The less publicized flip side of this equation was where all of this money went. The answer became evident over time: it went to wealthy, special interest, campaign contributors in the form of billions of dollars in tax breaks, including the reopening of previously closed tax loopholes that allow corporations to avoid paying Wisconsin income tax. Because of this corporate welfare, Wisconsin is still running a budget deficit despite catastrophic cuts.
In the midst of the destruction that was Walker's budget, there was also the little tidbit about the "study" of the Wisconsin Retirement System, the pension fund for Wisconsin's public employees. This study was originally part of Act 10, the infamous budget repair bill, but was taken out of that legislation by necessity when the collective bargaining portion of the bill was jammed through the Wisconsin Senate in the dark of night. It didn't take long for Sen. Darling and Rep. Vos to bring this study back via the biennial budget.
For those who don't know this, Rep. Vos happens to be the current Wisconsin chair of the American Legislative Exchange Coucil (ALEC). As a refresher from "Contempt, thy name is Fitzgerald," ALEC is is a group of corporate interests and lobbyists that has created a virtual assembly line of legislation, favorable to these corporations, that is handed out to our legislators to pass through statehouses across the country. This is not conspiracy theory, it is fact. Clear evidence of this was graciously given to us by the legislator in Florida who forgot to remove the ALEC mission statement before introducing an ALEC bill in the Florida statehouse. To complete the circle, one of the areas of ALEC's model legislation deals with turning pension funds into defined contribution plans, commonly known as the 401K. More on the reasons for that later.
Before we proceed further, we need to examine some facts about the Wisconsin Retirement System. As one of the best pension funds in the world, the Wisconsin Retirement System:
- Has almost $80 billion in assets.
- Has over 572,000 participants.
- Is the ninth largest pension fund in country, and thirtieth largest in world.
- Has been ridiculously well-managed. It is one of only 4 pension funds in the country that meet strict criteria for being classified as fully funded. There is no unfunded liability in this system, meaning taxpayers are not on the hook to make up a shortfall. This is in stark contrast to pension funds in other states which have been intentionally and recklessly underfunded over the course of years.
- Serves approximately 20% of Wisconsinites.
Additionally, the Wisconsin Retirement System is not only a benefit to retirees who participate in the fund, but also to the state as a whole. According to the National Institute on Retirement Security, the Wisconsin Retirement System provides a $4.3 billion boost to Wisconsin's economy, and supports approximately 34,000 jobs. It is this sort of economic impact that the Republicans completely ignored during the debate surrounding Act 10. In short, if you slash the income of a large percentage of your workforce, those people will not be able to put that money into the economy. They stop buying things, they stop eating out, and they stop spending. Very few people will go unscathed by this destructive form of economic policy.
The second issue dictated by the study was to let employees completely opt out of WRS. Forget retirement security at all. I hear they are making remarkable advances in cat food these days.
To understand the significance of this, we need to review history of pensions in this country.
A defined benefit pension is retirement plan where the employer or pension fund pays a specified monthly benefit to a retiree based upon a formula of salary, age, and years of service. That means the employee gets a set, dependable income stream in his or her retirement years. The investments of these plans are managed by fund managers, not the employee. These plans were very common in US history, both in the public sector and private sector. In fact, pensions date all the way back to the Roman empire, where soldiers were paid pensions after retiring from military service, in part so the empire could recruit talented soldiers. The first pension in US history was created by the American Express Company in 1875. One of the most famous defined benefit pensions in the United States is Social Security. Defined benefit pensions gave workers in this country, both public and private, a modicum of financial security for decades. Defined benefit pensions played a significant role in the building of a strong and healthy middle class in this country.
Defined contribution plans, on the other hand, are retirements plans where funds are placed in private, individual accounts. There is no benefit guarantee whatsoever in these plans, and these plans are very susceptible to fluctuations in the market. When an employee retires, they draw money from their retirement account until that money is gone. The most popular defined contribution plan is the 401K.
There are significant differences between defined benefit pensions and defined contribution plans that make the latter a risky proposition for employees. In defined contribution plans, the employee bears the full risk of market fluctuations and investment decisions, and often is responsible for making their own investment decisions with little training or guidance. Additionally, these plans are more expensive to administer. The reason? The people managing these plans are making a profit on them. More on that later.
Since about 1980, pension funds have been under attack in what appears to be a coordinated effort on the part of our government and corporations. In the 1980's, our government began to favor, through regulatory policy, defined contribution plans. Corporate interests lobbied intensely for this change in policy, and continue to do so today. The resulting decline in defined benefit pensions in this country has been staggering. For example, in 1975, 71% of private sector employees in retirement plans were in defined benefit plans. By 2004, that number had fallen to 28%, and has continued to fall since then.
Groups like ALEC have made the attack on defined benefit pensions a priority because 401K plans are cheaper for the employer and shift all the risk onto the workers. There is also profit in these plans for the financial industry. An enormous amount of profit, whether or not the workers contributing to these plans make money. If groups like ALEC had their way, all defined benefit pensions would be gone, and workers would be forced to hand their money over to the very people that tanked our economy and caused the biggest recession since the Great Depression. One only has to look at the staggering losses in the stock market in the recession that began to 2008 to recognize the danger of entrusting our entire retirement savings to these people. You also have to look no farther than ALEC's website to determine it's agenda regarding employee pensions:
"The solution to the funding crises in state pension plans will require fundamental reform. Everything should be on the table, including changes in benefits and increased employee contribution rates, as well as employer contribution rates. These plans should consider replacing their defined benefit plans with defined-contribution plans for new employees." (emphasis added)
Follow the money:
So if the Wisconsin Retirement System is fully funded, and is one of the strongest pension funds in the country, why would Walker and his cronies attempt to "fix" what isn't broken? I believe the answer lies in part in contributions made to Walker's gubernatorial campaign. In Scott Walker's 2010 campaign for Governor, he received almost a million dollars from the financial and banking sector. $958,414 to be exact. To these people, and the groups like ALEC that represent them, the WRS is a cash cow that they would love to sink their talons into. In my opinion, it is one of the reasons they gave Walker so much money. Walker is currently receiving millions of dollars from the far right, and if he wins his recall election, he most certainly will ramp up his attack on WRS on behalf of these interests. I also believe that Walker's desire to go after WRS may have been one of the driving forces behind his assault on the collective bargaining rights of public employees. If you destroy trade unions, you take away the power of workers to effectively protest the destruction of their pension.
To get a complete sense of what is happening here, you have to understand the mindset of the extreme right that represents the top one percent that controls most of the wealth in this country. The goal of these people, and the groups like ALEC that represent them, is to privatize EVERYTHING. Prisons, firefighting, policing, road construction, education and, relevant to the discussion at hand, employee pensions. Why do they love privatization so much? It has nothing to do with freedom, and certainly nothing to do with reduced costs. In fact, most privatized services that take the place of governmental functions end up costing the taxpayers more, not less, money. They are enamored with privatization because every government service that is privatized represents the potential to make a buck, plain and simple.
The plan of attack
One might wonder how Walker and his cronies will orchestrate the handing over of one of the best pension funds in the country to their friends in the private financial sector. After all, the Wisconsin Retirement System is so good that only a fool or a crook could want to destroy it. Convincing the public otherwise is no small task.
Well, there are several tactics they will employ to sway public opinion. These tactics will be wrapped up in the glossy, polished media messages that only big money can buy. Ads will flood our television channels, and talking points will be faithfully hammered, at a fevered pitch, by conservative talk radio.
Walker will first try to convince Wisconsinites that the WRS is in trouble. The statistics regarding WRS discussed above show this is an astronomical lie. Along those lines, Walker will try to convince people that the taxpayers of Wisconsin are funding this pension, and will also be on the hook for even more money due to the fund being in "crisis." Again, more lies. Don't take my word for it: Forbes magazine, not commonly known as a liberal rag, ran a fantastic story recently called "The Wisconsin Lie Exposed-Taxpayers Actually Contribute Nothing to Public Employee Pensions." This article should be required reading for everyone participating in this debate.
Another tactic, already employed in the collective bargaining debate in this state, is to divide Wisconsin's workers and fuel anger at public employees. When people are hurting, they look for someone to blame, and Walker has done a masterful job at turning working people against each other. Read my post "Compassion Lost" to see how the right wing in this country has exploited this pain. They have fostered an attitude of "every man for himself" when it comes to survival in our society. However, it actually goes farther than that. They have created an attitude of "if I am hurting, I want my neighbor to hurt too." That is a shockingly un-American value, and is not the sense of community that made our nation great.
It is also a terrible misplacement of anger. Teachers, nurses, firefighters, police officers, and snow plow drivers had nothing to do with the collapse of our economy in 2008. The rich have become extraordinarily more wealthy over the past three decades, and it is truly at the point where our nation consists of "those that have everything" and the rest of us. The wealthy interests in the financial sector created a house of cards for their own enrichment, and walked away with all of the money when that house collapsed. To add insult to injury, we even bailed them out for their trouble.
Finally, Walker and his cronies will tout the "freedom" of employees to do what they want with their money. Just understand that this freedom is strikingly similar to the freedom Paul Ryan intended to give seniors by providing them with $6,000 vouchers instead of actual Medicare.
Make no mistake about it: the first dominos are being lined up in Wisconsin to destabilize WRS. The study included in the last budget was the first step. Wisconsin Assembly Bill 539 is the next step.
On February 12, 2012, Representative Strachota, a Republican from West Bend, introduced AB 539. This bill would allow newly hired employees in the University of Wisconsin system to "opt out" of the Wisconsin Retirement System and to participate in a privately-managed defined contribution plan. AB 539 is clearly designed to get a foot in the door when it comes to privatizing WRS and ultimately weakening the fund. It is similar to the union busting of Act 10: if you can starve the unions financially, they will cease to exist as meaningful entities. If you let people opt out of WRS, you can starve the fund to the point where it cannot effectively complete its mission.
I recently came across a video clip where Scott Walker was talking to an interviewer on the Daily Caller about legacy costs. Let me be as blunt as possible: the term "legacy costs" is one of those great Republican euphemisms. "Legacy costs" means pensions, the things working class people rely on to survive when they get old. To the far right, pensions are a nuisance that need to be eliminated, so they are called "legacy costs" to conjure all the negative associations that term brings to mind. The term is similar to the euphemism "reform," which, in Republican parlance, means to slash the hell out of some program that benefits working or poor people. Governor Walker had this to say about "legacy costs:"
“I think any of us who are honest understand if you don’t get legacy costs under control, it’s a virus that will eat up and eat up and eat up more and more of your budget. It’s the same problem that Chrysler and GM got into, and state and local governments have to fix it.”Read the statistics I provided about WRS, and then look at the above narrative again. It is direct evidence of Walker's plan to make the public believe that the Wisconsin Retirement System fund is somehow in trouble, and that the tax payers will be forced to bail it out sometime in the near future. There is no other way to characterize this narrative than a monstrous lie.
I want to come back full circle to this issue of anger for a minute. I understand that people are hurting all over our country, including people within our great state of Wisconsin. A huge number of people can't find work, and others have watched their 401K's evaporate at the hands of reckless and immoral individuals. People are scared, with good reason. However, Walker and his ilk are using this pain and fear to further their selfish and destructive agenda. They capitalized on this fear and anger to destroy collective bargaining, and they will harness it again for the attack on the Wisconsin Retirement System We need to resist the urge to give in to this anger and fear, and instead must come together to work toward the common goal of prosperity for all Wisconsinites. It is this notion that motivated me and my Cops for Labor friends to stand in solidarity with the Machinists in Manitowoc during their recent strike. I want my fellow Wisconsinites to do better than they are right now, no matter what sector they work in.
Along these lines, I would like to propose something that would cause a dramatic shift in this pension debate: Let all Wisconsinites, publicly or privately employed, have the option to participate in the Wisconsin Retirement System. One of the strengths of this fund is its size, and this measure would certainly allow the fund to grow. One of the chief drawbacks of WRS, lack of portability, would also be eliminated by the inclusion of the private sector. We shouldn't be talking about destroying this system at a time when more people, not fewer, could use a little economic security in their lives. Everyone should be allowed to benefit from such an incredible pension system. We need to realize that the financial sector that destroyed our 401Ks cannot be trusted with our money. We should seek to return to a system of stable, defined benefit pensions to help rebuild in the United States a middle class that is currently taking its last breaths.
Wisconsinites need to be extremely vigilant in their defense of the Wisconsin Retirement System. It remains the one area relatively unmarred by the Walker administration, and it is in the interest of all our citizens to keep it that way. However, we also must understand, in no uncertain terms, that the enemy is already at the gates with respect to the integrity and security of the Wisconsin Retirement System.