According to new research from the Kellogg School of Management, taxpayers, public workers and state and federal officials alike have cause for serious concern about an issue that often falls under the radar but poses serious risk to the future health of the national economy: state pension liabilities (http://thebusinessledger.com/main.asp?FromHome=1&TypeID=1&ArticleID=100&SectionID=4&SubSectionID=29).
On May 19th, 2010 data was presented in Washington, DC, at a corporate conference called “New Retirement Realities: Pensions at a Crossroads“. The data suggests that several state pension funds will not even last the decade. The proffered research found that the pension liabilities will place enormous pressure on the federal government to bail out financially insolvent public pensions in an amount that either matches or exceeds the recent bailout or ‘rescue plan’ of the U.S. financial monopoly capitalist system.
In his presentation, Joshua Rauh, associate professor of finance of the Kellogg School of Management at Northwestern University, predicts that without basic reform to the current public pension system, even if the pensions exceed a ‘predicted’ annual rate of return of 8 percent (an unrealistic and ridiculous fantasy return in the current economic depression) many large state pension funds will still fall short of revenue for retirees and the disabled. Rauh warned the group’s meeting that promised benefit payments would be so substantial that raising state taxes to make the payments would be infeasible give the current economic meltdown, offering no other choice than to call on the federal government to bail out the failing states. He means bail out the failing states that were pillaged by Wall Street, thus socializing the costs of pirating and privatizing the profits.
According to Rauh:
“Given that we see the same issue in many states, the total size of a federal rescue plan could exceed the seriousness of the recent economic crisis and potentially cost more than $1 trillion total. Plus, this scenario could happen sooner if taxpayers flee to other states with lower taxes and higher services, if contributions are deferred or not made, or if returns are lower than expected” (ibid).
Take for example the state of Illinois, Barrack Obama’s old hunting ground. If the state’s three main pension funds earn 8 percent returns and the state makes contributions accordingly, the funds will still run out of money in 2018. In the following years, benefit payments owed to existing state workers would be an estimated $14 billion - more than half of the revenue Illinois is projected to receive in 2010 - and states are under legal obligation to make these payments.
Illinois is not alone. Pension funds in other troubled states could dry up by the end of 2020: Louisiana, New Jersey, Connecticut, Indiana, Oklahoma, and Hawaii. And, by 2030, as many as 31 states could be affected (ibid).
Why? Simple: the assault on the public sphere through privatization schemes, contracting out (assuring less public workers and thus contributions to the funds), lowering the standard of living for public workers, and using the pension funds themselves in a ‘casino’ economy hog tied to Wall Street has left the future pension funds doubtful.
Rauh outlined a plan to help staunch the pension fund bleeding but it is really more of the same financialization economics that got us into the mess in the first place. The plan involves borrowing and then more borrowing. It notes that fundamental state reform is essential and Rauh underscores the urgent need for a federal program that offers incentives to stop the growth of unfunded liabilities. His recommendation is that states be allowed to issue tax-subsidized pension funding bonds for the next 15 years if they agree to a specific program of major pension reforms.
However the plan comes with a catch: to get the subsidy, states must agree to close defined benefit (DB) plans to the approximately one million new workers who take state jobs every year and instead offer the new hires a defined contribution plan (DC) similar to the federal Thrift Savings Program or IRA, as well as eventual guaranteed access to Social Security.
In other words, the plan involves the destruction of good paying deferred pension that come with benefit plans, thereby throwing workers into the scrap heap of the stocks and bond wolves who created the deficits and broke the pensions through thirty years of Reaganomics that ushered in tax breaks for the rich, deregulation for major corporations, phony financial instruments such as 401K’s tied to mutual funds and the stock market, the destruction or elimination of public sector jobs and Wall Street extortion through ‘collective’ bargaining, where public workers accede to capital’s demands in the form of lower wages, less benefits, no raises and few promotions.
From Rauh’s perspective:
“Right now only a quarter of all public workers contribute to Social Security,” while the cost for the Pension Security Bonds over 15 years would be about $250 billion, under this plan the Social Security system would see a net gain of over $175 billion. All told, the cost to the federal government for such a program would be around $75 billion, far less than the minimum $1 trillion it could risk if the state pension fund system is left in disrepair” (ibid).
The ruling class and Wall Street interests that have worked for years to destroy public union pension funds are giddy over the idea. First of all the money to be made by issuing the bonds, is enormous. Second of all, the pension fund homicide is what the capitalist class has been breathing heavy for. They do not want workers to have access to public pension funds that can and are used to protect workers. They have sought to destroy the public sector and they have succeeded.
The capitalist class says that the Rauh’s ‘borrowing’ solution for the tens of millions of police officers, firefighters, teachers along with other public service and state employees that will enter the workforce over the next decade makes sense, for they say it maintains security for those already locked into the pension fund systems while at the same time beginning the process of ‘shutting them down for future workers thus nailing the coffin shut on good paying public service jobs.
The plan would also force working people to fund their own pensions through the 401K plans that invite them to enter into the stock or bond markets in hopes of achieving returns that would not force them back to work during their elderly years. That is certainly good news for Wall Street if it was to come to fruition for it would make available more investment capital for future casino economics.
One only has to see the tremendous loss suffered by 401K pension funds held by working people to see the destructive solution Rauh is offering for workers and the tremendous opportunities he is offering for capitalists, including Wall Street stock and bond issuers and hedge fund operators.
Retiring at Walmart or Home Depot
Many seniors today are finding that they not only do not have enough to retire after decades of public service and promises of secure retirements, but they are now being told that they can expect even lower standards of living — for they will now be forced to save and match their own monies (if they have any), in face of loss of expenditures, jobs and the current inability to make ends meet. Offering Social Security in place of what were once thought of as bona-fide guaranteed retirement plans for the public sector is like offering homeless shelters to those facing foreclosure. Social Security simply does not and cannot replace public union pensions nor was the program designed for this purpose. It was to be an entitlement program for senior citizens, not a replacement reserve for state pension funds.
The toxic assets sold within the last ten years to public pension fund managers have left the funds hollowed out and broke. Wall Street’s solution is to borrow more money and cut working class incomes and benefits as they scramble for a way to undo the damage of the system we know as financial monopoly capitalism, that has rained on US citizens.
The pension funds were funded by worker collective bargaining agreements and the represent public worker’s pay raises sacrificed to fund secure retirement. Thus, the public pensions are publicly funded by workers through bargaining agreements that have asked them for years to take less in wages and increased benefits for a promise of more security later, when they are older in life.
Rauh’s Wall Street solution involving debt and bond issuance is an attempt to capitalize on the disaster economics wrought by Wall Street theft and corruption and adds another chapter to the bilking of the working class by greedy capitalists.
Using fear and the neo-liberal model of economics while warning of a massive tax-payer financed public bailout, Rauh argued:
“Existing pensions would become more secure and new workers would get more than an empty promise, while the country would avoid another massive taxpayer-financed bailout. It is imperative that we act today to give states the incentives they need to put themselves back on a path to fiscal sustainability” (ibid).
More than an empty promise? Capitalism itself is an empty promise and Rauh’s plan is simply another cover-up and admission that the United States is bankrupt. Soon, Rauh and his cohorts will advance the same thing or something equally insidious for Social Security, arguing that we cannot pay for it and that it faces a massive need for simulative funds due to red ink.
Meanwhile, as unemployment mounts and public workers lose their jobs in droves, the existing and newly entering public workers will see their standard of living fall and perhaps they will find themselves eventually working at Home Depot or Walmart as their Golden Years become ‘golden’ for the corporate health providers and the Wall Street silk stocking thugs.
Destroying public pensions has been the penchant of the ruling capitalist class for decades now and the theft of trillions by Wall Street through the sale of toxic derivatives and hedge funds to the public pensions will now be shifted as costs to the working class through massive borrowing and falling economic expectations or in some cases, an entire life’s work.
Isn’t it time we demanded that the ruling class pay back the money they stole from working people all over the globe and bolster our public sector? Or will we continually see slash and burn disaster economics offered up as a way out of a systemic crisis caused by the corporate financialization of a capitalist economy that is broken, unable to produce jobs, goods or services that people can afford?
If the answer is the latter, than we can look forward to more busts and broken public systems as the rapacious institutional madness of capitalism creates debt peonage for the working class and excessive profits for the ‘rentier’, or new ruling class elite that has so far gotten away with the largest theft in the history of the world. It is time that all public servants unite in opposition to this cooked up Wall Street ruse, from teachers, police, to firefighters and public school teachers, and demand the return of stolen pension funds. Until the working class begins to organize in and for its own interest, we will see further cannibalization of hard earned money and the eventual collapse of the American economy.
State pension funds headed for crisis of national proportion
Kellogg School of Management professor predicts financial disaster, more bailouts if state pension programs not addressed; proposes solution. May 19, 2010 (http://thebusinessledger.com/main.asp?FromHome=1&TypeID=1&ArticleID=100&SectionID=4&SubSectionID=29)