations have been far less prudent...

...The World of 2030 Pension experts have advanced many schemes for avoiding the world of 2030...

...Integrated Plans Because all workers in private business are covered by social security, two thirds of their plans are “integrated” with the social security system...

...While 65year-olds are generally more youthful and vigorous today than when that cut-off age was chosen, there has been a steady trend toward retirement at 62, which has put an additional burden on our pension system...

...Politicians were the first to recognize that because the subject is so arcane and inherently dull and because pensions involve future costs that do not show up in current tax bills, both government pensions and social security benefits Marjorie Boyd is a Virginia writer...

...The recent hefty increase in social security taxes should make the public more aware that the taxes we are paying now are supporting today’s retirees, while our own social security checks will, we hope, be paid for by future workers...

...The new law will put a stop to some of this, but it won’t take effect for five years and does not cover those already retired...

...Property taxes and state income taxes will also rise sharply to cover retirement benefits for the increased number of retirees from state and local governments...

...But solutions like these have an essential illogic: what good is a governmentfunded “cushion” to people who are either well provided for in retirement, or not provided for at all...

...But politicians are still tiptoeing around the question, since polls have shown mixed findings on late retirement...

...It is true that there are still many widows and other retirees who live entirely on social security benefits and find each day of retirement a financial struggle, but it is also true that as a group the elderly are not poor...

...The federal income tax code gives a special deduction for those over 65, as do state income tax laws...

...There is also a lessening of the normal financial load in the late fifties and early sixties, as children grow up and mortgages are paid off...

...Medicare steps in to take over the burden of medical expenses...

...A cure for cancer, for example, would place a gigantic unanticipated burden on our already shaky system of pensions and cause the world of 2030 to arrive that much sooner...

...They can even travel free on military aircraft when space is available...

...First, there was the prohibition of mandatory retirement at 65 in certain jobs...

...The raising of pension benefits to buy political good will (especially that of public employees) has ljecome widespread during the past 20 years...

...In 1977 military pensions cost $8.4 billion, and in the year 2000 it is estimated they will cost $34 billion...

...Right now these people are getting far more than their share of the government’s money...

...A 1972 Civil Service Commission survey showed that 58 per cent of all retired government employees over 65 were also receiving social security payments...

...That can’t be said of pension plans run by the government...

...While we’re all greatly interested in the size of our own monthly retirement checks, a general analysis of the subject invariably produces glazed eyes...

...The extent to which business has gone pension-happy is only beginning to be known...

...First there was the “baby boom...

...Private pensions pay an average of 40 per cent of final pay, but federal workers receive 56 per cent...

...But that is at least a remote possibility...