Over the past couple of days, a few newspapers have discussed retirement security in different ways. For instance, the Washington Post's business section noted that the recession with unemployment rising has decreased the amount of payment to the social security fund:
Recession Puts a Major Strain On Social Security Trust Fund
As Payroll Tax Revenue Falls, So Does Surplus
http://www.washingtonpost.com/...
With unemployment rising, the payroll tax revenue that finances Social Security benefits for nearly 51 million retirees and other recipients is falling, according to a report from the Congressional Budget Office. As a result, the trust fund's annual surplus is forecast to all but vanish next year -- nearly a decade ahead of schedule -- and deprive the government of billions of dollars it had been counting on to help balance the nation's books.
As the article rightly points out, the social security surplus has masked the true budgetary deficits for a long time. Ever since Ronald Reagan, Greenspan and Congress agreed to their grand bargain to collect more social security taxes than were required in order to pay for the upcoming baby boomers' retirements, the government has been able to use the surplus to pay for additional government spending and/or huge tax cuts for the wealthy. The government has been able to rely upon this "slush fund" for over 25 years, but the CBO now finds that there won't be a surplus next year due to the recession. Less people are now employed who can pay into the social security system. Also, the article notes that older workers, having a hard time finding a job, are taking their social security benefits earlier than ever.
I don't believe that the CBO's numbers are that dire, but it should be a warning that we need to reform our tax system so that the US government pays out their obligations to social security/disability recipients. The numbers aren't that dire b/c the CBO and Social Security trustees don't take into account the money paid into social security by illegal immigrants and working social security recipients who won't be able to recover the money they paid into the system. However, this new CBO forecast even if a little off the mark, should be a reminder to Congress that pretty soon they won't be able to finance the budget off the back of the social security trust fund for that much longer. Republicans like Judd Gregg and Chuck Grassley want President Obama to cut social security benefits so that they can continue to use the social security trust fund to mask their lowering tax rates for the wealthy. I hope that doesn't happen. Given the state of pensions and 401ks right now, social security is more important than ever.
Speaking of pensions, did everyone read the Boston Globe's article on the state of the Pension Guaranty Benefit Corporation?
Pension insurer shifted to stocks
Concern increases as losses mount; Failing plans could overwhelm agency
http://www.boston.com/...
WASHINGTON - Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.
Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.
Can we say frightening? Given the state of old and/or bankrupt companies turning over their pension plans to the PBGC, now to find out that the PBGC put the meager life savings of pensioners into the stock market right before it crashed should be considered criminal. The Bush administration didn't have the power to privatize social security, but they did have the power to privatize the pensions of the PBGC--at the worse possible time. As pension analysts note this change in the investment strategy of the PBGC couldn't have come at a worst time:
Now, they warn about a "perfect storm" scenario in which the agency's fund plummets in value just as more companies go into bankruptcy and pass their pension responsibilities onto the insurance fund. Many analysts say it is inevitable that the agency will face significantly increased liabilities in coming months.
"The worst case scenario is coming to pass," said Mark Ruloff, a fellow at the Pension Finance Institute, an independent group that monitors pensions. He said the agency leaders "fail to realize that they are an insurer of pension plans and therefore should be investing differently than the risk their participants are taking."
What's going to happen to all of these pensioners' retirement checks? Will the federal government have to bail out the PBGC? The Boston Globe article notes that the PBGC might have to fund even more pension plans:
Most of the nation's private pension plans suffered major losses in 2008 and, all together, are underfunded by as much as $500 billion, according to Bodie and other analysts. A wave of bankruptcies could mean that the agency would be left to cover more pensions than it could afford.
Again, given the state of 401ks and now pension plans, it is more important than ever to have true retirement security. We need social security more than ever. We're probably going to need to bail out the PBGC pretty soon. Healthcare, energy and education are important but I hope that we don't forget about our seniors when devising the budget for next year....