Wednesday, August 17, 2005
A Question About Pensions
I’m working on something longish right now and was hoping the brilliant (and quite sexy) readers of ResurrectionSong will have some insight. Are there any successful long term pension plans being run by either governments or corporations? Or are all retirement programs due to fail because of bad planning, over-promising, idiotic expectations, and excessive benefit increases?
That is, does anyone have an example of a pension program (or social security program) that is a success in terms of maintaining long term funding for its recipients, providing a fair pension, and exhibiting good long-term planning?
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Well, neither of those compliments apply to me, but I’ll take my best shot at an answer.
The military pension is darn good. Not only do you get 1/2 pay for the rest of your life (starting as early as age 37, if you enlisted at 17), based on an average of the three highest year’s salary, but you can choose to raise that percentage by staying in longer. An additional 2.5% for each year past 20 you stay in. However, it’s funded directly by the government, so I’m not really certain it counts. I mean, it’s only solvent as long as the govt remains solvent.
Which, come to think of it, is an excellent plan for long-term security for the government, isn’t it? If someone were try to have an armed revolution, bunches of military retirees would rise up to oppose it, since the first thing a new govt would do is cancel all previous obligations and promises…
But in addition to that, the Thrift Savings Plan is an excellent savings plan. You pick the percentage of pay you want to go into your accounts, the percentage of special pay, and the percentage of bonuses. It was originally just for civilian employees, and they get some matching funds, but it is widely hailed as an excellent program. They have 6 different funds to choose from, including domestic high risk, domestic medium risk, domestic low risk, domestic bonds, domestic index, and foreign, if I recall correctly. It’s so good that the military had been clamoring to be able to use it for years. We finally got the right in 2001, I think. I signed up from the beginning and maxed out the limit of what I could contribute. I chose mostly low-risk, and I can’t remember what my return is at all. To me, investments are best to set ‘em and forget ‘em. That way you don’t drive yourself crazy.
I just did a quick Google on Finland’s system and it seems to be paying out just about what it takes in as a % of GDP each year. The data was from 1996 though, so I’ve no idea what the current picture is like. I know when I was living there, I was getting hit with a 30-35% tax before I ever saw my paycheck.
The current tax rates in Finland are approximately 50 percent, and the whole society is one huge communal safety net.
Off hand, I think the biggest problem is companies short-changing the pension plan to keep profits artificially high. That’s what happened at United ... among other things.