Tuesday, October 13, 2009

Morbid Curiosity

Maybe not the best heading but it does fit my thoughts right now. I was perusing magazines at Borders last night checking out the latest Outside, Hot Rod, Backpacker and Maxim magazine when I saw the cover of Time. "Why It's Time to Retire the 401K (And what you can do instead)" was gracing the cover of the magazine. It caught my eye so I grabbed it and found a spot to sit down so I could read what this latest revelation was all about. I have argued against 401K Defined Contribution retirement plans as the replacement for the Defined Benefit plan for many reasons over the years. So my morbid curiosity was elevated as I began to read the analysis of this popular retirement plan.

In 2006 I attended a conference at Harvard regarding the status of municipal retirement plans and the attempts across the nation to eliminate the defined benefit retirement plans for the less costly and less beneficial 401K defined contribution. Several states, cities and counties across the nation had made the change and were re-thinking the changes. What they initially thought would save them money, had now begun to exponentially cost more than the original defined benefit plan. The initial savings was negated when the payment owed by the entity grew as fewer participants were left in the plan. Similar to what is occurring in San Diego today. While there will be an initial savings, as those remaining in the SDCERS Retirement system dwindle, the City will be required to make up the difference and their payment will begin to grow, negating the savings.

The Time's article highlighted Occidental Petroleum Corporation who in the 1970's raided their employee's retirement fund. At the time, laws did not prevent employers from doing this as long as they closed the find and started over. Occidental Petroleum closed the original employee retirement fund and opened the 401K program. Over the years employees saved money in hopes of having sufficient funds to outlive their savings. The 401K plans proved to be less successful and have not provided sufficient moneys for people to live in their retirement years.

The tough times in the stock market have left most people with 401K retirement funds worse off than just 10 years ago. In 1983, sixty percent of workers in America participated in defined benefit retirement plans with less than fifteen percent of Americans participating in 401K type deferred contribution plans. 401K retirement plans were never meant to be the only vehicle for retirement. When Congress started the 401K plans it was done to close a loop hole for executives who received bonuses and to be a perk for these same highly paid executives. In 2007, the numbers reversed; sixty-three percent of retirement plans were in the form of 401K style defined contributions and seventeen percent were defined benefit plans.

The average 401K plan today has less than $46,000. That is not enough money for retirement, no matter what part of the country you live in. To make it worse, 46% of all 401K plans have less than $10,000. "The time may have come to consider returning 401K plans to their original position as a third tier of retirement planning, behind pensions and Social Security" says Alicia Munnell, who heads the Center for Retirement Research at Boston College. "They should not be the thing we rely on for retirement security." Last summer the Government Accountability Office concluded, "If no action is taken, a considerable number of Americans face the prospect of a reduced standard of living in retirement."

Where my morbid curiosity kicks in; what is in the mind of the mayor? Does he just not care about the people who work for this city? Why would he strip away benefits for retirement and force upon workers a plan that will leave them destitute when they reach retirement age? From the beginning the mayor has openly said our benefits were not excessive but not politically sustainable. So, for political expediency, the mayor has destroyed the lives of countless individuals who dedicated themselves to serving the citizens of San Diego. Every cut, reduction and elimination to wages and benefits at the hands of the mayor, the city has gained virtually nothing. The budget deficits continue to grow and the mayor's only answer is more cuts. He has continued to blame the employees and their retirement benefits and now the "Recession" is at fault.

What is to come next? On Monday, the City Council bought hook line nad sinker the mayor's plan to begin the process to build a new city hall. The wages and benefits of employees are not politically sustainable, but building a new city hall to the tune of $432 million dollars while facing a $200 million dollar budget deficit is. Add to this the mayor's championing of the one billion dollar expansion to the Convention Center and the $250 million dollar downtown library he want to build. Call me crazy but this is lunacy. We were once referred to as "Enron by the Sea." It appears this label was justified. The idiocy of the elected officials in this town is pathetic. The mayor will cut wages, lay off workers, eliminate retirement benefits, demand furloughs, and at the same time make plans to spend two billion dollars without batting an eye. This all while making plans to again cut wages, lay off workers, eliminate benefits and cut services in an attempt to cut the projected $200 million dollar deficit.

My morbid curiosity wonders when it will all end.


Anonymous said...

Curiouser and curiouser, I think the Mad Hatter said that. I, too, saw the same magazine yesterday while in the dr's office using my "Cadillac" benefits. Your history of the 401k is right. Made easier to implement accross the country by employees changing jobs every few years to get a raise. Defined benefits no longer mattered because they weren't going to stay long enough to qualify for them. So they are pretty much gone for everyone except government workers, who generally stay on the job for 30 years. There is nothing wrong or unsustainable with the pension we have we have now. Except for the monies stolen from the account by the administration which has never been repaid.
So project on your curiousity. What's the mayors end game? Does he want this to be "The town Jerry built?" Does he envision a part time work force? Five years and out for everyone except the chosen few who are culled from the workforce for bigger and better things? (The newly installed fire chief was quoted saying he is able and WILLING to make the cuts necessary to be part of the solution.) The 401k would work great in this senario. Is it easier to steal money from a 401k than it is from the pension fund? I could go on but it's your blog.
The citizens of this city are being poorly served by the current admin but they don't know it. There are so many in power and more waiting in the wings to take the taxpayers money with nothing in return. It seems to me you are the only one asking questions about whats going on. Radio, TV and print (I would not call it a newspaper) are either dumb, clueless or inept, not bothering with the dirty little details.
I know you put a lot of time in this blog and I know it has cost you more than the time you put in but keep going. Hearing the truth is inspiring maybe it'll catch on....Those damn cops! They ask too many questions!

Anonymous said...

Excellent review of 401K. They were never designed to be a primary retirement plan and history is proving the original planners correct. Check out this recent 60 minute segment on 401k.


Anonymous said...

For those of you who have not seen the 60 Minutes story from the comment above, it's well worth 13 minutes of your time to watch. While some of the City's 401k offering are not "dogs" as described in the story, there, as many of us know, are substantial risks. Every employee needs to fully understand the risk and do what is necessary to protect their Defined Benefit pension. Especially since many of us do not have access to Social Security.

Anonymous said...

Hey Sparky, in case this a surprise you might want to check out the developer's website for the new city hall. They are estimating the price at over $100 million more than what the city council is trying to slide past everyone.

Anonymous said...

Are you the Steve McMillan who went to Holy Family and Uni? I think I went to school with your sister, Kelly. Where is she now? Can you give me her email address? I would love to catch up with her. Thanks.