The Zuckerberg Tax

A recent op-ed piece in the NY Times recommended that America adopt a “marked to market” tax – something it called the Zuckerberg Tax in honor of Facebook founder Mark Zuckerberg.  Essentially the tax would require the wealthiest Americans to pay taxes on their capital gains every year, regardless of whether they actually sold their assets – i.e., individuals would be taxed on their paper gains. 

That makes sense to me.  Individuals who are getting super-rich should not be able to avoid contributing toward the provision of government services by holding onto their capital assets.  The column reported that Apple’s Steven Jobs never sold any of his Apple stock, and thus never paid capital-gains taxes on his billions of dollars of capital gains.

Even more troubling is the report in the column regarding the tax treatment of capital gains that are never realized before the owner dies and passes them to heirs.  According to the column, neither the estate nor the heir pay capital gains at the time the capital is transferred, and inexplicably instead of requiring the heir to assume the deceased’s cost basis for the assets, the heir’s basis becomes the market value of the assets at the time of the transfer. 

For example, Steve Jobs buys ten million shares of Apple for $10 a share, and then holds them until his death, when they are worth $300 a share.  Thus, he never realized any capital gains and didn’t pay a penny of taxes.  His wife then receives the shares through the Jobs’ will, and she holds them for another year before selling them for either $290 a share or $310 a share.

If she sells them for $290 a share, she will receive $2.9 billion from an initial investment of $100 million, yet she can actually declare a $100 million loss and offset that loss against other capital gains.  If she sells them for $310 a share, she will receive $3.1 billion, but will have to declare capital gains of only $100 million, on which she will pay capital-gains tax of 15% or $15 million.  That’s an incredibly low tax rate (.5%) on the $3 billion in capital gains that she and her husband experienced.

The Zuckerberg Tax seems like a good idea, even though it will have tough sledding.  There is no reason, however, for failing to assess the capital-gains tax when property is transferred by someone’s death.

Wikipedia and tax mediation for a frugal retiree

During college or law school, I was taught that there is a critical difference between tax avoidance and tax evasion – avoidance is legal and OK; evasion is illegal and not OK.  Wikipedia, however, seems to have blurred that distinction in the last sentence of the following definitions:

• Tax avoidance is the legal utilization of the tax regime to one’s own advantage, to reduce the amount of tax that is payable by means that are within the law. The term tax mitigation is a synonym for tax avoidance. Its original use was by tax advisors as an alternative to the pejorative term tax avoidance. The term has also been used in the tax regulations of some jurisdictions to distinguish tax avoidance foreseen by the legislators from tax avoidance which exploits loopholes in the law. The United States Supreme Court has stated that “The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted.”  Tax evasion, on the other hand, is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Both tax avoidance and evasion can be viewed as forms of tax noncompliance, as they describe a range of activities that are unfavorable to a state’s tax system.

If I may digress from my taxing subject for a minute, this morning I heard Doug Gottlieb, a substitute host on Mike & Mike’s sports talk show on ESPN2 rely on Wikipedia for the historical origins of the marathon and then gratuitously slam Wikipedia by saying that, because the info came from Wikipedia, it might be right and it might be wrong.  What an ugly thing to say!  Although Wikipedia may not have all of the overlapping validations of most reference sources, I have found it to be highly reliable and exceptionally well written.  The paragraph above on tax avoidance is typical.  That was a cheap shot, Doug, unless you are prepared to give us examples of you being misled by Wikipedia.

Back to my subject of “tax mitigation,” a lot of retirees with a moderate amount of assets don’t realize that the U.S. tax code allows them to earn a relatively sizable amount of income without paying any taxes.  Here is how:

• The personal exemption and standard deduction for a single person combine to about $10,000 so that amount of income is tax free.
• The Bush tax cuts allow people in the 10% or 15% tax bracket to pay $0 on capital gains.  For a single person, the 15% bracket changes to 25% with income of $35,000.

Thus, according to my calculations, an individual can earn income of $10,000 and take out capital gains of $35,000 and still pay no taxes.  If you need more than $45,000 a year to live on, you simply consume some of the assets that resulted in the capital gains.  Sweet!

Although I think the Bush tax cuts should be eliminated for everyone, not just the rich, I endorse Mitt Romney’s suggestion that the capital gains tax should be eliminated for everyone except the rich.  Providing an incentive for wage-earners (the proletariat) to become asset-owners (the bourgeoisie) would be a good thing.

The Gone Fishin’ Portfolio

Alexander Green is the author “Beyond Wealth, the road map to a rich life,” a book that I plan to review this Sunday.  The book focuses on the acquisition of spiritual wealth as opposed to material wealth.

Green’s claim to fame, however, is the acquisition of material wealth.  He had a successful career as an investment advisor for The Oxford Club, and then capped that career in 2008 by writing a bestselling investing book titled, The Gone Fishin’ Portfolio.

Green named his recommended portfolio “Gone Fishin’” because it enables his clients to allocate their nest eggs into ten designated mutual funds at the beginning of the year and then they can go fishing for the rest of the year.  The only recommended maintenance is an annual re-allocation back to the following recommended amounts:

• Total Stock Market Index (VTSMX) – 15%
• Small-Cap Index (NAESX) – 15%
• European Stock Index (VEURX) – 10%
• Pacific Stock Index (VPACX) – 10%
• Emerging Markets Index (VEIEX) – 10%
• Short-term Bond Index (VFSTX) – 10%
• High-Yield Corporates Fund (VWEHX) – 10%
• Inflation-Protected Securities Fund (VIPSX) – 10%
• REIT Index (VGSIX) – 5%
• Precious Metals Fund (VGPMX) – 5%

I have a close friend who swears by this portfolio, especially since the portfolio has outperformed the S&P 500 every year since 2003.  I conceded to him that the portfolio looked thoughtful and reasonable, but I doubted there was anything magical about it.  Rather, I suspected that it had been developed, after-the-fact, to out-perform the
S&P from 2003 to 2007, and I had no confidence that it would continue to out-perform the S&P going forward.  In fact, I predicted to him that the portfolio would start losing to the S&P as soon as American stocks started out-performing foreign stocks.

Boy, was I wrong.  According to the current Gone Fishin’ Portfolio website, the portfolio outperformed the S&P 500 index in 2010 for the eighth straight year:

• “Admittedly, 2010 year was a bit of a squeaker.   The S&P 500 returned 15.1%.  And, according to official figures released by the Vanguard Group, our Gone Fishin’
  Portfolio returned 16.1%.  This doesn’t begin to tell the tale, however. The Gone Fishin’ Portfolio is far less risky than being fully invested in stocks.  We have 10% invested in high-grade corporate bonds, 10% invested in inflation-adjusted Treasuries and 10% invested in high-yield bonds.  Each of these asset classes underperformed the S&P last year.  But they provided some ballast.  Investors who were fully invested in stocks got a very bumpy ride in 2010.  Our journey was less thrilling.  (You probably slept better as a result.)  And the stellar performance of our small-cap stock fund (up 27.7%), REIT fund (up 28.3%) and gold fund (up 37.5%) allowed us to beat the broad market again.”

By contrast, even though I avoided the 30% in ballast in cash and bonds, I was hammered by 40% in International stocks.  The year 2011 has been even worse because my
25% in small caps is getting hammered, too.

As soon as I win back some of my International losses, I plan to move my entire portfolio to Green’s suggestion, and then go fishin’.

Sunday Book Review #48 – Rich Dad Poor Dad

My review of Rich Dad Poor Dad (RDPD) is not my typical book review.  I generally review brand-new books, but this book by Robert Kiyosaki (with Sharon Lechter) was first published in 1997.  The book’s basic concept is as time-tested as any – i.e., a self-made millionaire explains how normal Joes can become millionaires, too.

Kiyosaki became a millionaire by methodically investing in real estate and small businesses.  He retired at the age of 47 before starting a lucrative business of motivational writing and speaking.

I had never heard of Kiyosaki, but my conservative drinking buddy has a knack for stumbling across most get-rich-quick schemes on the internet, and for months my buddy has been saying that I would love RDPD because, next to politics and sports, personal finance is just about my favorite subject.  I kept declining to read the book because I had too many others on my waiting list, so last week my friend simply sent the book home with me, and that left me no choice.  Instead of having the book clutter up my to-do stack of books for months, I decided to polish it off.  Only 195 pages – no problemo.

The title of the book comes from the author’s two financial role models – (a) his poor dad a/k/a his real dad or his educated dad, and (b) his rich dad a/k/a his best friend Mike’s dad or his uneducated dad.  The author’s dad was a teacher with advanced degrees who ultimately ran Hawaii’s education department.  Mike’s dad was a successful entrepreneur with an eighth-grade education who lived down the street.  Because Mike’s dad had a reputation in the neighborhood for being an entrepreneur extraordinaire, and because the author and Mike at the age of nine were highly desirous of making some spending money, they made a deal in the mid-1950s for the rich dad to teach and the kids to learn how to become rich.

This training/teaching took place over decades.  By 1990, Mike had taken over Rich Dad’s businesses and grew them even more, eventually becoming a billionaire.  By contrast, the author by 1994 had decided to slow down and retire from business.  Among the most important lessons that they learned:

1. The poor and middle class work for money, while the rich have money work for them.  Although there are many layers to this statement, the principle one is that to become rich, you need to quit working for others and start working for yourselves.  Although you will probably start with a salaried position, all of your efforts should be directed toward generating an income flow outside of your job.  (Paradoxically, banks are more comfortable in making loans to individuals with a large salary and minimal other-income flow.)
2. The American education system does a horrible job in teaching individuals to be financially literate.  Instead it teaches them to be good employees – i.e., get a formal education, find a stable employer, and work hard.
3. Traditional financial literacy focuses too much on an individual’s net worth, whereas it should focus on the critical difference between assets that are expensive to maintain (e.g., house, car) vs. assets that produce income (e.g., rental income, stock dividends).
4. Most individuals are stuck in a rat race because they focus too much on their salaries and, when they earn a salary increases, they feel entitled to spend the money on consumer products instead of buying income-producing assets that will make them less dependent on their salaries.
5. Financial intelligence comprises four skills – financial literacy (the ability to read numbers/accounting), investment strategies, the market (supply & demand), and the law (tax, accounting, real estate, etc.)
6. Three management skills to succeed in business – cash flow, systems, and people.
7. Five obstacles to becoming financially independent – fear, cynicism, laziness, bad habits, and arrogance.
8. Don’t skimp on hiring experts.  You can’t know everything, so hire specialists who have your best interests in mind.

Most websites are critical of the book, arguing that it contains too many platitudes and too few insights.

As I mentioned above, Kiyosaki has become a motivational speaker, and I happened to read that today’s San Antonio paper included a notice that there will be several free workshops in the San Antonio-Austin area later in the month.  According to some websites, the two-hour workshops are a sham because the speaker is not Kiyosaki, and the main objective is to sign up attendees for a more expensive follow-up workshop.

Without endorsing the workshops, I believe the book provides invaluable insights that can help wage-slaves get off the treadmill and the rat race.  The book is not meant for everyone, but for those individuals who think they might have an entrepreneurial gene, it could be just what they needed.

Student loans and bankruptcy

As a conservative who believes that personal responsibility is a key component of the American way of life, I favored the new law in 2005 that prevented individuals from welshing on their non-government school loans by filing for bankruptcy.  (Government school loans were already exempt from bankruptcy discharge in 2005.)  Welshing on a school loan is like getting a home-improvement loan and making the improvements before filing for bankruptcy and keeping the improvements.  It’s not right.

But we also have a problem in America with for-profit schools that persuade desperate kids to attend uber-expensive programs that fail to provide them with marketable skills.  Often this schooling is funded by federal-loan programs, and the government is trying to remedy this by denying loans to students at schools that have a bad record of getting their students graduated, employed, and repaying their loans.  There is a concern, however, that private student-loan companies, like the for-profit schools, are acting in a predatory fashion against the students and something needs to be done to protect them.

A recent editorial in the NY Times reports on legislation in Congress that would allow school loans from private companies to be discharged in bankruptcy.  The rationale for the legislation is to protect students from predatory lenders, much like the predatory lenders who played a big role in the financial crisis of 2008-9.  The thinking is that the risk of discharge in bankruptcy will cause lenders to be less willing to finance education that is unlikely to produce marketable skills.  The problem with this thinking is that private lenders will be less willing to provide loans, and that will result in disadvantaged kids being less able to attend for-profit schools.

This is a close question.  Although this legislation moves us in the direction of a nanny state, I am persuaded that it strikes the right balance between the rights of the private school-loan companies and the students at for-profit schools.  Bankruptcy law will still prevent students from cavalierly reneging on their debt, but the private company should not be allowed to hound a former student forever over a youthful indiscretion.

Scott Burns gives a Social Security tutorial

Scott Burns is a nationally syndicated financial columnist, and for many years I have read his column in the San Antonio Express-News.  Each Saturday he responds to financial questions from readers, most of whom are from Texas, so I assume his column is most popular here.

In Burns’ column this week, the first question was submitted by Austin resident G.R., who wanted to talk about Social Security.  G.R. began by noting that Social Security is not a retirement plan, but rather is social insurance to prevent the elderly from becoming destitute, and then asked how the solvency of Social Security would be affected if we instituted a 1% tax on all income above the current income cap of $105,000.

Burns used the question to address some misunderstandings about Social Security:

• While it’s true that there is an earned-income cap of $106,500, a person who makes more than that doesn’t get a free ride under Social Security because their benefit is based on their income that was taxed by Social Security (i.e., $106,500), not on their entire income.  Thus, these people have to save more of their income to avoid a dramatic drop in income when they retire.  (Although this is an interesting point, I don’t think it defeats the argument that high earners are getting off easy.  See the 3^rd dot point.)
• Although the income cap has been increasing, it has not been increasing enough.  In the past, 90% of income was taxed by Social Security.  Currently only 86% of income is taxed by Social Security.  The Simpson-Bowles commission recommended adjusting the income cap so that America returns to the 90% figure, and Scott Burns endorses the idea.  (Adoption of Simpson-Bowles would have been great for America; unfortunately, Paul Ryan and the House Republicans allowed “perfect to be the enemy of good” and defeated it.)
• The Social Security tax of 12.4% is actually not a flat tax, but rather is sharply progressive because the benefits are calculated so that those with income up to $9,000 receive benefits that amount to 90% of their income, while any income between $9,000 and $64,000 is credited at 32% and income between $64,000 and $106,800 is credited at only 15%.  This math corresponds with an earlier article in the Express-News by Oscar Garcia asserting that workers with “average earnings” can expect retirement benefits that replace about 40 percent
  of their average lifetime earnings.”  By way of contrast, high-paid workers near the top of the income cap can expect a benefit of only 27.7% of earnings, even though they contributed at the same rate.  (This is fascinating information. It supports G.R.’s point that Social Security is not a retirement plan, but rather is social insurance or quasi-welfare.)
• The Medicare tax of 2.9%, which is not subject to the earned-income cap of $106,800, is even more progressive than the Social Security tax because all people, regardless of how much or how little they contribute, receive the identical benefit – i.e., full Medicare coverage.  A person who makes $10 million would pay in 1000 times as much as a person who makes $10k, but their respective benefit would be identical.  Burns notes that, despite this progressivity, “In terms of our national future, Social Security is a sideshow.  The big problem is Medicare.”  (Indeed.  Imagine how progressive Medicare would be if they start means-testing it, as has been suggested by some.)  Medicare is not a simple actuarial problem, like Social Security is.  Currently, Medicare provides essentially unlimited coverage, and America’s health-care industry is doing its best to provide unlimited care.  Rationing will be an essential component to resolving this problem.)

Through the years, I have found Scott Burns to be an interesting thinker who provides useful and accurate information, and his column is time well-spent for anyone wanting to improve their financial management.

The TEA Party downgrade?

The S&P downgrade of America’s credit rating has creating an unstable stock market.  Yesterday was my worst day ever, with the Dow down 635 points, while today was my best day ever, with the Dow up 430 points.

Both political parties are politicizing the downgrade.  On one hand, the Republicans are saying that President Obama is the first president to have a downgrade “on his watch.”  That is undeniable.

On the other hand, the Democrats are calling it the “TEA Party downgrade.”  That is more debatable.

S&P warned that there might be a downgrade unless the federal deficit for the next decade was trimmed by at least $4 trillion.  Thus, the only way to have avoided the downgrade was the adoption of President Obama’s and Speaker Boehner’s Grand Bargain.

The Grand Bargain would have trimmed the deficit by $4 trillion, but President Obama and Speaker Boehner couldn’t agree on how much revenues should increase.  According to news reports, Boehner offered to increase revenues by $800 billion, while Obama insisted on $1.2 trillion.

The significant fact is Boehner offered to increase revenues, which is something that his TEA Party members would never sign-off on.  Thus, the TEA Party wasn’t controlling Boehner or the process.

The Grand Bargain failed because Boehner and Obama couldn’t agree on how much, not whether, revenues should increase.  So instead of calling it the TEA Party downgrade, let’s call it the Obama/Boehner downgrade.

Your car is reflection of you

A well-to-do Kentucky cousin recently posted a Facebook entry asking, “Why do people think it is funny that I go to a grocery store in a Ferrari? My family has to eat…”  His entry prompted me to think about conspicuous consumption, something that was a bugaboo back when I went to college in the 70s, and a few days later, I made the following entry on my Facebook wall:

• While bike-riding a few days ago, I saw a distinguished-looking, middle-age man driving a silver, muscular luxury convertible, and then yesterday while bike-riding I saw a beautiful, young woman in a sleek, black Mercedes coupe.  Both times, I thought that I was happier on my $1200 road bike in the Hill Country than I would be in those vehicles. Unless, of course, the girl came with the Mercedes!

A perceptive friend (Tia Pirkl) saw through my verbiage to point out – “more judging.”  She had previously noticed that I have a tendency to criticize others,
and she correctly concluded that I was doing the same thing here.

I responded as follows, “Tia, am I that obvious? I try to be non-judgmental, but I confess to having a strong urge to disparage materialistic lifestyles.”

Which brings me to my point – your car is a reflection of you.

Many people think that your car is a reflection of your wallet (an expensive or inexpensive car) or your family situation (a minivan or SUV for a family), but I think that in most situations people are able to buy a car that reflects their self-image.

When I worked at USAA, I remember a matronly, middle-aged co-worker who had a Ford Mustang.  It always struck me as an anomaly, but it reflected her misguided perception of herself.

Movies often show a cool, poor guy driving an old, inexpensive convertible, and I drove an old, inexpensive convertible when I went to law school because I probably thought I was a cool, poor guy.

I currently drive a Nissan Altima coupe and before that I drove a 4-door Hyundai Elantra.  I could have afforded to buy a more expensive car, but I felt comfortable with these cars and would have felt uncomfortable in either a luxury or an economy car.  Sam Walton, the richest man in the world, drove a pickup truck.  Two of my sons drive Jeep Wranglers, and those vehicles are a perfect reflection of their personalities.

When I think of conspicuous consumption as an evil, however, I think of buying something more expensive than you can easily afford.  Someone who makes a lot of money should be expected to spend some of that money, but they don’t
have to spend the money in a way that throws it in the face of people without
as much money.

I have a friend who criticizes rich people who own a bunch of cars – e.g., Jay Leno or sports stars.  I counter his criticism by pointing out that Jay has millions of dollars and buys a multitude of cars, not because he wants to advertise his wealth, but because he enjoys exotic cars.  I don’t think Jay is engaging in conspicuous consumption.  But I’ve known lots of people who will stretch their budget to be able to drive a 5-series BMW or a Lexus/Mercedes.

To these people, it’s all about “keeping up with the Joneses.”

Kill All The Lawyers?

“The first thing we do, let’s kill all the lawyers,” is a line from Shakespeare’s “Henry VI,” and it is often quoted to suggest that lawyers have been a bane to civilization for hundreds of years.  But the NY Times has pointed out that the quote has been taken out of context:

• “Dick the Butcher was a follower of the rebel Jack Cade, who thought that if he disturbed law and order, he could become king. Shakespeare meant it as a compliment to attorneys and judges who instill justice in society.”

Regardless of what Shakespeare intended, there is no question that the prestige of the legal profession is not what it should be.  Proof – while surfing the net, I came across a fascinating 2006 article that ranked 23 professions in America:

1. Firefighters
2. Doctors
3. Nurses
4. Scientists
5. Teachers
6. Military officers
7. Police officers
8. Clergyman
9. Farmers
10. Engineers
11. Congressmen
12. Architects
13. Athletes
14. Lawyers
15. Entertainers
16. Accountants
17. Bankers
18. Journalists
19. Union leaders
20. Actors
21. Business executives
22. Stock brokers
23. Real estate agents

During the annual meeting of the State Bar of Texas, we were told by the new bar president that the major focus of his one-year tenure will be improving the stature of lawyers.  One of his tools for accomplishing that objective is a new video, which he demoed to us.  Unfortunately, the well-produced video is not yet available to the public.  Suffice it to say that the video describes great things done by a long list of great Americans and then closes each bio with the phrase, “and he/she was a lawyer.”  The video shows that the legal profession does more than chase ambulances or look for loopholes to crawl through, but rather it is the means for civilized people to pursue justice.

In one of the final sessions during the annual meeting, author H.W. Brands built on the theme of lawyer relevance.  According to Brands, lawyers in 19^th century America made two invaluable contributions:

1. The legal profession afforded talented people a means to rise socially and economically.  In other countries,
   mobility was severely limited because of aristocracy to those in the military and clergy.
2. The legal system, particularly the Northwest Ordinance, allowed territory to be added to the country as equals, not as subservient parts of an empire, and this policy was critical to the expansion of America.

I wish the president of the bar well in his efforts to increase the prestige with the legal profession.  But this is something that has to be marketed to the membership as much as to the public.  Historically, the profession has done much to make this country what it is today, but too many lawyers act unprofessionally.

Do defined-benefits pension plans deserve to die?

Earlier this morning, I heard a FOX News opinionator suggest that defined-benefits pension plans (DB plan) have no place in America.  Because his position seemed a bit extreme (I have a DB plan from USAA), I wasn’t entirely focused when he explained that the economic status of virtually everyone is affected by the ups and downs of the economy, so why should retirees be any different.  As the morning went on, however, I kept returning to his explanation and found it persuasive.

For those who don’t recall the difference between the two major types of pension, a defined-contribution pension plan (DC plan) is like a 401k.  A defined amount of money (a percentage of an employee’s salary) is put into the plan, but the amount coming out to a retiree depends on how well the money is invested.  If the money is invested conservatively, it will probably have a small positive return of 2-5% annually.  If it is invested aggressively, it might have a negative return or a positive return of more than 10% annually. 

By contrast, a defined-benefits pension plan (DB plan) pays a pension amount that can be calculated by multiplying an employee’s salary times years of service times a pre-determined multiplier.  For example, an employee with a $100k salary and 40 years of service and a 2% multiplier would receive an annual pension of $80k ($100k x 40 x 2%).  Common variations with the salary calculation include whether only the final year is counted, the highest year, or the highest three or five consecutive years.  Public employers tend toward a shorter term, while private employers tend toward a longer term.  When employers base their calculation on a single year, there is a tendency to load up on overtime pay in that year.  Public employers also tend toward a higher multiplier.  Some employers further limit the years of service to a maximum of 30 years. 

My former employer USAA had a pension plan based on the average of the highest five years of salary, with a 30-year maximum and a 1.5 multiplier.  Thus, using the same example as above, a USAA employee’s pension could be reduced by almost half – i.e. $40,500 ($90k x 30 x 1.5%).      

Perhaps the greatest variation in a DB plan is the age of retirement.  A DB plan can provide full benefits at age 65, like Social Security does.  My previous employer USAA gave full benefits at age 62.  Most government employers give full benefits at a much earlier age – either at age 55 or after 30 years of service.  This variation is so expensive because government employees can easily draw retirement for more years than they worked.

Although employees may contribute some of their salary toward a DB plan, the employer is responsible for putting away enough money to satisfy its pension obligations (unlike the federal government and Social Security).  When the business and investments are going good, an employer is more able to pay into its pension fund; when the economy is bad, those payments are difficult.

Public v. private pensions

The verdict of private employers is in, and they have eliminated their DB plans and shifted to DC plans, including USAA which discontinued its pension several years ago.  Ironically, DB plans have survived in the public sector even though the public-sector plans have traditionally been much more generous.  In fact, I went bike-riding this past weekend with a state employee from Colorado who told me that their multiplier (2.5%) was even more generous than Texas’s (2.3%). 

One could argue that public employees are significantly sheltered from the economic cycle during their employment and thus continuing this shelter during their retirement is appropriate.  I disagree.  As my old boss at USAA used to say during his employee meetings, the company works better when everyone realizes how interdependent we are on each other.  We don’t want public employees thinking, “I got mine, Jack.  What’s your problem?” 

Social Security is the grand-daddy of all defined-benefits plans, and George W. Bush was soundly rebuffed when he tried to convert part of Social Security away from defined benefits and toward defined contribution.  Although that part of Social Security that serves as a safety net should remain a defined benefit, the other part should be converted to a defined contribution.  I remain optimistic that good ideas like that will eventually be accepted by Americans.