Secure Your Future

Grim outlook for retirement benefits

Mar 1, 2005 1:00 AM

We recently attended the annual Legislative Conference, held Feb. 7-9 in Washington, of the National Conference on Public Employee Retirement Systems. NCPERS, referred to as “The Voice for Public Pensions,” is a national organization made up of hundreds of public employee retirement systems. Our Teachers’ Retirement System is one of its members. This organization promotes and supports the retirement security of public employees.

The make-up of the 109th Congress is now as follows: The House of Representatives — 232 Republicans, 201 Democrats, one Independent and one vacancy, a gain of three Republicans over the previous House. The Senate — 55 Republicans, 44 Democrats and one Independent, a gain of four Republicans. This is scary because issues on the agenda include:

• Social Security privatization;
• health care — Medicare drug plan;
• making tax cuts for the wealthy permanent;
• pension reform.

President Bush is pushing for a change in the very successful Social Security System as we know it, into a system with private individual accounts.

The president has stated that all those age 55 or over will not see any changes. But can we trust him with his record on other issues? Can we trust him not to reduce the cost-of-living-adjustment (COLA)? Won’t older people have to pay part of the huge transition costs to a privatized plan? For those under age 55 there will be a dramatic cut from current benefits. If a person is lucky, or a better-than-average investor, he or she might be able to make up the cuts. But how many of you want to rely on luck or your investment skills to provide you with retirement security?

By the way, since those 55 and over are promised protection — and we hope President Bush keeps his promise — this becomes a younger person’s problem. The UFT has 65,000 members under age 55, to say nothing about our children and grandchildren. The president knows that he would face the fiercest opposition from older workers because they fully understand the importance of the Social Security benefit, so he is hoping to neutralize them with his promises. Don’t let him divide the generations.

In addition to the lower benefits under the proposed program, there would be about $2 trillion in transition costs over the next 10 years and $4.5 million in transition costs over the next 20 years. Of course, most of these costs will be paid for by the same younger people who will get reduced benefits.

The privatization of Social Security is part of the president’s “ownership society” which includes eliminating health care benefits funded by employers (replaced by Health Savings Accounts) and, of course, replacing traditional pension plans with private accounts (like our tax-deferred annuity). The TDA and similar plans are great supplements to pensions, but they are not substitutes for pensions. At the conference we learned the following definition of an ownership society: George Bush breaks it — you own it!

Several ideas have been suggested to ease any financial strains on Social Security without changing the nature of the program. Two of the easiest to implement are:

• Raising the cap on wages taxed from the 2005 $90,000 per year to about $140,000 per year. This would bring the cap back to 90 percent of the nation’s total wages, where it used to be, up from the current 85 percent. This increase would only affect 6 percent of American wage earners.
• Investing the Social Security trust fund, which now has about $1.5 trillion in it and is growing, in a manner similar to the way we invest our pension funds. A well-diversified investment portfolio earns greater returns over the long term than a portfolio of only treasury bonds.

Economic outlook

The conference reported on the huge budget deficits being proposed by President Bush. His call for even more tax cuts has put great pressure on needed revenues — revenues needed for education, health, defense, and retirement programs. There has been a dramatic shift from budget surplus to budget deficit.

In the near future, any spending on education, the environment and most domestic programs must be paid for by:

• creating bigger deficits (but this can only be temporary);
• going back to a fair tax system (but the Bush administration is fighting this);
• lowering spending on health and retirement costs; and
• cutting our international and defense presence.

Health care

It was further reported that the American health care system is plagued by three huge, interlocking problems, any one of which is reason enough for alarm. They are:

• rapidly escalating costs;
• the large number of Americans without any health coverage;
• an epidemic of sub-standard care.

It is projected that the average annual premium for employer-sponsored family health coverage will be $14,565 in 2006.

It is predicted that the number of uninsured Americans will reach over 50 million in 2006.

The health care system provides excellent care to many of its patients much of the time, but not to enough of its patients enough of the time. There is a quality chasm.

Quality health care coverage must be available to all. Cost management must be a very high priority. There must be relief from rapidly rising costs. Action must also be taken to improve health care quality and safety. Action must be taken on all three of these issues.

California plans under siege

One final issue that we would like to mention that was covered at the Legislative Conference was the attack on defined-benefit pension plans in California. This could be the greatest battle we have to face in regard to our retirement security.

What happens in California tends to spread to other states. This column has already noted the editorials and columns in the New York press calling for a new Tier V, which would lower benefits for new employees. But California is moving to completely eliminate any guaranteed defined-benefit pension plans for all new government workers (including teachers) beginning in 2007. Governor Schwarzenegger is pushing this very strongly, in league with such enemies of public employees as Howard Jarvis and Grover Norquist.

The conference raised some terrible and depressing issues. Our work is cut out for us, but you can be assured that the UFT is developing an action plan with our allies to protect our retirement financial security, which includes a defined-benefit pension, Social Security as we know it, as well as a comprehensive affordable health insurance program.

Pension handbook

The updated “Tier II Pension Handbook” is now available, along with the previously released pension handbooks for tiers III/IV and tier I. Members can order them at a cost of $9 — $50 for non-members. (The cost listed in the Tier I Handbook is incorrect.)

To purchase a handbook by mail, send a check made out to the United Federation of Teachers to the following address:

United Federation of Teachers
11th Floor Receptionist
52 Broadway
New York, NY 10004

Handbooks may be purchased in person from the reception desk on the 11th floor at 52 Broadway.

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“On retirement” is compiled and written by Mel Aaronson, Sandra March and Mona Romain, teacher-members of the NYC Teachers’ Retirement Board. For further information on items discussed, call your UFT borough office or the TRS. BRONX: 1-718-379-6200; BROOKLYN: 1-718-852-4900; MANHATTAN: 1-212-598-6800; QUEENS: 1-718-275-4400; STATEN ISLAND: 1-718-605-1400; Teachers’ Retirement System: 1-888-8NYC-TRS (692-877).