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Seniors at Risk in Wall Street Financed Attacks on Retirement Security
Tim Judson on October 7, 2011 - 12:05pm
As protests on Wall Street spread across the country, the dire need for progressive solutions to financial corruption and savage inequality is capturing national attention. One aspect of Wall Street’s agenda that has not been sharply criticized enough is emerging as a defining issue in the presidential campaigns of challengers to President Obama: dismantling Social Security and public pension systems. Texas Governor Rick Perry has grabbed the most headlines by absurdly characterizing Social Security as a “Ponzi scheme,” and calling it a “crumbling monument to the failure of the New Deal.” Other presidential candidates are also trying to stake out positions to privatize retirement funds, and state policymakers who are leading ideological attacks on workers have targeted pension funds in an effort to pit union and non-union workers against each other.
News from last week reveals that attacks on retirement funds are not just deceptive, but are actually a major front in the overall push to privatize public assets and dismantle government. Think Progress and Huffington Post both reported on how the US Postal Service’s financial woes were engineered intentionally by conservatives to cripple USPS financially and force privatization. At the same time, several sources reported that many conservative state lawmakers currently pointing the finger at workers are themselves among the worst abusers of state pensions.
In fact, the major charges laid against pension plans — and government workers in general — are either exaggerated or invalid. Public employees are actually paid less than their private sector counterparts when comparable experience and education levels are taken into account, including pensions and other benefits. Beyond the cost of personnel, pension funds actually cost state governments very little, since the costs of managing them are paid for out of the funds’ earnings and, in any case, are far lower than the fees charged by private sector fund managers. The much-touted problem of pension fund shortfalls was a short-term result of the stock market collapse, and by February 2011 many had already recovered.
Major finance companies like AIG, American Express, and Morgan Stanley have invested millions in the Cato Institute and other think tanks to undermine public faith in Social Security and pensions. Cato, Heritage, and others do so by using unrealistically low estimates of pension fund growth rates in order to paint problems that don’t exist. For instance, an Ohio think tank grossly exaggerated employment costs by using a 4% rate of return for pension fund growth, when in fact Ohio’s funds have grown at a rate more than double that (8.99%) over the last thirty years. It is particularly important to remember that the state budget crises that have fueled the fire of pension-cutting are the result of plummeting revenues, not states’ expenses.
There is a need to reform rules that encourage employees to pad their wages with overtime in their final years to inflate their pension benefits. However, these are problems with the rules governing how individuals’ pension benefits are determined, or with the absence of limits or controls on overtime. Even so, the vast majority of pensioners receive modest benefits, averaging around $24,000 per year. For some 30% of those retirees, that modest amount is the only source of retirement income because they were ineligible for Social Security.
Not only are claims of widespread fraud and abuse generally based on individual examples that are rare rather than the norm; the worst abuses are typically committed by management — or high-level officials — including conservative policymakers themselves. For instance, of the seventy Ohio House and Senate officials who voted for legislation this year to strip public servants of collective bargaining rights, nearly all awarded themselves part-time salaries almost double what most of the state’s nurses, teachers, and firefighters take home for full-time work. Twelve of those legislators are also “double-dippers,” collecting a state pension in addition to their legislative salary, including House Speaker Bill Batchelder who receives a $100,000 pension on top of his $94,500 salary.
Progressives need not search long for the motivations behind the pension privatization agenda. Private sector workers have increasingly been pushed into 401(k) accounts as their sole form of retirement benefits, and while the result has been disastrous for account-holders it has been highly profitable for fund managers. The United Kingdom’s experience with pension privatization in the last decade has been nearly identical. Lack of transparency and more speculative investing lead to stark inequalities for retirees, and excessive management fees can amount to $70,000 or more in net deductions from each individual’s account.
The prospect of similar profits to be reaped on hundreds of millions of new accounts if Social Security and state pensions are privatized is simply irresistible for Wall Street. With the very possibility of retirement security at stake — and conservatives’ hypocrisy in demanding concessions from workers they are not willing to make themselves — progressive leaders don’t simply have a responsibility to protect Social Security and state employees’ pensions. They have strong ground to stand on in pushing back on Wall Street, and a lot of friends rising up to join them.
Full Resources from this Article
Center for Economic and Policy Research – A Voluntary Default Savings Plan: An Effective Supplement to Social Security
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