Pensions and Social Security

According to the Denver Post, officials for PERA (Colorado's public employee's retirement fund) are discovering conditions are worse than imagined and "face steep legal, political and financial hurdles in climbing out of the $12 billion funding hole that chaotic markets dug for the state's largest public pension plan." Because I taught abroad for five years after college, as well as five years in Illinois and a year in parochial schools, I will be unable to take full retirement from PERA until I'm sixty-two, and that seems perfectly reasonable to me. I have long been shocked, or at least unnerved, by public employees retiring with full benefits in their early fifties. Clearly, there are components of the system that few outside of the system understand, such as the fact that teachers and public employees don't pay into Social Security, so they will never draw it.  Additionally, many are paid below free market value.  However, none of these conditions counters the reality of the insolvency of the system.  To be perfectly honest, I find the situation to be ridiculous, and the criticism the criticism the system receives is entirely justified.

The answer to budget shortfalls has always been obvious - increase the age minimum and decrease benefits. Social Security has and should operate on the same principle - especially since the initial retirement age of 62 was set when the average American lived until 66, and health care costs were incredibly low. Social Security was never meant to fully fund a middle class retirement, certainly not for twenty-plus years. It was supposed to supplement retirement savings and simply keep seniors above the poverty line. PERA and all pensions should operate on the same principle, making people aware they should fund their own retirement with the knowledge that PERA/SS will keep them out of poverty.

A little self-reliance, backed by a reasonable safety net, is the most American of ideals, and public workers and politicians need to acknowledge that immediately for the sake of the entire system

Take My GM Stock, Please

While I hate to take the loss, I'm coming to the conclusion that GM might need to to fail. The right thing might be for me, and all of us, to watch the company go down, as it has seemed determined to do for many years now. The financial planning side of me, of course, would love to see the government continue to support, and even bailout, this company. That's the part that has been buying the stock and waiting patiently for the Chevy Volt to hit the stores and revitalize the industry in a way the Prius only dreams of doing. Alas, that's the fool in me. There are too many other variables, from pension and health care costs, to poor administration and design systems, as well as an inclination in buyers that this just isn't a good product. I've never owned anything but an American car (and that doesn't include Toyotas made in Texas or Missouri), and I've always lamented the choices by so many Americans to do the opposite. Yet, I understand.

When I learn that the average UAW worker is earning $70 an hour, compared with$40 for auto workers at other manufacturers, I truly begin to doubt it's possible to fix this problem. If the government decided to bail this company out, a complete redesign of their labor contract would have to be part of the deal. That's a shame, considering the expectations of people who might have bought a house or enrolled their kid in college expecting a higher wage. But that's the reality. It's truly too bad, considering the news of health costs for the company, that GM didn't lead the charge fifteen years ago to back the Clinton health care plan which would have alleviated much of their problems. Now, many companies are getting on board, and it might be too late for these dinosaurs of American industry. Even the UAW tried to get the company to back a national pension and health care system fifty years ago, and when the company balked (out of absurd fears of "socialism"), the workers had no choice but to push for the best deals they could get. I don't blame them for inadvertently shooting themselves in the foot.

Then again, even if the company had been smart enough to foresee its health care and pension problems, the management would have still driven the company to its knees by making Tahoes and F150s when the world wanted Camrys and Priuses. So, I'll swallow the medicine and take the loss. It's the right thing to do. How sad.

Retirement Funds and Government

Well, it appears that TRS, the teachers retirement system in Illinois, is in rough water with the recent economic downturn. That news comes on top of the revelation that TRS is only 56% funded. Of course, when I moved to Colorado, I heard from advisers out here to "leave your money in Illinois," and that made sense considering the projected payouts. Now, I might be wishing I'd taken the money and run. Of course, Colorado's PERA system is facing funding shortfalls as well. Perhaps I'd be better off if teachers paid into Social Security. Hmmm. All
these developments tend to bring criticism of the government and cries about the evils of socialism. However, I'm not complaining. It is what it is.

My thoughts on leaving my money in Illinois, rather than switching it PERA or investing it myself are simple. I made the decision to do so based on a fair amount of market research. Subsequently, the money could have been in worse shape if I'd pulled it and invested it myself (or better shape depending on my savvy). Ultimately, the money I left in Illinois is one source of my retirement, the money I put in PERA is another, and the money I invest myself is a third. There is also the small sum I will get from Social Security from non-teaching work. Thus, I feel pretty good about all my prospects precisely because I am so well-informed (and diversified), and I am not lamenting my decision to leave the money in Illinois. It was an investment decision, and like all, it had its risks and rewards.

There is a point to be made about the misuse of funds, as well as underfunding, and I'm no fan of what has happened to Illinois government under Blagoivich. However, it's truly no worse than if I'd invested it in AIG, Merril Lynch, IndyBank, Ford, WorldCom, Enron, etc. Governments aren't more likely to mis-invest the money than the private sector. Of course, once Enron folded, investors were left with no one to sue. The government funds, on the other hand, still have to answer to voters and taxpayers. When my Ford stock goes bust, or when the railroads abdicated their pension responsibilities, the free market leaves investors with nothing. Those pensions were eventually picked up by the government. And, Social Security will always be honored - Enron stock is worthless. Additionally, I should note that Social Security was never meant to be the sole retirement income for people. It has certainly gotten off track.

If I won the lottery these days, I'm inclined to take the payouts over twenty years because I know I will see the full amount. If I took a lump sum and invested it, I could lose half my value. The government (as noted by President Bush to be the only entity that can solve the mortgage problem precisely because its stability) offers consistency and a responsible party that can't walk away. Voters know where to find them.

I am fiscally conservative and a free market proponent, but I'm not naive about it. I believe the free market is the best answer to most questions, and free trade will do more than protectionism. I am heavily invested in, knowledgeable about, and supportive of free market capitalism. However, like both Adam Smith and Teddy Roosevelt, I acknowledge the pimples on the system, and accept the need to occasionally regulate what TR called its "more unsavory elements."

Tough Choices, Tough Times

New Hampshire hit the front lines in the education reform battle this week with a plan that allows the potential for high school graduation at sixteen. That's not the ability to drop out at sixteen, but graduate. Before you react, however, you may want to check out the caveats. The plan which apparently passed the legislature on October 30th allows students to take a test at sixteen, or the conclusion of sophomore year, and if they pass, they are admitted to community colleges or trade schools. Students who remain in school will take a more rigorous college-prep curriculum based on the AP or IB model, and they will subsequently take a test for admittance into a four-year university. There is much more to the plan, but I am intrigued by the premise. It bears resemblance to a school reform model that premiered earlier this year called Tough Choices, Tough Times, and it resembles the philosophy of European- and Asian-based school systems, many of which are often envied and mentioned by critics of American public schools.

Over the years, I have gone back and forth on the idea of college-prep for all, and having taught in Taiwan, I am familiar with the philosophy that not all are meant for college. It's a valid assertion, though the problem has always been determining who is and who isn't. Can one test determine that? Does that put too much pressure on thirteen and fourteen-year-olds to know who they are? Or, have the early teens been too free from responsibility for too long, as noted recently by Newt Gingrich in an interview about adolescence and college readiness. As Gingrich notes, adolescence is pretty much an invention of the twentieth century, and people like Benjamin Franklin graduated high school at thirteen; I believe he finished Harvard by sixteen. Ultimately, I have long felt that we need a little more of the rigor from Europe and Asia while maintaining the belief that all students can go to college if they want, and our system should always afford the opportunity for that.

After Tough Choices, Tough Times, some Colorado legislators mentioned they'd like Colorado to be the lab for this experiment in school models. I was hoping they might. It looks like New Hampshire will be the place to watch now.