Are employers ethically obliged to tell workers if they’re leaving money on the table?
Forbes post, “The Hidden Peril Of Retirement Savings: Debt”
Does greater retirement savings mean greater debt? There’s a lot we don’t know.
Forbes post, “How Do We Get From Here To There? A New Report On Moving ‘Toward A More Secure Retirement'”
How do we move forward toward a future of increased retirement savings prevalence and better lifetime income options? Do you agree with the Aspen Institutes ideas?
Forbes post, “What Does It Take To Build The World’s Best Pension Systems? Ask The Netherlands And Denmark”
Originally published at Forbes.com on October 22, 2019.
The Melbourne Mercer Global Pension Index 2019 edition has been published (full report here), and the United States has been given a rank of C+ in this comparison of pension systems of 37 rich and middle-income countries, with a score of 60.6, slightly above the average of 59.3. Also in the C+ category were the UK and France; among the C countries were Spain, Austria and Italy; B countires included Canada, Ireland, and Germany.
Which countries were at the top of the rankings?
Why the Netherlands and Denmark, of course.
Regular readers will recall that I profiled Denmark’s retirement system back in September, in “Bernie Sanders Wants A Scandinavian-Model Social Insurance System. Sure, Why Not? (For Retirement Anyway).” It’s a three-part system, with a flat “basic retirement income” benefit for all residents and prorated for short residency in the country, a modest statutory flat-contribution benefit (literally flat contributions – everyone pays the same amount – not merely a level percentage of income), and high prevalence (90%) of employer provision of Defined Contribution retirement savings accounts, which protect plan participants from investment risk not by means of employers providing guarantees but through conservative investments.
The system is much the same in the Netherlands: a basic retirement benefit prorated for residency (see “Let’s Talk ‘Basic Retirement Income’ Social Security Reform: What Would It Look Like?”) combined with widespread prevalence of employer retirement benefit provision, traditionally in the form of traditional defined benefit plans sponsored by individual employers or industry-wide but now more commonly through defined contribution or “collective defined contribution,” which are characterized by risk-sharing among participants and potential benefit cuts if fund assets don’t meet investment return targets. Again, these plans are commonly invested in low-risk products such as deferred annuities.
So how is it that this type of system – a flat state-provided benefit paired with near-universal DC (or at any rate, employer-guarantee-less) benefits – finds its way to the top of Mercer’s ranking?
The index evaluates retirement systems with three criteria:
Adequacy asks, straightforwardly enough, whether the system provides benefits that are adequate both to poor retirees and, as a percentage of pre-retirement income, middle-class workers as well. In terms of private-sector pensions, in addition to the benefit level itself, the study asks whether favorable tax treatment provides incentives to save, whether laws prohibit early withdrawals of retirement accounts, whether benefits vest and are portable upon leaving an employer, whether their are mandates or tax incentives for annuitizing retirement accounts, whether divorced spouses receive protection, and whether there are provisions to continue to accrue retirement benefits while temporarily out of the workforce such as when receiving disability benefits. This criteria also looks at the general household savings rate and the degree to which investments in retirement accounts are held in “growth assets.”
The sustainability metric looks at a number of factors: demographics (the old age dependency ratio and labor force participation rates for older workers), government policy that responds to aging populations such as increases in retirement age and phased retirement, the level of advance funding in public and private pensions, and the level of government debt. It evaluates (funded) private pension plan participation, which contributes to sustainability, as well as the extent to which public pension contributions are invested rather than directly paid out to pensioners.
And the integrity sub-index measures a number of factors related to ensuring “that the community has confidence in the ability of private sector pension providers to deliver retirement benefits over many years into the future” (report p. 16). These include “the role of regulation and governance, the protection provided to plan members from a range of risks and the level of communication provided to individuals,” and asks specifically about private-sector plan funding requirements. The value also incorporates broader metrics of governance through the World Bank’s Worldwide Governance Indicators, and evaluates the administrative and other costs of the systems, to evaluate whether plan participants are getting their money’s worth.
In addition to external data sources, Mercer compiled further data by using their international network of consultants, and the report further observes that they did not try to incorporate other factors impacting the well-being of retirees, financial or otherwise (e.g., cost and provision of healthcare or long-term care).
In the adequacy category, the US score of 58.8 is slightly below the average of 60.6, and places is it at a ranking of 24 out of 37. Its sustainability subscore of 62.9 (vs. an average of 50.4) places it 7th, and its integrity subscore of 60.4 (average 69.7) ranks 29th.
What accounts for these scores?
In the adequacy category, it ranks 21st in its provision of benefits for low-income workers (median would be 19th), 15th in its provision of benefits for a range of middle-income workers, and 18th in its overall savings rate (remember, this is out of 37, so the median score is 19), but last in a measusure based on annuization requirements/incentives. Denmark, in contrast, ranks 1st in overall replacement rate and 2nd in benefit provision for low earners, but dead last in the savings rate metric, which brings it to a rank of 5th overall. The Netherlands is also among a cluster of high-scoring systems with respect to overall benefit provision and does well on the index’s supplementary metrics, for an overall ranking of 3rd.
In the sustainability category, the US ranks 11th in terms of the proportion of workers participating in private sector pension plans, but does well in measures of actual pension assets and demographic sustainability. The Netherlands and Denmark tie for first in these first two measures, and are middle-of-the-pack on the third, for ranks of second and first, respectively, when combined with other components of this sub-index. At the same time, Denmark and the Netherlands tie for first (along with 4 others in the category of level of mandatory contributions (public/Social Security and mandatory employer/employee private-sector contributions); the U.S. is 22nd. The report deems a high spending level good and assumes that participants are getting their money’s worth from it.
And in the integrity subindex, Denmark and the Netherlands (and 26 other countries) have tighter regulations of employer-sponsored plans in a variety of ways: stricter funding requirements for defined benefit plans, greater regulatory oversight of plan reporting, restrictions on assets, independence of pension fund trustees, access to a complaints tribunal, and the like. The index also gives points to systems in which large pension funds hold a relatively larger share of assets, because these have economies of scale.
So the bottom line is this: I’m a big fan of pension systems like those of the Netherlands and Denmark, so it’s always nice to see them do well in the rankings. But this report is equally useful in gaining an understanding of what a leading expert in the study of retirement systems has to say about the question, “what makes for a top retirement system?” and the answer is far more complex than either a generous Social Security system or an equally generous mandatory employer-provided pension system.
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.
Forbes post, “Will Pete Buttigieg’s National Service Program Solve Our Eldercare Woes?”
Originally published at Forbes.com on October 17, 2019, and, yes, “Mayor Pete” didn’t win the primary, but national service continually reappears as a dream. . .
No.
Next question.
OK, there’s actually more to the story than that.
Mandatory or quasi-mandatory national service proposals pop up every now and again, most recently in the form of a Brookings Institute report, and find their way into presidential campaign proposals, namely Pete Buttigieg’s proposal. They contain various inducements such as student loan forgiveness for college graduates, or money for further education for others, and offer hopes of restoring the frayed civic fabric by inculcating greater civic-mindedness in young people, as well as proposing practical benefits for young people in the form of job training, discipline, and the like – the “be all that you can be” pitch of the US Army of the 1980s and 1990s without any of the sacrifice or risk.
And let’s look at Buttigieg’s proposal, something he labels “A New Call To Service.” His plan begins with funding the Serve America Act; this 2009 legislation was intended to substantially increase the scale of national service programs such as AmeriCorps but its goals were never realized as the envisioned appropriations did not happen. Through this program, Buttigieg promises 250,000 paid service opportunities per year, with a focus on young adults who are in need of a structured job training, discipline-building program, that is, “opportunity youth” (a euphemism, it seems, for NEETs, young adults who are neither employed nor in educational or job-training programs). His Step 2 consists of federal grants for communities to “create ecosystems of service around regional issues.” And his Step 3 seeks to create a Chief Service Officer and “quadruple service opportunities to 1 million high school graduates” by 2026, with a vision that the final result will be
“a universal, national expectation of service for all 4 million high school graduates every year, such that the first question asked of every college freshman or new hire is: ‘where did you serve?’”
In other words, while not mandating national service, his objective is to create as quasi-mandatory a system as possible, in which it’s a bit shameful not to have done so, in much the same way (as I read it) as a young Mormon is not legally obliged but expected to serve a mission. Now, there are multiple reasons why I’m not a fan, but let’s focus on one component:
What will those young people be doing?
They will work on, he says,
“resilience and sustainability against climate disruption; addiction, mental health, and substance use; and long-term caregiving and intergenerational mentorship.”
And they will do so through new entities:
“a Climate Corps (Resilience AmeriCorps + 21st Century Conservation Service Corps), Community Health Corps (i.e. with a focus on community well-being, including mental health, addiction, and substance use issues), and Intergenerational Service Corps (i.e. with a focus on caregiving, mentorship, and other intergenerational service opportunities).”
There’s a lot to pick apart here. Using a group of national service workers on such projects as disaster relief, taking the place of national guard reservists who would otherwise be called up, or tasking them with work in national or state parks or nature preserves or working in blighted urban areas, has long been the standard prescription, and now such projects as weatherizing the homes of the elderly and the poor who can’t do it for themselves has been added to the list. But can a new high school graduate really do meaningful work in the field of mental health or addiction counseling? This looks as if Buttigieg hasn’t thought this through, or is (more charitably) mixing together multiple programs, including both Service Year proposals and proposals to encourage educated professionals to give more of their time.
And – yes, now I get to the bit which has to do with aging: the fact that Buttigieg places long-term caregiving on the list. The Brookings report likewise lists “helping older Americans remain in their homes” as a possible action national service programs might undertake. Does this mean workers providing general handyman services, or maybe more extensive renovation work to make homes more accessible to the wheelchair/walker-using elderly? Or is this, again, a vision of these Service Year workers providing companion care, homemaking services, or more extensive personal care for the elderly?
I’m not a fan.
After all, notice what isn’t on this list: despite concerns about the high cost of child daycare, no one proposes that national service workers be sent to daycare centers, to provide extra manpower at an affordable cost. Parents know that caring for children is no simple task, especially when it comes to caring for them in a large-group environment; as much as we know full well that wages are low, we want caregivers who are nurturing and we measure the quality of a prospective center by the number of years of experience of their staff.
The same is just as true of eldercare. Children of aging parents, no differently than parents of young children, want caregivers who know what they’re doing, have made a long-term commitment, and feel a calling to the work.
At the same time, there’s another sort of “Corps” that fits the bill: the Senior Corps. Unlike the one-year, full-time, young adult requirements for the AmeriCorps program, the Senior Corps provides a set of opportunities for over-55s to volunteer in their communities on a long-term basis. And among the programs offered is the Senior Companions program, in which volunteers receive training and support and then serve 15 – 40 hours per week providing assistance to the elderly, either in their homes or at Adult Day sites. The work is unpaid except for a small stipend of $2.65/hour. In fact, oddly, participation is limited to individuals with incomes below 200% of poverty guidelines; rather than permitting individuals with higher incomes to volunteer without a stipend, they must find a different volunteer program.
The projected future increase in eldercare needs, in terms of the care itself and its cost, if that care is provided through a paid workforce, is daunting. But tasking young adults via a quasi-mandatory year of national service is not the right solution.
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.
Forbes post, “GM, Pension Funds, And The Temptations Of Big Pots Of Money”
Originally published at Forbes.com on October 14, 2019.
The UAW’s strike against General Motors has now entered into its fifth week, with no indication of a resolution soon, as the UAW pushes to increase wages of its lower-seniority workers and move more workers away from their temporary status and the company focuses on using its profits to make investments in U.S. factories. Earlier, in late September, various of the Democratic presidential candidates joined the picket lines to show their support for the strikers.
And in the midst of this, on October 1, New York State Comptroller Thomas DiNapoli sent a letter to GM CEO Mary Barra (as reported at Crain’s Detroit Business and at Spectrum News Syracuse). DiNapoli, who Crain’s reports has received support from the UAW in the past, wrote, in part:
I write as Trustee of the New York State Common Retirement Fund (Fund), the third largest public pension fund in the United States, which holds and invests the assets of the New York State and Local Retirement System on behalf of its 1.1 million members, retirees and beneficiaries. The Fund is a long-time investor in General Motors Company (GM or the Company) and as of June 30, 2019 held more than 3.8 million shares of the Company’s stock.
Specifically, I am writing to express my concern regarding the current labor dispute between GM and the United Auto Workers which has resulted in approximately 46,000 employees striking at more than thirty Company factories in several different states, including New York State. As an investor, I am concerned about reports estimating the Company’s lost earnings between $50 and $100 million per day during the strike. The last prolonged strike at GM, lasting 54 days in 1998, reportedly cost the Company $2 billion and two percent of market share. Even though recent reports indicate the Company and the UAW are making progress in their negotiations, it is conceivable this strike could similarly cause significant losses unless a resolution is quickly reached.
I believe the effective management of human capital is critical to the success of GM and its ability to create long-term shareholder value. Fair wages and benefits for workers and a more U.S.-based work force are important matters to consider in fostering positive labor relations.
Separately, WXXI News reported last week that
“New York State Comptroller Tom DiNapoli joined striking members of the United Auto Workers union outside a General Motors plant in Rochester on Monday, as tensions continue between workers and the company.
“DiNapoli spoke to workers on the picket line outside the plant on Lexington Avenue. He says he supports the UAW in their negotiations with GM.
“’I certainly support them in their battle and I hope that GM, which has been an enlightened company in many ways, will listen to their better angels and come up with a positive resolution as soon as possible,’ DiNapoli says.”
Now, Tom DiNapoli is a politician; but as a trustee of the New York State Retirement Fund, he also has a fiduciary duty to the pensioners of that retirement fund. He claims in his letter that he is writing as an expression of that duty, seeking as a concerned shareholder to ensure that his fund’s investment does not lose value. But his explicit support of striking workers belies that claim, and makes it clear that, quite to the contrary, he is placing his political interests above his duty to those fund participants – or, rather, his duty to the taxpayers of the state of New York who will have to make good the investment losses or foregone gains of a pension fund that places political objectives above returns.
Separately, last week, the California Globe reported that “CalPERS is Heavily Invested in Chinese Companies.”
“California’s public employees should know that their retirement funds have invested in companies controlled by the Chinese military, which manufacture parts for the DF-41 missile, along with a range of aircraft, unmanned aircraft systems, and airborne weapons.
“For that matter, these pension funds not only invest in Chinese companies (and index funds, tracked by mutual funds, that are heavily weighted with Chinese companies) directly involved in manufacturing military equipment and surveillance equipment, they also invest in Chinese companies involved directly or indirectly in human rights, labor rights, and environmental protection violations all over the world.
“California’s largest public employee pension fund, CalPERS, provides a case in point. Despite its quest for the elusive 7 percent annual return, CalPERS nonetheless foregoes investments in Iran, Sudan, assault rifles, tobacco products, and thermal coal. Yet CalPERS continues to invest in Chinese companies.”
The article continues by expressing concerns that this is not garden-variety indifference but driven by the Chinese ties of the Chinese-born Chief Investment Officer at CalPERS, Yu Ben Meng, who served as deputy CIO at China’s State Administration of Foreign Exchange (SAFE), from 2015-2018, and who was quoted in the Chinese state-run paper: “In a person’s life, if there is an opportunity to work for the motherland, this responsibility and honor is unmatched by anything.”
Is this overly alarmist? The report does not quantify the degree to which CalPERS invests in these companies, or whether their investments have shifted in this direction specifically following Meng’s appointment, or whether the investment staff themselves are making the decisions about which investments are acceptable or must be shunned for social justice reasons. (In fact, some of these categories of divested companies are based on legislation, others on investment staff or investment committee decisions.)
And these are but two examples of the temptations, or, to put it more neutrally, the challenges for asset managers who are simultaneously politicians, or who have other motivations, such as the furtherance of human rights objectives, however they understand them. Individuals investing in IRAs have the option to elect from among funds which profess to follow a set of principles with which they align, whether they be the Ave Maria funds following Catholic/pro-life principles, or the various funds offered by the mainstream mutual fund providers which use “environmental, social and corporate governance” or “ESG” criteria for selection (for example, in this Kiplinger’s list). Individual stock investors may invest in one company or another based on their opinion of the company’s political views. But taxpayers who “invest” in one company or another insofar as their states’ pension funds do so, have no choice but are forced to come along for the ride, whether it’s politicians placing their political priorities above the performance of the investments, or seeking return at all costs even without regard to human rights.
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.