Tag: 401

Military Pensions In The Crosshairs

One of my first (if not the)posts I wrote on this blog was about the need for true austerity measures in this era of big government profligacy. A recurring theme since then is that everything must be on the table, no sacred cows are exempt and both sides must offer up their biggest pet projects and place them on the good faith alter. This debt ceiling compromise deal signed earlier this month took a step in that direction, placing both defense and Medicare spending as hostages in case the super committee can not play nice with each other.

Under the umbrella of “defense”, one area that I always thought sacrosanct was pensions, it seems now, everything is on the table:

Initially, viscerally, my first reaction was that this really stinks. Anyone who has been or knows someone serving can tell you that the pay is meager, that the benefit of a stipend at the end of 20 years (nothing to live on but a nice supplement to a regular paying job) is a major incentive. A cursory look at salaries for those in the Army bares this out. If after 20 years you are a non commissioned E6 or a commissioned captain, 50% of this is not going to support anyone. But weighing the dangers involved of combat, the hardships involved with separation from family and the hours demanded, the pensions granted seemed more then fair.

The video speaks to fairness. Existing military personnel can now contribute to TSP’s (Thrift Savings Plans) and 401K’s, and still secure the tax free benefit. The new plan would offer government contributions to all service members, even those with less then 20 year enlistments, not sure how this route is going to save federal monies because initial outlays will be higher then before, but that is what they are saying. It also mentions more money given to those in combat and high risk situations, I guess this means more government contributions to those in combat. I would like to know how much more but on it’s face, this sounds reasonable, a Navy SEAL living in the field eating MRE’s and dodging bullets daily should get way more then some cook slinging hash in relative comforts of home back in the states.

But, everything on the table, so a more examined approach is warranted. I will need to see the details first but if the military can keep attracting our best and brightest, with either better pay or an ample 401K contribution to sweeten the pot, then maybe the pension system can be eliminated.

We have talked about individual states reeling in red ink and the need for state workers to accept more of a haircut, and a serious effort to move many (most) off of the Defined Benefit Plan and into a Defined Contribution Plan would go a long way in cutting costs. But where I have always advocated getting state workers off the tit, their monthly pay compensates them amply, military folks were different.

So, is this a good idea? Will it hurt recruiting? And can other factors, other means of compensation make up for what military people have counted on for generations?

Ireland Raids Retirement

First it was Argentina’s seizure of pension funds. Now, it’s Ireland.

The Irish government plans to institute a tax on private pensions to drive jobs growth, according to its jobs program strategy, delivered today.

Without the ability sell debt due to soaring interest rates, and with severe spending rules in place due to its EU-IMF bailout, Ireland has few ways of spending to stimulate the economy. Today’s jobs program includes specific tax increases, including the tax on pensions, aimed at keeping government jobs spending from adding to the national debt.

The tax on private pensions will be 0.6%, and last for four years, according to the report.

This is a little scarier than what happened in Argentina. We expect Argentina to be an economic catastrophe. Ireland is not Argentina. They have reigned in spending and have maintained one of the lowest corporate tax rates in Europe. The Irish government did bail out their banks even more extensively than ours did. But this seems a short-sighted move to “create jobs”, especially as Ireland is currently projected for positive growth in 2011.

Of course, the reason this is news in this country is because of persistent fears that our government will tax or seize our retirement funds. Neal Boortz, in particular, has been ringing this bell for 20 years. And every now and then some pinhead with a degree in socialism will give some dumb speech before Congress that will get blown up into Congress “planning” to seize pensions.

I still don’t think that’s going to happen. The shock to US and world markets would be dramatic. And far too many Americans have retirement funds to make seizing them politically feasible. Congress can’t even muster the courage to bring us back to Clinton-level taxation, least of all raid our 401k’s.

I do agree with McArdle however that there is a very strong possibility that our government will break its promise on Roth IRAs. The amount of money that could be pulled in by even a modest tax is far too tempting and the issues too easy to demagogue. This is why I’ve limited my investments in Roths. I simply don’t trust promises the government makes four decades in advance.