Really Bad Reporting in Wisconsin: Who 'Contributes' to Public Workers' Pensions?

[swag]

How not to sound stupid about Wisconsin:

http://www.tax.com/taxcom/taxblog.nsf/Permalink/UBEN-8EDJYS?OpenDocument

David Cay Johnston

. . .

Gov. Scott Walker says he wants state workers covered by collective bargaining agreements to "contribute more" to their pension and health insurance plans.

Accepting Gov. Walker' s assertions as fact, and failing to check, created the impression that somehow the workers are getting something extra, a gift from taxpayers. They are not.

Out of every dollar that funds Wisconsin' s pension and health insurance plans for state workers, 100 cents comes from the state workers.

How can that be? Because the "contributions" consist of money that employees chose to take as deferred wages – as pensions when they retire – rather than take immediately in cash. The same is true with the health care plan. If this were not so a serious crime would be taking place, the gift of public funds rather than payment for services.

Thus, state workers are not being asked to simply "contribute more" to Wisconsin' s retirement system (or as the argument goes, "pay their fair share" of retirement costs as do employees in Wisconsin' s private sector who still have pensions and health insurance). They are being asked to accept a cut in their salaries so that the state of Wisconsin can use the money to fill the hole left by tax cuts and reduced audits of corporations in Wisconsin.

. . . more

[SlimJimmy]

1. So, are they going to pay taxes on this deferred comp? And if so, when?

[ret5hd]

2. At the same time those with 401k's pay taxes on their money.

[SlimJimmy]

3. I don't quite follow. When is the tax on the deferred comp for health insurance going to

be assessed? My 401k doesn't have a provision for that.

[ret5hd]

4. huh?

[SlimJimmy]

5. The OP says they take deferred comp for retirement *and* health care. (see below)

If that's the case, and deferred comp taxes must be paid at some point. When and how is the deferred comp tax paid for the value of the health benefit?

How can that be? Because the "contributions" consist of money that employees chose to take as deferred wages – as pensions when they retire – rather than take immediately in cash. The same is true with the health care plan.

[pacalo]

7. The author mentions the taxes here...

Traditional or defined benefit pension plans, properly administered, increase economic efficiency, while the newer defined contribution plans have high costs whether done one at a time through Individual Retirement Accounts or in group plans like 401(k)s.

Efficiency means that more of the money workers contribute to their pensions - - money that could have been taken as cash wages today - - ends up in the pockets of retirees, not securities dealers, trustees and others who administer and invest the money. Compared to defined benefit pension plans, 401(k) plans are vastly more expensive in investing, administration and other costs.

Individually managed accounts like 401(k)s violate a basic tenet of economics – specialization increases economic gains. That is why the average investor makes much less than the market return, studies by Morningstar show.

This was an outstanding article about how the media is relying on the slanted talking points of their contacts rather than asking the right questions ("who contributes" to the state of Wisconsin' s pension & health care plans; & how elected officials are treated by the pension system) & checking & re-checking the facts.

[SlimJimmy]

8. I understand how the 401k is deferrred - standard really. But

I'm still waiting for an explanation of how the deferred comp for the health benefit is handled. If it is *truly* deferred comp, then taxes on that value must be paid at some point. My question remains, how and when? My health benefit premiums are exempt from taxes (handled as pre-exclusion dollars) because that is how it worked out through my employer. If the OP is correct, and this is tax-deferred (not excluded) income, then the taxes must be paid at some point.

[pacalo]

10. My suggestion to you would be to e-mail the author for an expert opinion.

[SlimJimmy]

11. Yep, that sounds like a good idea (nt)

[trayfoot]

6. In Virginia, we do!

[SlimJimmy]

9. When? Every year?, when used?, at retirement? I'm curious. (nt)