Archive for the Social Security Category

Pensions and Other Entitlements: Pt. 2 (April 28, 2008)

Posted in Bankruptcy, Congress, Constitution, Courts, Law, Pensions, Social Security on April 28, 2008 by e-commentary.org

Constitutional law in America is neither consistent nor coherent.  The United States Bankruptcy Courts may be the only forum to adjust pensions and other obligations.  A business can file a petition pursuant to the United States Bankruptcy Code in Title 11 and apply Section 365 to reject pension and other obligations.  Many corporations have rejected pension and other obligations for decades and in recent publicized cases.  Chapter 9 of the Bankruptcy Code allows a municipality to file a petition in bankruptcy and resort to the relief in Section 365.  Orange County, California did it in 1994; Desert Hot Springs, California in 2001; Vallejo, California may do it in 2008; watch San Diego in the next few years.

A separate state of the union is not now afforded an opportunity to file a petition under the Bankruptcy Code even if it is not able to afford to pay its bills.  A new chapter of the Bankruptcy Code, Chapter 15, may need to be added allowing a state to utilize the provisions of Section 365.  The big public policy development will come when everyone realizes that another new chapter of the Bankruptcy Code, perhaps Chapter 17, may need to be added to allow the United States government itself to file a petition under the Bankruptcy Code to utilize the provisions of Section 365.  [See the e-ssay dated January 17, 2005 entitled “America the Bankrupt:  Economics 210 in the Land of the Freeway and the Home of the Brave”.]

Using the Bankruptcy Code is problematic at best.  In effect, the Congress (a legislative body) would pass legislation to allow a Bankruptcy Court (the judicial branch) to make a decision that Congress may be prevented from making itself by another twig of the judicial branch.  Section 365 is binary and only allows a debtor to accept or reject a contract; there is no ready provision to allow a Bankruptcy Court to accept sixty percent (60%) of the pension and other obligations.  Where to file the petition is not clear, the Southern District of New York; the Northern District of Alaska, or elsewhere?  The Bankruptcy Judge has less discretion under the Bankruptcy Code to recognize the decision of the debtor to accept or reject, although he or she may be unwilling to recognize a decision that could threaten his or her pension.

The unfunded and unfounded promises we have made to each other will stagger those who were never consulted.  Or even born.  All government entities in the intermediate term will need to dispense with or limit pension and other obligations.  Addressing the matter in the Bankruptcy Code and in the Bankruptcy Courts is cumbersome and incomplete, yet the approach more easily overcomes the constitutional infirmities that other courts have mistakenly imposed.  At core, as noted previously, the rejection really is not a rejection of pension obligations, it is a refusal to accept obligations the Younger Generation never agreed to undertake nor can reasonably be expected to perform.

Some say: “If we were just informed that our pension and other obligations could disappear or be reduced, we could modify our behavior and decisions now.”  What if someone said: “Your pension and other obligations could disappear or be reduced.”  Despite their protestations, the populace, even when informed, likely will not modify its behavior and decisions.  The answers admittedly are not easy.

Bumper sticker of the week:

There Is No Such Thing As A Free Snack.

Pensions and Other Entitlements: Pt. 1 (April 14, 2008)

Posted in Bankruptcy, Conflicts of Interest, Law, Pensions, Social Security on April 14, 2008 by e-commentary.org

Today’s adults have “discounted” and now disregard the Bush Wars.  After all, the wars are being fought by the children of the underclass and will be paid for by the children of all classes in the future.  Everything is very tidy and antiseptic, except that this belief is a delusion.  Today’s adults likely will pay for some of the cost of the Crusades.

As a general proposition, the Constitution protects “life,” “liberty,” and “property.”  The United States Supreme Court has often recognized: “[p]roperty interests are not created by the Constitution, ‘they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law . . . .’”  Cleveland Bd. Of Educ. v. Loudermill, 470 U.S. 532, 538 (1985).  There are many adults who believe they have been promised payments in the future for their efforts today.  The funds to make the future payments are not being provided today, so there is no binding social contract.  The Older Generation offers to provide a pension; the Older Generation accepts the offer; however, if the Older Generation does not fund the promise, there is no legal “consideration” for the contract.  The Younger Generation can note simply that they were not a party to the contract and did not make any promises or representations to the Older Generation.  The pensions and other obligations are nudum pactum, a naked contract.

These issues wander into the courts.  That is where things get curious.  An individual takes a judgeship for a variety of reasons—a steady pay check, prestige, power, the possibility of doing good and making a difference, they look good in black, and, of course, the promise of the almighty pension.  For that reason, courts have an inherent conflict of interest whenever they are presented with any challenge involving pensions of any kind.  Courts often make very public displays of some usually minor or irrelevant conflict of interest, yet on the fundamental economic issues they address cases and protect their economic interests.  Most of the courts today have protected pensions in cases before them to protect their own pensions without even obliquely noting in a passing footnote a clear and blatant conflict of interest.  They contend that the pension is a binding contract and/or a property right.  It is neither.

In Flemming v. Nestor, 363 U.S. 603 (1960), the United States Supreme Court upheld a provision in the Social Security Act of 1935 in which Congress reserved to itself the power to amend and revise the schedule of benefits.  The Court held that a social security recipient does not have a property interest in a social security payment.  “We must conclude that a person covered by the Act has not such a right in benefit payments as would make every defeasance of ’accrued’ interests violative of the Due Process Clause of the Fifth Amendment.”  Id. at 611.  Justice Hugo Black in dissent observes that the decision represent an anti-communist bias by the members of the Court.  Id. at 628-28.  In addition and of more insight, the Justices were not entitled to participate in Social Security, so the decision is not surprising.

Bumper sticker of the week:

Social Security?

Social Insecurity? (April 7, 2008)

Posted in Social Security on April 7, 2008 by e-commentary.org

[Scene – Three guys sitting around the den on a Tuesday night.]

“Your parents have a ‘defined benefit plan’ which is paying certain amounts at regular times.  You have something called a ‘defined contribution plan.’  You must make the contributions yourself.”

. . .

“At least you won’t lose anything.”

. . .

“Exactly.  You are on your own.”

. . .

“How will privatizing the social security scheme help?  If you don’t contribute anything now with a beta version of the plan in place, why would you suddenly feel some great urge to contribute if the program were expanded?”

. . .

“I get my statement from the Social Security folks every April.  It is sort of a taunt.  I reflect on what I have paid and what I could have done with the money.  But here’s the dilemma.  If they completely privatize social security, I will make money, you guys won’t.”

[Nervous laughter.  Panicked eyes.  Shifting in seats.]

“That still leaves me trying to figure out how to take care of you guys.”

. . .

“What if the tax were imposed on all income and the funds were invested and each person were provided a property interest in a defined sum?  Everyone receives a small subsistence payment upon retirement.  Those who are industrious, talented, tenacious or lucky are free to acquire more and to retire with more.”

. . .

“The nagging problem is that there is no way to guarantee that the government will pay or even be able to pay benefits.”

Bumper stickers of the week:

What’s said in the den stays in the den.

Be careful what you wish for.