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Labels: Health care, Pensions
Bribe Me to Be Stupid?
Health insurance, pensions, and Social Security all three major problems in public policy today. And all three carry a common thread, according to two short letters in today's Wall Street Journal.
According to the first writer, defined benefit plans are inherently unstable:
Arthur Levitt Jr. calls for "accuracy, transparency and accountability" in pension accounting and reform of "the regulatory incentives and accounting rules that encourage employers to make, and employees to accept, promises that can't be kept" ("Pensions Unplugged," editorial page, Nov. 10).
"Promises that can't be kept" are inherent in defined-benefit plans, which call for payments in the never-never, not the here and now. Instead of trying to fix defined-benefit plans, we should encourage defined-contribution plans, where contributions are made in the here and now. There is no "promise that can't be kept." There is no promise at all. The employer has no pension assets or liabilities. The employee does not look to his employer for his pension. He looks to a company in the business of administering money, not making cars or running an airline. Ideally, the account is portable, meaning the employee owns it, and the plan may give the employee broad-brush authority to allocate assets.
Universities provide portable, defined-contribution pensions through TIAA-CREF. Yet professors, many with seven-figure accounts, tend to favor a political party that opposes the same arrangement for Social Security. That opposition would presumably extend to pensions for auto and airline workers. The university elite may not consider free choice and the assumption of responsibility appropriate for those less gifted. Worse, portable defined-benefit pensions might turn workers into capitalists. How shocking.
S. Paul Posner
New York
And the second reminds us of the values of diversification--something that is actually discouraged by current tax laws.
Mr. Levitt outlines serious problems in both private and public employee pension plans, but his proposals are palliatives that miss the main point.
Any Wall Street Journal reader knows the need to diversify asset holdings, yet almost all of us rely on a single provider, our employer, for our wages, health care and pensions. (Even if employees directly contribute much of the funding, the employer usually is or selects the manager.) Why do we do that? Because our tax structure -- in which employers deduct benefit costs when paid and employees receive benefits tax free or tax delayed until retirement -- bribes us to be stupid.
No amount of regulation, especially by a federal government whose Social Security and Medicare benefit promises are far more unfunded than almost anything in the private or state and local government sectors, can be a true fix. The true solution is tax reform that removes the stupidity bribe and encourages people to provide for their own retirement and health care, either individually or in groups not connected with their employer.
Roger Nils Folsom
Professor Emeritus of Economics
San Jose State University
San Jose, Calif.
The common thread? Employer-based provision of a person's health and welfare.
"Justice Louis D. Brandeis'?s metaphor of the states as "laboratories" for policy experiments ... had almost nothing to do with federalism and everything to do with his commitment to scientific socialism. .... To this day, it continues to inhibit a truly experimental, federalist politics." -- Michael S. Greve
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