Saturday, July 27, 2019

About Those Unfunded Municipal Pensions

Congress boldly, courageously and in a fully bipartisan move decided to do something about those $6 Trillion dollars in unfunded pensions - and increase your taxes.  The Sovereign Man kept track of the goings on in Congress and reports for us. 

There's an unwritten law about Congress: when they come up with cutesy names for some legislation, like the Patient Protection and Affordable Care Act (better known as Obamacare), the end result never does any of the things in the name.  The cuter the name, the more hideous the legislation.  The USA Patriot Act of 2001 which ravaged personal freedoms and ensured we all get colonoscopies and genital exams before we board a plane is one example.  The USA Freedom act of 2015, which renewed the worst aspects of the Patriot act, and the HIRE Act from 2010, which created some of the most heinous tax rules of the last fifty years are two more.

This month they added another.  The SECURE act is aimed at fixing those pension problems you've read about. 
SECURE stands for “Setting Every Community Up for Retirement Enhancement”, which is pretty clever when you think about it.

People want to associate their retirement with a word like ‘secure’. So even without knowing anything about the law, most people will probably have good feelings about it based solely on the name.
That deception is entirely the point.  In reality, SECURE is predictably terrible - it's a massive tax bailout for another poorly funded institution Congress setup.
Pension plans in the United States are currently guaranteed by a quasi-government agency called the Pension Benefit Guarantee Corporation.

The PBGC is sort of like an FDIC for pension funds… so that if a pension plan goes bust, the PBGC will step in with a bailout.

Problem is, the PBGC itself is nearly insolvent and will run out of money in 2025. And its balance sheet is trivial compared to the multi-trillion dollar pension problem.

So Congress came up with a solution: go into DEBT!
Debt is the answer to EVERYTHING!  According to the SECURE act, whenever a pension plan runs out of funds, Congress wants them to borrow money in order to keep making payments to beneficiaries.  This raises an obvious question: who would be insane enough to loan money to an insolvent pension fund?  You are!  Well, your exalted members of Congress have courageously volunteered you for the task, putting the American taxpayer on the hook for this potential $6 trillion liability. 

Hasn't everyone always told you the American public in conservative red states would pay for the idiotic promises of Illinois, New York, and the other states largely responsible for the pension crisis?  Looks like the pessimists were right.

That's not all the SECURE act does.  Did you plan for your retirement and put aside a good 401k plan?  Under current law, you could leave your IRA to your children in a fairly tax efficient way - they can take the rest of their lives to withdraw it all. That’s actually one of the nice things about an IRA.  The SECURE act shortens that to ten years.  Of course, this hits the middle class the hardest because it's a bigger percentage of their total assets than it is for wealthy taxpayers.  

The Ways and Means Committee provides a helpful summary of the bill.  (Or, read the full text of the bill.)   Forbes contributor Elizabeth Bauer takes a good look at the bill here

The SECURE act passed the House with bipartisan support and is now in the Senate, where it will likely be combined with/modified by a bill with similar intentions, the Retirement Enhancement and Savings Act (RESA), S. 972.  Senate Finance Committee Chairman Chuck Grassley, R-Iowa, has said that passage of RESA “remains a top priority,” so I have to think the chances are pretty good something like the Secure act will pass. 

The bill has positives that I haven't gotten into, like raising the age at which mandatory withdrawals from a 401k have to begin, making it easier for small companies to create 401k plans, and more.  Fundamentally, it's a  mix of incremental improvements in 401(k) plans plus miscellaneous special interest provisions. 

Rep. Richard Neal, D-Mass., left, and Rep. Kevin Brady, R-Texas. - House Ways and Means Committee  (Photo: Anna Moneymaker/Bloomberg)


  1. California now has a alleged surplus roughly more than one third of the 2019/2010 budget. Personal income taxes have rising 46% since 2013. Overall taxes have risen 49% since the same year. Of course, that 'surplus' must be a product of cooking the books, a hallmark of Moonbeam's first governor-ship of the 1970s. The state carries a 2.3 Trillion deficit.

    So what did the legislators do, why raise taxes of course. To the tune of as much as a double digit annual increase. So large is the increase that it must be phased in over ten years. Hey, they did the same with increased gasoline taxes and the people did not complain too loudly (although it cost one of the expendable legislators his job) so what the hey, it is a working model. What could possibly go wrong?

    The state is home to CalPers which is the largest pension fund in the world. The fund also carries a huge deficit ($500 Billion and growing). K-12 education is in the toilet, barely one fourth of all HS students are ready for college. Apparently as much as $11,000 per student is not good enough so there more money must be thrown intoo the fire. 'Its for the children'...who cannot read or write or solve 2 + 3, or graduate. And advanced education, don't get me started. The once heralded college system of the golden state is likewise in the shitter. Janet Napiltano, remember her? She's been UCal head honcho since leaving Barry-ville. It wouldn't be right to blame it all on her but she sure hasn't helped; one of the first things she did was vote herself a fat raise. So fat that the well-fed piggies (university presidents) loudly complained until she included them too. This above their already lavish salaries and perks.

    As worrisome as this all is, more so is how the asshole people vote yea for it. It is stupefying how the unwashed masses vote for nearly every asinine bond or new tax that comes down the pike. That is what a crumbled education system and unchecked entry of illegal aliens get you.

    Yes, you Mr. and Mrs. America will be paying for this. Oops, excuse me, I meant your children's children's children. Except that I have it on good authority we only have 12 years left. Wow, there is a silver lining for you.


  2. Correction: overall taxes have risen 40 four zero percent since 2013.


  3. RE: IRA withdrawls. Isn't it true under the new law that if you fail to begin withdrawls at a certain age, or if you do not annually draw enough, that you will incur a penalty?


    1. That's the way the summaries read. The usual caution is that the process is far from complete, so we don't know what all is in the sausage until it's ready for signature - or dies in process.

      It's so immature that the The House Ways and Means Committee summary conflicts with itself. It says the age cap for having to start 401k withdrawals is removed in one paragraph. A little later it says it's still there but that age moves from 70-1/2 to 72 in a nod to people living and working longer or social security starting later.

  4. If you leave assets where thieves can get at them, they will.
    This includes the Congress.

    One cannot blame dogs for peeing on fire hydrants, nor blame Congress for stealing your money.

    It's what they do, FFS.

    Learn this lesson, and profit from it.