Responsibility #54

<body topmargin=0 leftmargin=0 marginheight=0 marginwidth=0> <table cellpadding=0 cellspacing=0 border=0><tr> <td valign="top" colspan=2 height=110 BGCOLOR="#666699" TEXT="#080000" bgproperties="fixed" background="04900840erlcjm.png"> <div> <FONT SIZE="5" COLOR="#FFFFFF" FACE="Arial" ><B>NATIONAL SECURITY--Structural,Moral,Economic,Domestic,International</B></FONT><B>     |     </B><A HREF="index.htm" TARGET="_top" TITLE="NATIONAL SECURITYStructural,Moral,Econom"><U><B>home</B></U></A></div> <div> <A HREF="id33.htm" TARGET="_top" TITLE="Responsibility Contents"><U>Responsibility Contents</U></A>   |   <A HREF="id34.htm" TARGET="_top" TITLE="Responsibility 1"><U>Responsibility #1</U></A>   |   <A HREF="id35.htm" TARGET="_top" TITLE="Responsibility 2"><U>Responsibility #2</U></A>   |   <A HREF="id36.htm" TARGET="_top" TITLE="Responsibility 3"><U>Responsibility #3</U></A>   |   <A HREF="id37.htm" TARGET="_top" TITLE="Responsibility 4"><U>Responsibility #4</U></A>   |   <A HREF="id38.htm" 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to President, et al,"><U>Health Care Letters to President, et al, 8/24/94</U></A>   |   <A HREF="id123.htm" TARGET="_top" TITLE="Arguments for Delay in Enactment of a He"><U>Arguments for Delay in Enactment of a Health Care Bill</U></A>   |   <A HREF="id124.htm" TARGET="_top" TITLE="Post WORLD WAR IIPost COLD WAR Deja Vu"><U>Post WORLD WAR II--Post COLD WAR Deja Vu</U></A>   |   <A HREF="id125.htm" TARGET="_top" TITLE="Responsibility 89"><U>Responsibility #89</U></A>   |   <A HREF="id126.htm" TARGET="_top" TITLE="Responsibility 90"><U>Responsibility #90</U></A>   |   <A HREF="id127.htm" TARGET="_top" TITLE="Responsibility 91"><U>Responsibility #91</U></A>   |   <A HREF="id128.htm" TARGET="_top" TITLE="Responsibility 92"><U>Responsibility #92</U></A>   |   <A HREF="id129.htm" TARGET="_top" TITLE="Responsibility 93"><U>Responsibility #93</U></A>   |   <A HREF="id130.htm" TARGET="_top" TITLE="Responsibility 94"><U>Responsibility #94</U></A>   |   <A HREF="id131.htm" TARGET="_top" TITLE="Responsibility 95"><U>Responsibility #95</U></A>   |   <A HREF="id132.htm" TARGET="_top" TITLE="Responsibility 96"><U>Responsibility #96</U></A>   |   <A HREF="id133.htm" TARGET="_top" TITLE="Responsibility 97"><U>Responsibility #97</U></A>   |   <A HREF="id134.htm" TARGET="_top" TITLE="Responsibility 98"><U>Responsibility #98</U></A>   |   <A HREF="id135.htm" TARGET="_top" TITLE="The Structure of Our Nation is Unsound"><U>The Structure of Our Nation is Unsound</U></A>   |   <A HREF="id136.htm" TARGET="_top" TITLE="Ltr. to Editor, 3/19/96, Property Taxes "><U>Ltr. to Editor, 3/19/96, Property Taxes and Education Funding</U></A></div> <div> </div> </td> </tr><tr> <td valign="top" width=190 BGCOLOR="#CCCCFF" TEXT="#080000" background="04311c00egdysm.png"> <bR> </td> <td valign="top" height=370 BGCOLOR="#FFFFFF" TEXT="#080000"> <div> Responsibility #54</div> <div> (written prior to July 1992)</div> <bR> <div> To the People of the United States of America:</div> <bR> <div>      We continue to put the <U>inviolable principles,</U> that we have developed, to practice.  Next is a broadside against the federal government giveaways to retirement plans.</div> <bR> <div>      It started or took root in the 1930s and 1940s.  President Roosevelt and the Congress, in the midst of the Depression, answered the nation's concern for the security of the elderly in retirement, by enacting the Social Security Act.  Initially it was a bare bones pension program, and its piddling cost was not a burden to businesses and employees, who were called upon to bear it.  As mentioned in previous Responsibility papers, the unions during World War II wheedled out pension plans from corporations (with the tacit approval of the government), in lieu of verboten salary and wage increases.  We were off to the races!</div> <bR> <div>      Already or soon, we had special retirement plans benefits, that our politicians were giving to various interest groups. Purveyors of products to fill the investment needs of these retirement plans (insurance companies, stock brokers, mutual funds, real estate agencies, bankers, etc.) counseled (pressured?) Congress in the terms and conditions of the privileges.</div> <div>      For teachers the tax laws permitted Tax Sheltered Annuities through life insurance companies.  Later these became Tax Sheltered Accounts, after mutual funds muscled in on the insurance industry territory.  Unlike other retirement plans, TSAs have catchup provisions.  When TSAs were first legislated, a couple of generations ago, the advisers (insurance industry) to the Congress made a case that teachers would not, or could not, contribute to optional retirement plans in their first years of employment.  Therefore they should have the privilege to makeup their contributions in later years.  </div> <div>      In the 1990s, few of our young people can take advantage in the early years of employment of optional retirement plans, yet they have no access to catching up later, unless they are eligible (teachers, clergy, certain not-for-profit organizations' employees) for TSAs.  One catchup provision could let, say, a university president, tax defer his whole last year of salary. Other catchup provisions, under particular circumstances, could permit an academic employee to deduct for a number of years a high percentage of her salary (say 30 or 40).</div> <div>      In the business world, for many years, only employees of corporations had the benefit of company sponsored, tax deferred retirement plans.  Then Keogh, or Self Employed, retirement plans were created in the 1960s.  These gave sole proprietors and partnerships some of the features of corporate plans.  As the political winds blew back and forth over the Congressional sessions, changes were made in the retirement plans laws, such that finally in the mid 1980s, unincorporated business employees could have benefits nearly equivalent to those in corporations.  </div> <div>      Also in the early 1980s, seeing that most small businesses were not adopting retirement plans, the Congress in its wisdom created the Individual Retirement Account.  Everyone with earned income could tax defer up to $2,000 each year in an IRA.  Of course if you had only unearned income, or if you couldn't afford $2,000, tough luck!  Those who could afford (or who could shift other savings, or could borrow) jumped at another tax break. This was particularly true of taxpayers who were already "maxed out" on other tax deferred retirement plans.  After three years, seeing the unintended and inequitable use of IRAs, and trying to do something about burgeoning deficits, Congress narrowed the eligibility of the fully tax deferrable IRAs.  The federal government giveth, and the federal government taketh away!</div> <div>      </div> <div>      Congress must be given credit in that, in many of its actions, it did seek to achieve more fairness in tax deferred retirement plans.  It faced a great deal of resistance from the entities whose retirement plans might be adversely affected, and a great deal more influence from the money and power of the providers of investment products for the plans.  But did it achieve equity and justice.  No way, Jose!</div> <div>      Well heeled firms could choose a defined benefit plan which could provide its top executives up to $90,000 per year at retirement.  The company would take as a tax deduction each year, whatever an actuary calculated was necessary to reach a sum, that would provide that income for that person at the planned retirement age.  In effect that top executive would be receiving tens of thousands of dollars of tax deferments each year.  </div> <div>      Contrast this with the blue collar worker whose employer could not afford to provide a retirement plan, and who was struggling to keep his family with a roof over their heads, therefore could only long to take advantage of his IRA privilege. Yet the blue collar worker, and all other tax payers, were making up the taxes not paid by the well heeled firm nor the top executive.  Yes, Virginia, there is a Santa Claus; there are free lunches for some people!</div> <div>   </div> <div>       There is another ugly factor, in the most benevolent plans granted by the federal government.  Defined Benefit Plans promise an assured monthly income at retirement.  That promise is predicated on year by year projections, by an actuary, of the company contribution required.  Therefore the federal government is intimately involved.  </div> <div>      To protect employees and to regulate for the federal government, participating companies must pay "premiums" to a Pension Benefit Guaranty Corporation.  PBGC is not a clone of the FSLIC and FDIC, which were unable to protect taxpayers against bailouts of banks and S&Ls.  Nevertheless, the question remains unresolved as to whether the federal government has an implied or actual obligation to bail out pension plans of companies that go bankrupt, or otherwise welch on the promise to forever make contributions to meet their obligation.</div> <div>      The inequities in the federal government's provisions for retirement plans seems endless.  By laws, the incomes provided in retirement plans for federal employees, and through Social Security, are protected from inflation through automatic cost of living adjustments (COLAS).  This is not true of company pension plans, nor in retirement plans provided by (most) state and local governments.  </div> <div>      The inequity that results can be extreme, particularly when we have double digit inflation years as we did in the late 1970s and early 1980s.  For example, a military officer retiring in 1967 with a monthly income of $600 would be receiving by 1992, as a result of cumulative COLAS, $2600 per month.  The company or state retiree, who started with $600 per month in 1967, would still be receiving $600 per month (a drop in standard of living of 400 percent).  Of course, this fixed income retiree, along with all other taxpayers, is paying higher taxes to pay for these COLA results.</div> <bR> <div>      In the next three essays, we will continue to attack the give-aways by the federal government in retirement plans.</div> <div>                     Publius IV</div> <bR> <div> <A HREF="id88.htm" TARGET="_top" TITLE="Responsibility 55"><U>Responsibility #55</U></A></div> <div> Back to: <A HREF="id33.htm" TARGET="_top" TITLE="Responsibility Contents"><U>Responsibility Contents</U></A>  </div> </td> </tr></table></body>