Monday, June 24, 2013

Pensions and 401(k)s ... Illusory Government Security vs. Private Sector Opportunity ... Pogo Had It Right

Security or opportunity. Which will it be?

And what if the security we prefer is illusory and not permanent or real?

Because when I was young, GM was the essence of security. And IBM and Sears were close behind as places with secure jobs.

As I grew older, things changed. Teaching and government work became the secure places to work. Or so we thought.

Alas, there is only uncertainty and opportunity in a free self governing society. The taxpayers, customers and citizens rule. Not our elected representatives.

That's because it's our money they're spending, and it's our opportunity they're squandering by "protecting" us from the big bad world of opportunity. We've taken the idea of a safety net to an extreme illusion. The more we demand from government, the less able that government is to meet our demands. As Pogo says, "We have met the enemy and he is us."

The security government provides, other than militarily, is a false security. And in fact, even the security provided by the military is provided by that portion of We the People who serve the rest of us in our military.

So what's the point as the stock market crumbles this month, even though it's still up double digits in percentage terms for the year? Just how secure are we? Only as secure as the opportunities we choose to seize, I would submit.

In a free self governing society, we make our own security by availing ourselves of the countless opportunities we have. That means plenty of uncertainty surrounds us, of course, but that's life. And who would choose to have it any other way?


Now let's look briefly at the changing nature of retirement plans in the auto and government sectors.

The private sector is converting to 401(k) plans.

Meanwhile, both private sector unions and public sector unions are clinging to pension plans.

It's just the difference between market competition requiring lower costs, higher productivity and good customer service  and government monopoly allowing high costs, low productivity and poor customer service.

In the market place the customers rule, and in the government sector the politicians and the public sector unions rule.

In the market based competition, taxpayers win and in the government monopolistic situation, taxpayers lose.

Chrysler to Freeze Pension Plan has the private sector story:

"Chrysler Group LLC will freeze its U.S. pension plan for about 8,000 salaried workers, transferring those employees to a defined contribution plan starting in 2014 . . . .
Chrysler Group will freeze its U.S. pension plan for about 8,000 salaried workers.

The move affects only current salaried workers, not those who have already retired or who are hourly employees. Chrysler hasn't offered pensions to new white-collar hires for about a decade. These 8,000 workers will be able to keep pension benefits earned up until the end of the year, the company said.

The company also lowered the age in which retirement-eligible workers can start collecting pension benefits to 58 years from 62, as long as they retire on or after Jan. 1, 2014.

Chrysler, which is majority-owned by Italy's Fiat said the pension freeze will have minimal impact on finances, and the company is making the change to better comply with Internal Revenue Service regulations.

"We recognize the importance employees place on retirement benefits," said Nancy Rae, Chrysler's senior vice president for Human Resources. "As we move forward, Chrysler Group will provide comprehensive tools and resources to help employees make decisions about their retirement readiness.". . .

At GM, 26,000 salaried workers were moved last year to a 401(k)-type plan where contributions would be based on salary and bonuses. Defined contribution plans, such as 401(k)s have become more prevalent in recent years as companies seek to limit exposure to the hefty costs associated with having a large retired workforce. . . .

Ford closed its pension plans to new salaried workers in 2004, but hasn't frozen plans for those hired before that date."


While all this is happening, both the city of Detroit and state of Illinois public sector unions and their political allies are fighting any legitimate solution to their retirement funding woes, including a switch to 401(k) plans. They want to stick the city's and state's bondholders and taxpayers with the bill.

In Illinois, the Dems and the unions claim that it would be unconstitutional for taxpayers not to pay the promised benefits in full. What they fail to acknowledge is that taxpayers can vote to change the constitution through a referendum or amendment procedure. Hence, since the politicians are weenies, why not put it to a vote of We the People?

The question is a simple one with profound consequences. Would taxpayers prefer to double or triple taxes paid so public employees can retire at age 50 or so with full benefits, or would they prefer to change the rules of the game by, if necessary, amending the state's constitution?

Maybe that's the way to get vouchers, school choice and some semblance of overall fiscal responsibility on the agenda in Illinois as well.

And while we're at it, let's do something similar in Detroit, too. Let We the People decide instead of the government knows best elitist politicians and the public sector union leadership.

Then if We the People elect to go broke in the process of supporting government workers with benefits that We the People don't have, so be it. But if not, let's get on with fixing what's wrong in government and the public sector. Too much spending, too little accountability and inferior quality public services, all at the same time.

Productivity and opportunity go together, as do low costs and high quality. Uncertainty and opportunity, too.

The false security of the blank check government safety net is merely an illusion.

Summing Up

Companies, both new and old, that can effectively compete will and do survive and thrive.

Cities and states that don't get their financial house in order will lose their taxpayer base over time. We the People will vote with our feet and move on down the road.

Quickly or slowly, the result will be the same.

If something is unaffordable, unfair, irrelevant and inflexible, it has no permanency. It's just that simple.

And this basic rule of existence applies to governments as well as to all other organizations.

Thanks. Bob.

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