The Disparity of Benefits… And a Possible Solution…

2015-08-14_09-13-12SEATTLE — Microsoft said on Wednesday that it would offer new parents an additional eight weeks of paid time off from their jobs at the company, in a significant boost to its parental leave benefits.

Microsoft’s changes to its policy came a day after Netflix, the online video service, said it would allow new mothers and fathers who are employees to take as much paid time off as they need during the first year after the birth or adoption of a child. The more generous policies are a way to hold onto employees, particularly the highly skilled technical workers who are in extremely high demand in the booming tech industry.

Source: Following Netflix, Microsoft Sweetens Parental Leave Benefits – The New York Times.

I know that companies that value their employees and recognize their worth generally give them benefits in order to keep them with the company. They typically allocated a certain percentage of their profits into this arena. Profits are the main, some say only, priority for many so they sparingly deal out benefits.

The problem with the current method of allocating benefits is that they are often only applicable to certain employees. For those who are beyond child-bearing years and those who choose something other than a married lifestyle the above benefits mean nothing to them.   It is kind of like those of us who are childless having to pay such a high percentage of our property taxes to send other kids through public education. We see no personal value to where all our dollars go.

There seems to be a great disparity of who gets benefits.  The solution to this problem is too obvious. Why not offer a cafeteria type choice of what benefits you receive? Give every employee a certain percentage of their income to the benefits pool and let them decide where to allocate the money.   Those who are childless might spend it on additional vacation time. For those with school age children they might take shorter hours in order to pick up their kids from school. For others something different.  Let the employee decide which benefits they want.

Companies, at least when I was working, made a big point of “empowering” employees to make their own decisions. That is the excuse, and I do mean excuse, they use to forcing their them off fixed benefit pensions and putting all the risk of financial planning on them even though most are totally unprepared for that task.

Today I Celebrate…

2014-05-26_12-26-37Today I celebrate the anniversary of one of the major milestones in my life.  Forty four years ago as a young naive recently graduated engineer I left the Purdue University campus to take my place in the corporate world. It was a very different world back then than what it is now.

Corporate Loyalty  – I would over the years become very loyal to the company brand. I wouldn’t think of going to a competitor even if doing so would save me a few bucks.  I was proudly part of an institution that valued my contributions. The 1970s were a time of high inflation. To ameliorate that problem my company gave me some pretty serious raises during those years.  I think my salary doubled during the first six years.

Three Legged Stool – The three legged stool for companies back then was Owners – Customers – Employees. Each was given equal treatment. When company profits increased the stockholders got a hefty dividend, the employees got substantial raises, and customers saw increasing services at the same cost. Everyone benefited from the fruits of their labor.

Employees were Assets – Not only did our employer pay us to reflect our contributions, we were considered assets to them. They provided good healthcare and other benefits to show their appreciation. We were not thought of as liabilities that needed to be reduced at all costs. If you were no longer needed in one area you were provided the opportunity to move into a different part of the company.

  Pensions – If you stuck with the company for thirty or more years you would receive a pension that would allow you to live  comfortably during your senior years. They did not give you a lump sum of their choosing and shove you out the door. In addition to your fixed pension plan you could also enhance it with an additional saving plan (401k) which the company would match up to a given percentage of your contribution.

Of course as the years went by much of the above eroded into what we have today. At the beginning of the Reagan years a new masters degree program called Masters of Business Administration (MBA) which preached that employees were no longer assets but liabilities. Downsizing started happening when these new MBAs starting filling corporate offices.  The three legged stool was quickly thrown out the window in favor of treating the stockholders as kings and everyone else as serfs.

Over the last few decades these fundamental changes have resulted in the middle class disappearing from the U.S. landscape. I envy those who are just now starting out in their work lives for all the opportunities that they will have given our quickly advancing technological knowledge. Given the recent DNA and brain mapping the future is almost unlimited for these areas.  But I don’t envy them when it comes to having a secure life where you are valued  and fairly paid for your contributions.

Too bad we haven’t managed to keep the best of both worlds….


Federal workers’ pensions targeted in budget deal

But with pensions for non-government workers on a path toward extinction, federal employees get little sympathy from most experts. “Their private sector counterparts would be jealous of the benefits they’re maintaining,” said John Ehrhardt, a principal at the actuarial and consulting firm Milliman.

While 38 percent of private industry workers received pensions in 1979, just 14 percent did so in 2011, the most recent figures from the Employee Benefit Research Institute, which advocates for benefit programs. Besides retaining their pensions, most federal workers also can contribute to a 401(k)-like savings program, the Thrift Savings Plan.

That combination is far better than what’s available to most private industry workers. In 2011, only 11 percent of employees in the private sector had both savings plans and monthly pension payments, according to the research institute. For federal workers, the government matches up to the first 5 percent of employees’ contributions to their retirement savings. SOURCE:  Federal workers’ pensions targeted in budget deal – Yahoo News.

Up front I want to admit that this is likely a very contentious post where many might not agree with me. But when has that kept me from saying what I think. 🙂

I have very mixed feelings about this topic.  Should our government employees be able to benefit from plans no longer available to private sector employees? Or should they also go the way of current non-government trends? As the above article mentions in 1979 close to half of all employees received a defined benefit pension. I am one of those employees. I was lucky enough to get in my thirty years while that plan still existed.

My pension along with Social Security allow me to live a pretty comfortable life as long as it is lived with simplicity in mind. No I can’t dash off to the latest hot spot in the world for a quick get-away but I don’t have to worry about whether the bills are paid and especially where my next meal will come from.

Government exist to do the people’s business. Congressmen are there to represent us in political matters. Soldiers are to protect us from foreign enemies. EPA workers to help keep our environment clean. Government workers are solely there to do our corporate will.  Should they be treated and paid more than those they represent? I think the answer to that is no. Their circumstances should reflect those they are serving. So, yes when the private sector losses a particular benefit government employees should have to follow suit.

If only a 401(k) is good enough for the private sector then it should be good enough for the everyone. But of course we know that those in certain positions of power in both sectors are treated differently than the rest of us. When you leave the Oval Office you will lead a rather lavish lifestyle for the rest of your life at the expense of the taxpayers. When you are in the military you can retire before age forty with a pretty lucrative pension only dreamed of in the private sector.

Living in a perfect world everyone should be treated the same. But, of course, our world is anything but perfect….

Government Promises….

Top Democrats said they would revisit the cut, which raises $6 billion over 10 years, before it takes effect in two years. Senate Budget Committee Chairman Patty Murray, D-Wash. — Ryan’s negotiating partner on the budget agreement — was grilled by Sen. Roger Wicker, R-Miss., on whether she knew the cut could reduce by $80,000 the lifetime benefit of a soldier who retires in his or her early 40s.

“I would suggest the senator ask that question to Chairman Ryan,” Murray said. In a document defending the cut, Ryan’s staff called pensions to middle-aged military retirees “an exceptionally generous benefit, often providing 40 years of pension payment in return for 20 years of service” and noted that “most begin a second career after leaving the military.”

SOURCE: Bipartisan budget agreement nears final passage – Yahoo News.

I believe that one of the major fiscal problems with our current deficit stricken government is that they promise way too much to those who won’t collect on those promises until the person who voted for the bill is long gone from congress. Providing a lucrative 40 year pension for 20 years of service is definitely one of those things. This is way beyond what those of us who spent 30+ years in the private sector could ever hope to get.

I know that cutting benefits to anyone is onerous but it is especially so for our soldiers.  When this cut was announced there were an infinite number of criticisms shouted across FaceBook pages. They typically showed a severely injured soldier in uniform and then shouted “How can we cut benefits to someone who has given so much for their country!!” I certainly agree with those feeling but for these cuts that is certainly not the case. Disability benefits will continue for those maimed in our many wars but for the 97% of our soldiers who went through their service with no injuries, they will have to face the reality that our country just can’t afford the very lucrative pensions that many may have promised.

Of course lucrative public employee pension benefits go way beyond the military. There are many public employees who have been promised sizable future benefits for sacrificing some current pay. This certainly includes postal employees, police officers, and firemen as well as a many of others. We simply can’t afford to continue to dole out future lucrative programs that put the expenses onto future generations.

It is not often that I agree with Mr. Ryan but in this case I think he has it right.

Of Course Its Coming…

RiskyFrom taking tighter control over the health insurance market themselves to pushing decisions and costs down to individuals, businesses are experimenting with a host of new ways to offer health-care coverage, spurred in part by the launch of the Affordable Care Act, but also by the inexorable rise in the cost of medical care in the United States. The moves promise to change a social compact that has existed between employers and employees over health-care coverage for more than a half century.

SOURCE:  America’s ‘other’ health-care revolution –

Of course changes are coming to employer based healthcare. In the same way that defined pension plans have totally evaporated in a twenty year period, healthcare paid by your employer will soon follow. And isn’t it convenient that the companies shedding a previously foundational obligation have something to blame it on. Obamacare.

The root cause of all the pushing expenses back on the employee comes when companies in the 1980s quit thinking of their employees as assets and instead saw them as liabilities. At first there was a trickle of companies who latched onto something called a 401k plan. The spin they used to drop their previous pension commitments to their employees what that they were giving them more “choices”. (I hated that term when it was going around 🙂 )They proudly announced that each of us could now manage our own retirement finances. But in reality what it meant was that instead of putting $x into a pension plan for you they could give you $x/2 to the 401K and make it sound like they were doing you a favor. Unfortunately the trickle became a flood in the 1990s and as a result there are almost no fixed benefit plans in existence today.

Since ever-increasing profits and dividends are the fodder for huge CEO pay the employees, as usual, get the short end of the stick. I realize that almost all of us think we can do it better than those other guys when it comes to investing money. We  rationalize that we can somehow time our investment decisions to maximize gain. Even for the “experts” stock picking and timing have always been more gambling than anything else. The fact that a broadly structured index fund beats more than 90% of the stock pickers is a testimony to that fact.

I admit that most defined pension plans were probably pretty conservative in the portfolios so the profit rates were somewhat low. Everyone thinks they can do better but what happens to their “private pensions” when they don’t? I personally witnessed a co-worker’s 401K get decimated because he had almost 100% company stock in his portfolio. He convinced himself that was his road to riches. He was convince he could make big bucks by sticking to his “plan” but in reality he saw about 80% of his retirement savings evaporate over a six month period!

I know there are those out there that say “Its my money so I should be able to do whatever I want with it, and many do just that. But what happens when they lose or spend it all before retirement? That is similar to those who have no health insurance today. All the rest of us end up paying for their failures in one mode or another.