(Forbes) -- Someday, I will write a book about the evolution of the retirement system from employer-sponsored to -- well, whatever form it takes after our current transitional period.
It will attempt to promote the understanding that the existence of the employer-sponsored Defined Benefit plan in the form that it took in the second half of the 20th century was an anomaly, a product of those specific historical circumstances, which faded when those circumstances changed.
It will sell, oh, maybe a dozen copies --
because there will be no villain, and we love a story with a villain.
And that's what books on retirement policy and changes in retirement benefits love to give us -- more specifically, the recently-published Downhill From Here: Retirement Insecurity in the Age of Inequality, by Katherine S. Newman, which begins its villain-narrative on the very first page, in the second sentence of the second paragraph:
Recent federal legislation, for instance, has enabled massive cuts in pension benefits.
Whoops! What's that?
Federal legislation is chock-full of anti-cutback rules for private-sector pensions, and the process of elimination of future accruals for those plans has largely played itself out.
But that's not what Newman is referring to.
Yes, she addresses the move away from defined benefit pensions among private-sector employers, and the immoral destruction of the "sacred" obligation of employers to care for retirees, although she acknowledges that only in cases of bankruptcy were pension benefits lost, and then only above the PBGC maximum benefit level.
But she objects to companies phasing out healthcare coverage and life insurance for retirees, companies such as United whose plans were distress-terminated in bankruptcy not restoring benefits after a subsequent return to profitability, and companies such as Verizon purchasing annuities for their retirees rather than continuing to pay pensions directly -- the last of these a peculiar complaint as retirees continue to receive protection against insolvency, albeit through state guaranty funds rather than the PBGC.
But this is only one of her complaints.
The "recent federal legislation" was not about traditional employer pensions at all, but about the prospect of benefit cuts for Central States multi-employer pension participants, cuts which were proposed by the plan's management as part of an overall plan to keep the plan solvent, in keeping with the provisions of 2014's Multiemployer Pension Reform Act.
Now, as readers will recall from my December series on the issue, a significant number of multi-employer plans are struggling to stay afloat, and the multi-employer side of the PBGC is at risk of becoming insolvent alongside them.
In particular, the Central States Teamsters' Plan's severe underfunding had multiple causes: in part, yes, the trucking deregulation that led to a shrinking number of participating employers, and the bankruptcy of many of those employers, as Newman chronicles, but also fundamental flaws in the benefit design that led to benefit promises in excess of what employer contributions could reasonably fund, and a regulatory structure that prevented the plan from dialing down its benefit promises when it became apparent that they were unsustainable -- issues that Newman does not acknowledge because she is too invested in the narrative that workers earned their benefits fair-and-square.
Newman also appears skeptical of the government's move to take control of the Central States fund in the wake of mafia-fueled corruption, using an interviewee to express the opinion that the charges were "phony" and failing to omit the key detail that at the time of the government takeover, the plan was only 40% funded, and, instead, lays the blame at the feet of the money managers who she claims were "wrecking the pension fund" (p. 31).
Although, in her defense, it may be the case that the book had already been sent to the printer when the GAO study showing no such mismanagement was completed last summer, it is still reckless to claim that Goldman Sachs caused the Central States funding crisis. And, what's more, none of these villains can explain the similar pending insolvency at the United Mine Workers plan.
Newman also identifies another way in which pension benefits are under attack: municipal plans are at risk due to bankruptcies. Here her villain-finding is even harder to understand: Detroit, as a city government, has struggled for decades with the loss of population and tax base, and all the more so because so many of those who have stayed are mired in poverty.
The city has struggled to combat arson among its abandoned homes and works to demolish those homes in a sufficiently acceptable timeframe.
Yet rather than recognizing that underfunded defined benefit pensions are not sustainable in cities with declining population, she casts her blame on this faceless entity, Detroit, as well as the state of Michigan for insufficiently enforcing city tax-collection and being too stingy with funding in general, bankers for "baiting" the mayor into poor investment decisions, and the city's emergency manager during the bankruptcy process for being unwilling to sell DIA paintings to avoid pension cuts (p. 99).
So far this appears to be nothing other than a hate-read. But there's more to her book, and the more compelling portion of the book begins when here tales of victimization end, though not in the way she intends.
She profiles two communities: Opelousas in Louisiana and Ogden in Utah.
Opelousas, a largely-black town of 18,000 about a half-hour drive from the nearest larger city, gains her attention because it is one of the poorest cities in Louisiana, with very little in the way of economic opportunity.
Its retirees are poor, and their work histories are often too scattered to even collect much in the way of Social Security, in some cases because they worked off-the-books.
They are also not necessarily "retired" but continue to work in some fashion or another, and varyingly support, or receive support from, their adult children, and, at the same time, receive assistance from local faith communities, though the poverty of the area limits the aid they can provide.
But here's what's striking: in 2010, she reports, the Opelousas-Eunice statistical area had an elder poverty rate of 28.4%, the highest proportion in the entire United States.
That's bad, to be sure. But 43% of the city's overall population lives in poverty, so over-65s are less likely to be in poverty than their children and grandchildren. At the same time, the city has been bleeding population -- Wikipedia reports a 2000 census population of 22,860, followed by annexations in 2004 that should have resulted in a population of over 25,000; in reality, the 2010 census count was 16,634, with a 2016 estimate of nearly the same, or a drop of something like a third. What happened isn't explained either at Wikipedia or in Newman's book, but I have to believe that that's part of the story that can't readily be left out.
The book then shifts to profiling Ogden, which is the "most egalitarian region in the state and in the United States as a whole" (p. 213).
This town, with a population of 87,000, has benefitted from several government employers, including an Air Force base, the IRS, and a university, and its historic role as a railway hub has meant that, though still heavily Mormon in character, it is relatively more diverse in religion than the state as a whole.
Jacobs describes the extensive role that the LDS church plays in the community: women are far more likely to stay at home with their children; both men and women are heavily involved in the church through such roles as "visiting teacher", and remain so after retirement; and the church provides for its members' material needs through food pantries and other support as well as networking and other job search support.
The church and its members do also extend their volunteer service beyond church members, however, residents who are not a part of the LDS community express feeling like outsiders, or even, if ethnic minorities, feel the sting of discrimination. Is there a non-LDS community life that these interview subjects participate in? It's not clear.
But what of retirement benefits?
In the case of Opelousas, the poor retirees she profiled never had a chance at employment at the sort of jobs which, even in the past, provided traditional pensions. In Ogden, the poster-child happy retired couple Jacobs begins the chapter with, is perfectly happy with a 401(k) plan.
These are not stories of the loss of defined benefit pensions, of the misdeeds of corporations implementing 401(k) plans, of the cruelty of benefit-cutters abdicating their sacred duty to care for the elderly. These are stories of communities, of people old and young, trying to get by the best they can.
And, again, I will once again flog my own Social Security reform plan, which refocuses the system on alleviating poverty, and suggest that risk-sharing systems like what the State of Wisconsin has adopted for its employees, should be a part of the way forward, but will also remind readers that we need to think of where we are now fundamentally as a time of transition to something new, rather than a crisis in which we need to restore the old.
