Q&A – Why Pensions Are Legalized Fraud

Today’s question comes from Robert.

Heard your WIOD broadcast on pensions. I don't know how the State Government worked their pension, but I can tell you about Federal Government public sector pensions into which workers pay. Although some divisions in Federal Government have better pensions, the majority of government workers pensions are a percentage figured on the number of years they work. Yes, they are vested in the pension in 3-5 years because years ago laws were changed to protect all workers from not being vested till retirement. However, that would only give them about $100.00 per month. Older Federal Government workers, who had to choose between the government pension and social security, had to work 42 years to get 80% of the average of their high 3 years base pay and no Social Security. So, before you call pensions fraud, check the history behind those decisions made by business/industry/government. 

Bottom Line: This happens to be one more of the more important topics that are generally under-covered in news. Outside of the looming issues with Medicare and Social Security, there isn’t a bigger crisis in the making based on how many people are impacted. 33% of private employees have pension programs and 78% of public sector employees have pension programs. Recently, I addressed this topic due to the proposed pension bill targeting former Broward Deputy Scot Peterson. I mentioned that rather than targeting just his pension it might be a better idea to take a bigger look at the entire program. 

People often mistake my characterization of pensions being legalized fraud. That’s not the case at all. I want everyone to get what they’ve worked for and have been promised which is exactly why they should be done away with in lieu of personal accounts. What I mean by saying that pensions are legalized fraud is that no one can guarantee the programs will be solvent and able topay outthe benefits promised. Not at the federal, state, local or corporate level. What’s worse is how pitifully managed most of the programs already are.

According to the Pension Benefit Guaranty Corp overseeing federal pensions, there are $56.2 billion of current liabilities and $2.3 billion of assets. Meaning that if all pension benefits were to be claimed now, the average recipient would only receive 4.1% of what they were promised. How is that not legalized fraud? In state pensions only eight states aren’t currently pacing towards insolvency, Florida currently has the third most solvent pension in the country, with Michigan pacing a $4.8 billion shortfall that impacts 44,000 retirees. As for private sector pension shortfalls, that total currently stands at $45 billion. 

The problem we run into when it comes to reform, is that everyone on a pension program and everyone already promised a pension resists change until and unless their program becomes insolvent. By then it’s too late. It’s not a matter of if there will be millions of people negatively impacted by insolvent pensions. It’s when. And the when will likely hit whenever we hit the next recession.Taking action sooner rather than later can help make the best of certain bad situations. It’s just that no one seems to have the political will to do the right thing because of the lack of a desire to understand the problem by recipients until it’s too late.

Submit your question using one of these methods. 

Email: brianmudd@iheartmedia.com

Twitter: @brianmuddradio

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Photo by: Mark Kolbe/Getty Images

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