Do Away With Federal Pensions ?
Well this ought to be a bit of a “fire starter” to begin the year 2012 with … but hey,for those of you still stuck in the cold (I live in the Philippines where it’s always warm and low-cost too), a little winter warmth is appreciated with today’s high utility costs, eh?
Do Away With Federal Pensions — The Why
By JOHN O. KING
- More than 27 years ago, the government realized the Civil Service Retirement System, a defined-benefit plan (and my pension), was economically unsustainable and moved to a modified defined-contribution plan, the Federal Employees Retirement System.
- A recent report noted that FERS is financially sound, for now, but that CSRS was underfunded by $663 billion. Not too surprisingly, employee contributions of 7 percent, by themselves, could never finance the standard “work 30 years, collect 50 percent” government employee payout model.
- To liquidate that liability, the government must amortize about $30 billion a year for the next 30 years. After that, the federal pension system should be on sound footing. Compounding the overall problem, retiree health care is just as costly and just as broken.
The failure of the Joint Select Committee on Deficit Reduction to reach a deal triggers $1.2 trillion in automatic cuts from the federal budget beginning in January 2013. Many see federal employees as a major cost driver contributing to the annual deficit and accumulated national debt. Various alternatives have been proposed to replace the existing federal pension plan, including the most popular alternative, the standard private-sector 401(k) style plan…..
Do Away With Federal Pensions — It’s Worse Than You Think
You see, it’s easy to say, Hell NO to ideas like doing away with Federal pensions. The program has gone on for more than 100 years, even I, your trusty scribe, am a happy beneficiary.
But the real question is not what is fair, what has been legal precedent for years, what we want our children to be able to depend upon and all those other easy to get behind reason.
The real question is, if we want to continue things the way they are, are we even able to?
Do Away With Federal Pensions ? — Are We Even Able To Keep Them?
… To resolve this situation, a basic assumption must be questioned: Is there an inherent right for federal employees to expect a retirement pension that will support them for the rest of their lives? The current (bad) business model is not just economically unsustainable, it is hobbling the nation. Many private firms — from steel companies to automakers to electronics and telecommunications firms — have gone bankrupt using this model. (ed note. Don’t forget almost all major airlines. In some cases employees have lost ALL retirement benefits!)
Federal pensions should be more like 401(k) style plans where the beneficiary could invest contributions in something that would keep, if not add to, its value. Such plans would at least be honest in what they represent.
Somehow the fundamental value that we are responsible for our own well-being morphed to one where the government was expected to provide the full range of retirement benefits, whether through a direct pension plan or Social Security. This is part of a continuing deterioration in our social and moral values.
It began with the breakdown of the core family, reached to the extended family, and finally to community support systems, including church and local government. Look at CSRS, FERS, Social Security, Medicare, Medicaid, housing assistance — whether direct payments or indirect tax deductions — and tell me we haven’t become a true socialist, welfare state — an “entitlement nation.” And this includes the military.
This must be fixed. Part of any good 401(k) plan should be funding options for employees, including differing contribution rates — such as 2 percent, 5 percent, 10 percent and so on — without limitation. While there is no legal or moral requirement for a federal contribution — employers use contributions to compete for employees in the marketplace — the government could contribute to some extent, such as matching up to 5 percent.
The proceeds may or may not meet a pensioner’s financial needs, but this is not the government’s responsibility. Financing federal retirements, including the military, should be a personal responsibility. If a larger pension is needed or wanted, work longer, either in the private sector or by remaining with government. This should be a personal decision. …
Do Away With Federal Pensions ? Can We Live Well Without Them?
A very salient point here. I have always been very much against the contribution caps on 401K and other like plans. Defeats the purpose of the plan in my view. If 401K’s and other such investment plans are such a good thing (and I believe they are, myself), then why on earth would the government impose contribution caps?
I guess the real reason is, that if the caps were removed there would be a whole new class of retirees out there … one’s who weren’t “born into” money but who were now empowered and didn’t have to stand in line to take whatever government handouts are offered.
Hmm, that’s kind of the theme of this website, isn’t it? Empower your retirement and don’t live in fear of the generosityy (or stinginess) of those in government whose main object in life is to buy your vote and hold you down in the process.
All my readers may not know this, but I am already earning significantly more …double most months .. with my independent online efforts than the pittance that Social Security provides, and my next gal is to replace all the income from my (generous) CSRS annuity. It can be done, folks, really.
… If, on the other hand, the federal government wants to keeps its hands in retirement planning, then it should also look at other, nontraditional funding options that restrain overall personnel costs within a lower total federal budget. For example, it can reset starting wages at a lower amount for new employees, similar to what is already happening in the private sector (think airlines and two-tier wage scales). Or augment employee pensions by reinvigorating the beneficial suggestion program, where 1 percent of first-year savings could be added as a tax-free contribution.
…Taxpayers deserve more than just defensive posturing by civil servants and their supporters. What’s needed is recognition that the current business model is broken and that something based on accepting more personal responsibility should replace it.
It’s time we stop passing our pension and health care liabilities to our kids and grandkids (my emphasis) and take some personal responsibility for our profligate spending habits. Times have changed, and we need to go back to basics.
John O. King is a retired Pentagon budget analyst.
Well said, John. You know at the level John worked he is much more knowledgeable that the typical “man on the street”, even if the “street” the “man” is on happens to be Wall Street.
The way I see it, we can have a lot of fun being kids again, “Occupying Wall Street”, we can promote idiotic ideological idiocy like the “Tea Party”, we can blame everything on the series of self-serving schmucks like Dubya (or “Shrub” as the dearly departed Mollie liked to call him), the Obama, and then the next and later the next hapless fool who will occupy the White House … or
We can take the bull by the horns and empower ourselves. I know which route I am taking (and plan to continue following). How about you?
What are your thoughts on the idea that we Do Away With Federal Pensions ?