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Biggest Health Care Moment In Decades.
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Social Security Reform Thursday.
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Mainstream Melee: Wolfowitz.
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Pundit Roundtable: Leaks.
July 9, 2006
A WILLisms.com(ic), by Ken McCracken
July 14, 2006
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Social Security Reform Thursday: Week Fifty-Nine -- Defined Benefit versus Defined Contribution Lessons from Private Industry
Thursdays are good days for reform, because they fall between Wednesdays and Fridays. And reform is a long-haul process, not a fleeting event. So we're going to keep plugging along with the case for reform, even as the issue goes off the political radar screen.
That's why WILLisms.com offers a chart or graph, every Thursday, pertinent to Social Security reform.
(Check that, Will offered a Chart or Graph, I just offer words. But, hey, Will isn't paying me so live with it people.--Justin)
This week's topic:
Private Industry's Transition from Defined Benefit Plans to Defined Contribution Plans.
Imagine if Congressmen and Congresswomen had to actually deliver on their promises to the voters that elected them. They were judged on results, much like the CEO of a company. Sure CEO's have expectations in the here and now like delivering earnings that meet the market's demands, but they also have to be keenly aware of the future. And for most CEO's of Fortune 500 Companies, Pensions are a thing of the past.
The transition from traditional pensions to 401(k) plans has been occuring for the last two decades. Pensions have bankrupted the Airline and Automotive industries, pushing companies like GM and, well, all the airlines to the brink of folding. Pensions are a fixed or defined benefit program where the company makes promises, often decades in advance, then has to pay out an annuity to the worker when he/she retires. 401(k) plans are fixed contribution plans where the company matches a certain percentage of the employee's contribution, but the money belongs to the employee and is portable.
Which one sounds like Social Security? You guessed it. Social Security is making promises for the future that politicians today are not accountable for. The CEO's at the Airlines that negotiated the Union deals that put the Airlines in the pension pickle are long since gone, but we keep sending folks like Ted Kennedy and Robert Byrd back to the Senate.
IBM is doing their part to reform their pension program because despite having a surplus of $48B dollars, yes that is forty eight billion dollars just to clarify, the company sees the future and is preparing. The move effectively ends one of the most lucrative pensions in all of the business world.
BOSTON -- IBM's freeze of its otherwise healthy U.S. pension plan will reverberate through industry not only because it illustrates the erosion of traditional benefit packages, but also because it sharpens the focus on 401(k) plans as a source of retirement security.
Note that Stockholders did not refer to the change as a "risky scheme putting poor workers at risk". The CEO did not ignore the fact that today's surplus is already committed to future benefits. As you would expect, workers are not pleased. "We worked our whole lives for this and the rug is being pulled out from under us." Yep.
Hard decisions must be made at GM, Delta, United, IBM, and other companies. Benefits that were once thought to be guaranteed will bankrupt these giants of industry. But CEO's know it is their job to make tough decisions sooner rather than later or risk leaving all of their employees at the Unemployment line. And the companies that waited too long are already on the brink of extermination. New companies don't carry the pension burdens and have the capital tied in these plans available to expand and take market share.
This is a metaphor for our country. We must make hard decisions. If Harry Reid were the CEO of IBM and denied that a pension time bomb loomed, he would find himself looking for a new job when the analysts and institutional investors reviewed the books. But most Americans are not investors. And our CEO's like Reid, Pelosi, Kennedy, Boxer, etc., are denying there is a problem.
We are all shareholders in this corporation and it is time we vote our shares.
It's time for reform.
The clock is ticking.
Previous Reform Thursday graphics can be seen here:
-Week One (Costs Exceed Revenues).
Tune into WILLisms.com each Thursday for more important graphical data supporting Social Security reform.
Posted by Justin B. · 26 July 2006 11:42 PM