“Jane the Actuary,” the actuary – an update on retirement writing and future paths

“Jane the Actuary,” the actuary – an update on retirement writing and future paths August 21, 2022

https://commons.wikimedia.org/wiki/File:Des_Plaines_River_Trail_Lake_County_Illinois.jpg; Dave Piasecki [Public domain]
Regular readers of my page on retirement issues at Forbes will have noticed by now that I have been adding new content much less often than in the past.  During the past academic year, I would have said that I was busy with my classes in the master’s program I was working on.  Now I’m employed as an actuary in a wholly different field, which would seem to be reason enough — but that’s not really the case, since I started at the job with the intention to continue to stay up-to-date on retirement issues and to continue to use my knowledge to comment on them, even if it was something I did only during evenings and weekends.

But that never really happened, and if I’m honest, it’s because that conviction I started with, however naive it may have been to start with, that somewhere along the way I could provide some insight, some knowledge, some informed perspective, that would, in some way, however small, make a difference with respect to the various retirement-related policy issues — well, it became increasingly clear that politics meant that nothing of the sort would happen.

Let’s run through some of the issues.

Public pensions in Illinois?

Earlier in his term, Illinois governor Pritzker and his staff acknowledged that the terrible pension funded status of Illinois pension plans was a real problem, especially since a full 25% of state general tax revenues went to fund those pensions.  He suggested that he might “solve” that problem by changing the funding schedule to target 90% funding some number of years later, until pressure from rating agencies caused him to back away from this proposal.  He claimed that he had taken strides forward with a consolidation of local police & fire asset management — a small piece of the overall picture.  He further claimed that they would boost pension funding by finding state assets to sell, then abandoned this effort without even issuing a report, presumably because there just weren’t any assets uncovered.  Then, after covid bailout money started flowing, he changed his tune, with one of his top staff saying, “75% of the pie is still a lot of money.”  (Yes, I blogged about this at the time.)  And, as a bonus, certain Chicago firefighters who had missed out on being grandfathered into a more generous benefit, got a benefit boost, returning the state back into unfunded pension mandates.  Given that sooner or later, once Tier 2 teachers have greater levels of seniority (and, let’s face it, more union power), the state will have to face up to their poorly managed benefit cuts running afoul of Social Security safe harbor laws, and it’s highly likely that the state will just boost those benefits and worsen the funded status.

Multiemployer pension plans?

Yup.  $86 billion in bailout money, with no reform of the pension funding rules.  Yes, the story is complicated, and near as I can tell, neither Republicans nor Democrats were willing compromise with a comprehensive bailout + reform combo, and the key staff member who was building up a compromise solution died unexpectedly.

Post Office retiree medical funding requirements?

This was another issue I wrote about at Forbes:  at a time when USPS revenue was up but the number of letters mailed was expected to shrink, and when a reallocation of funds meant that there was a surplus in the pension fund (relative to funding requirements at least), back in 2006, Congress decided that the Post Office should be funding their postretirement medical benefits rather than leaving a bill due for future generations when it can’t be covered by the general operating budget if the Post Office, in general, shrinks in size.  After all, however much private sector companies are able to fund OPEB benefits at their discretion, all private sector companies are required to account for the debt accrued for those benefits, whether funded or not, and any private sector company that wishes to, may curtail its retiree medical benefits, while the USPS, by law, may not do so.  So in the face of much lamenting that the USPS would have no financial worries but for these funding requirements, I defended them.

Now, under Biden, this funding requirement has been lifted — and, so far as I know, lifted entirely, with even the requirement to account for benefits properly having been removed, and existing funds being spent down on real-time benefit payments.

Medicare trust fund impending insolvency? 

Meh.  All indicators are that when the Medicare trust fund runs dry, the federal government will just transfer money from general revenues into the trust fund.  This became clear when the Democrats proposed their Medicare plans, including dental, vision & hearing benefits — all fully paid through general revenues.

Social Security reform?

Nope.  Not gonna happen.  There is no political will.  Democrats are happy to boost benefits and raise general-revenue taxes to fund it (it’s not clear to me whether they are simulataneously going to abandon their rhetoric about earning your benefits).  Trump had no interest in anything but a general promise not to cut benefits.

Auto-enrollment state IRA programs?

These sound like a great solution — the state manages an IRA for workers at employers too small to do this themselves.  Employers are required to fill out paperwork and mail in (or otherwise transfer) a percentage of salary for employees unless they opt out.  Bu there are very high administrative costs which get hidden when asset returns are strong and are pretty visible when the stock market goes down or when people choose conservative investments, and the last I looked into it, this hadn’t been dealt with.  And no one really talks about financial planning for low-income Americans and when and whether they should be saving for retirement vs. staying out of debt in the here-and-now.

Have I covered everything?

Are there ways in which, at the margin, American’s retirement prospects can improve?  Sure, I guess.  But there are so many ways in which the system is just broken, and in which it is becoming clear that, at least in this political environment, we are just not going to see any remedies, no matter how tirelessly I might pontificate from my soapbox.

And this is not a declaration that “I am no longer writing at Forbes.”  It’s more of a thinking-through of why it is that I have not, over the past couple months, been writing.  And what I end up doing, when that feeling of “I’ve just got to write about this or it will drive me batty” has left, whether I develop other hobbies or try to spend more time reading to regain my twitter-damaged attention span, or something else entirely, I don’t quite know.

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