How seriously can you take the dismay of Rep. Bernie Sanders and other, like-minded members of Congress over corporations converting to cash balance plans?
They complain that companies are cutting benefits of older workers, aren't disclosing these cutbacks honestly and also are not disclosing pension income on their income statements.
But these politicians ignore similar issues involving a plan much bigger and closer to their oversight, namely, Social Security.
Is this hypocrisy or what?
To be sure, some companies haven't been entirely forthcoming in their disclosure to employees of the complex comparisons between traditional defined benefit plans and cash balance plans.
And some companies, including CBS Inc., now part of Viacom Inc., haven't disclosed the impact on income of cash balance conversions in their financial statements.
Perhaps the most explosive charge is that cash balance plans discriminate against older workers. That is why Rep. Sanders , a Vermont independent, raises the issue of the fairness of these plans, including a request to Arthur Levitt, chairman of the Securities and Exchange Commission, to launch an investigation into corporate retirement practices.
It is probably in vain to hope that such a petition will be fair and designed to learn the truth, rather than to ratify a guilty verdict already decided.
If Rep. Sanders and his colleagues were serious, they would examine similar issues concerning Social Security.
Many of the complaints he and like-minded critics have leveled against cash balance plans could also be leveled against Social Security.
For instance, some have argued the Social Security System discriminates against so-called "notch babies," those born between 1916 and 1926, by not giving them the same benefits as those born before or after. A 1997 bill to correct this imbalance failed to advance. Now, Rep. Paul Ryan, R-Wis., has co-sponsored a similar bill. Rep. Sanders, however, wasn't a co-sponsor of either the previous bill or of this one. People in his office didn't respond to a request for comment.
Also, while cash balance plans provide a better benefit to younger workers than those who have served longer, Social Security provides a better return to older participants than newer participants.
Rep. Sanders worries about the cutback in benefits for workers in cash balance conversions. What about the cutback in benefits under Social Security? Millions of workers were promised, when they began working, full Social Security benefits at age 65. Now they will have to wait up to two years longer, as the retirement age for full benefits is raised gradually to age 67. If they retire at 65, their benefits will be cut.
How is that different from what some corporations have done when they converted to cash balance plans and eliminated early retirement incentives?
Further, Social Security has not been any better about disclosure than the companies that have been criticized.
Its recently instituted annual statements to individual participants do not disclose the projected rate of return on participants' Social Security contributions, let alone provide performance comparisons with stock or bond indexes. This would be a source of great embarrassment if it did.
The statements also fail to inform participants that Social Security's assets will fall short of being able to pay the promised benefits in about 30 years.
People who endorse Social Security wholeheartedly turn away from problems like these.
In a recent column, nationally syndicated financial writer Jane Bryant Quinn contends, "Social Security isn't going bankrupt, as opponents of the current system love to claim." Then she acknowledges the system will be able to finance only 72% of its benefits in 2037. Could any business get away with paying only 72% of its bills to suppliers without having a reorganization?
Politicians, political activists, labor advocates and financial columnists who oppose any privatization of Social Security argue that workers need some form of guaranteed retirement income that is protected from the vicissitudes of the capital markets.
But these proponents fail to reconcile that supposed protection with the fact that Social Security benefits aren't guaranteed by law. They can be cut back (again) at any time by Congress.