Guaranteed Pensions For All Americans?

The L.A. Times published a provocative op-ed comment, Guaranteed pensions for all Americans:

We need to restore the foundation of the middle class, argues Dave Low, chairman of Californians for Retirement Security, a coalition of more than 1.5 million Californians representing public employees and retirees. In a recent Op-Ed about pensions for California workers, Low wrote:

With a new UC Berkeley study showing that half of Californians will retire at or near poverty levels, it is crucial that we work together for retirement security for everyone — in the public and private sector alike.

In response, readers on our discussion board complained to Low about already being taxed out. Here’s Low’s reply to them.

No one has a greater interest in seeing that CalPERS and the state’s other public pension funds are stable and adequately funded than public workers. We are counting on it, in fact, as part of the promise of a secure retirement made to us and our families. We also are taxpayers who want to see California’s private and public finances flourish. And we continue to actively engage in negotiations that already have significantly reduced state and local pension costs.

Understandably, taxpayers are weary after years of budget shortfalls and bitter political battles over their money.

But public servants are the wrong target.

Public employee unions are the ones making concessions and addressing pension abuses, especially those where top managers are receiving $100,000 pensions and padding them with perks that 99% of public employees will never receive. We also support curbs on spiking, including a shift to a three-year average of final compensation that has been put in place for new workers, as well as an end to double dipping.

There is a matter on which we stand on principle: The bargaining table is the fairest and best place for employers and employees to work out wage and benefit issues, including pensions.

Indeed, the generally modest pension benefits of public sector workers look better because private sector pensions have been hacked to death in recent years by the same Wall Street bankers and corporate interests who want to dismantle retirement security for all but the richest Americans.

It is unfortunate that some people would prefer to drag others down, rather than work toward adequate pensions for all American workers. This attitude plays into the hands of the same Wall Street bankers who got us into this fiscal mess. First, they broke the system and created the mortgage crisis, then they got bailed out by taxpayers, now they are back to their old tricks and taking huge, million-dollar bonuses.

According to the Legislative Analyst’s Office, pension costs are among the smallest and slowest growing costs in all of state government. Pensions make up less than 3% of the total budget. Corporate tax loopholes amount to tens of billions from the state budget. Even as the state budget has been cut, new corporate tax loopholes have been passed that will take over $1 billion per year from public education and other programs, and go straight into the coffers of Wall Street corporations.

What sense does it make to take away the pensions of public employees and instead put their retirement in the hands of the same Wall Street bankers, further lining their pockets?

Even the Wall Street Journal, not exactly a staunch supporter of public employees, stated that its own study showed that workers in the private sector will run out of money due to shortfalls in their 401(k) accounts. How is this good for our nation? The middle class was built on the foundation of a good education, a good job and a secure retirement.

Gold-plated public pensions are a myth perpetuated by these same folks -- unless you consider $26,000 a year in California extravagant. Another myth is the supposed brink of disaster for public pension funds. CalPERS’ fund administrators report its funding status had improved to 75% as of June 2011, which rating agencies consider a more than adequate funding level. The fund will continue to have the resources to provide pensions long into the future, thus needed changes to ensure that stability can be made over the long-haul.

The best solution to this problem is to provide guaranteed pensions for all Americans, public or private. Social Security is the most effective anti-poverty program for older Americans in history. Rather than fighting to drag everyone down to the bottom rung of the ladder, we seek to lift all and provide an opportunity for the middle class American dream.
I completely agree with the conclusion and arguments Dave Low puts forward, with one important exception, a 75% funded status is not acceptable and if we are to have pensions for all Americans, all Canadians or all Europeans, we have to get the governance right.

This means you have to start paying public pension fund managers properly, use realistic investment assumptions and an appropriate discount rate, appoint solid, independent and knowledgeable board of directors, and make tough political decisions like increasing the contribution rates if your pension plans are underfunded.

And pensions need to start thinking outside the box, rethink everything, focus more on beta and less on alpha. Importantly, pensions need to adapt to a low interest rate environment, which isn't easy when you are too big and too slow. Instead of de-risking their portfolios, they need to rethink their approach to liability driven investing and stop what Arun Muralidhar calls less desirable investing.

If they invest in hedge funds, they need to rethink their strategy, including seeding hedge funds all around the world just like CalPERS did by seeding a Canadian hedge fund. Importantly, if pension funds seed alpha talent properly, using a managed account platform, in can pay off in many ways, including helping them manage downside risk on a fund level. In an environment where even hedge fund titans like John Paulson are getting clobbered, I can't stress the importance of getting your hedge fund strategy right, avoiding the pitfalls that plague most institutional investors.

[Note: Please contact me at if you are serious about seeding Canadian hedge funds that offer you liquidity, transparency and true alpha. All the managers I recommend are either on managed account platforms or open to be on one since they trade in liquid markets.]

In short, we need to focus our attention on bolstering pensions for all our citizens and I'm a firm believer that the best way to do this is not by promoting private sector solutions that are doomed to fail, but by bolstering our public pension funds and getting the funding and investment strategies right.

And Dave Low is right, at a time when hard times generation is struggling to climb out of poverty, we simply aren't doing enough to fight pension poverty. The social and economic cost of these policies will be disastrous. There is a moral imperative of fixing the looming retirement crisis. We need to stop funneling trillions to make banksters happy and start thinking about taking care of our most vulnerable citizens. If Germany can agree to pay pensions to 16,000 additional Holocaust victims worldwide, surely Americans can find a way to guarantee pensions for all.

Below, Holocaust survivor Clara Kramer tells WatchMojo the most important lessons she learned from her time during the war. Also, survivors discuss the importance of educating youth about the Holocaust with Rep. Ted Deutch at Monday's House Foreign Affairs Committee hearing. Listen carefully to what the wise lady says about being "second class citizens" in the United States and how we should teach kids about all the "horrible atrocities going on in the world today."

I happen to think that kids get it but adults are the ones that are not doing enough to combat social and economic injustice all around the world. We can start by acknowledging the global disconnect, addressing the serious problem of economic inequality. My biggest fear is that we are repeating mistakes of the past and simply not doing enough to fight economic and social injustice. Providing pensions for all is just one of many measures we can undertake but a lot more needs to be done to fight the scourge of poverty.