WalMart Raises Starting Wage To $11, Provides One-Time Bonus Following Trump Tax Reform

This report was originally published by Tyler Durden at Zero Hedge

Add Wal-Mart to the growing list of companies boosting employee compensation in the aftermath of the passage of Trump’s tax reform.

In a just released press release, Wal-Mart Stores announced it is boosting its starting hourly wage to $11, expanding maternity and parental leave benefits and providing a one-time cash bonus for eligible associates – those who have been with the company at least 20 years – of up to $1,000, capitalizing on the U.S. tax overhaul to stay competitive in a tightening labor market.

The company said that the increase will take effect in February next month and will cost approximately $300 million incremental to already planned wage hikes. The one-time bonus of up to $1,000 is based on seniority and will amount to an additional $400 million. The company is also expanding its maternity and parental leave policy and adding an adoption benefit.

Walmart CEO Doug McMillon said that “we are early in the stages of assessing the opportunities tax reform creates for us to invest in our customers and associates and to further strengthen our business, all of which should benefit our shareholders. However, some guiding themes are clear and consistent with how we’ve been investing — lower prices for customers, better wages and training for associates and investments in the future of our company, including in technology. Tax reform gives us the opportunity to be more competitive globally and to accelerate plans for the U.S.”

As Bloomberg adds, Wal-Mart, the nation’s largest private employer, has fought in recent years to improve its image in the U.S., as it weathered criticism over its treatment of employees. With the wage increase and bonus payment, the world’s biggest retailer seeks to even its pay gap with resurgent rival Target Corp., while simultaneously sending a high-profile thank you to the U.S. government for slashing the corporate tax rate.

The full release can be found here.

Kentucky Budget Director Admits Pension Underfunding Would Double If "Realistic Discount Rates" Used

We"ve frequently argued that public pensions in the U.S. are nothing more than elaborate ponzi schemes being propped up by unrealistic accounting assumptions that make them seem more healthy than they actually are.  As it turns out, the State Budget Director of Kentucky, John Chilton, is coming around to our way of thinking. 

In a letter sent out to the Kentucky Employees’ Retirement System last Friday, Chilton told Kentucky employees that if their pensions were subjected to the same rules governing single-employer private plans that their underfunded level would double and federal law would have already required "that all benefits be frozen and the plans terminated."  Per The State Journal:

“It is well known that all of the Commonwealth’s pension plans are in a crisis. Using the same investment rates of return that corporate plans are required to use – the Corporate Bond Index rate – the aggregate underfunding for all of Kentucky’s eight plans goes from $33 billion to $64 billion,” he wrote in the letter.

“Furthermore, if Kentucky plans were subject to federal standards for single-employer private plans, six of the plans would be designated as having severe funding shortfalls because their funded status is less than 60 percent. As such, federal law would require that all benefits be frozen and the plans terminated. This is true even using the old 2016 actuarial assumptions, rather than the more realistic discount rates and other assumptions required of private plans.

“The need for significant reform is evident to anyone looking at the health of the Commonwealth’s plans within that larger context.”

The letter said total employer contributions for Fiscal Year 2017, which ended June 30, were $857,311,370.  If there is no legislative action, that rises to an estimated $872,677,346 in FY 2018, the current fiscal year, and $1,483,863,927 in FY 2019, an increase of over $611 million, from this fiscal year.

As we pointed out last week, Kentucky"s public pensions face a daunting funding hole of $33-$84 billion, depending on your discount rate assumptions, according to a recent analysis conducted by PFM Group.

The problem is that the aggregate underfunded liability of pensions in states like Kentucky have become so incredibly large that massive increases in annual contributions, courtesy of taxpayers, can"t possibly offset liability growth and annual payouts.  All the while, the funding for these ever increasing annual contributions comes out of budgets for things like public schools even though the incremental funding has no shot of fixing a system that is hopelessly "too big to bail."

So what can Kentucky do to solve their pension crisis?  Well, as it turns out they hired a pension consultant, PFM Group, in May of last year to answer that exact question.  Unfortunately, PFM"s conclusions, which include freezing current pension plans, slashing benefit payments for current retirees and converting future employees to a 401(k), are somewhat less than "perfectly acceptable" for both pensioners and elected officials who depend upon votes from public employee unions in order to keep their jobs...it"s a nice little circular ref that ensures that taxpayers will always lose in the fight to fix America"s broken pension system.

Be that as it may, here is a recap of PFM"s suggestions to Kentucky"s Public Pension Oversight Board courtesy of the Lexington Herald Leader:

An independent consultant recommended sweeping changes Monday to the pension systems that cover most of Kentucky’s public workers, creating the possibility that lawmakers will cut payments to existing retirees and force most current and future hires into 401(k)-style retirement plans.

If the legislature accepts the recommendations, it would effectively end the promise of a pension check for most of Kentucky’s future state and local government workers and freeze the pension benefits of most current state and local workers. All of those workers would then be shifted to a 401(k)-style investment plan that offers defined employer contributions rather than a defined retirement benefit.

PFM also recommended increasing the retirement age to 65 for most workers.

The 401 (k)-style plans would require a mandatory employee contribution of 3 percent of their salary and a guaranteed employer contribution of 2 percent of their salary. The state also would provide a 50 percent match on the next 6 percent of income contributed by the employee, bringing the state’s maximum contribution to 5 percent. The maximum total contribution from the employer and the employee would be 14 percent.

For those already retired, the consultant recommended taking away all cost of living benefits that state and local government retirees received between 1996 and 2012, a move that could significantly reduce the monthly checks that many retirees receive. For example, a government worker who retired in 2001 or before could see their benefit rolled back by 25 percent or more, PFM calculated.

The consultant also recommended eliminating the use of unused sick days and compensatory leave to increase pension benefits.

Even if all of that is accomplished, State Budget Director John Chilton said Kentucky would still need to find an extra $1 billion a year just to keep its frozen pension systems afloat. Moreover, absent tax hikes the state will ultimately be forced to cut funding for K-12 schools by $510 million and slash spending at most other agencies by nearly 17% to make up the difference.

Meanwhile, PFM warned that the typical "kick the can down the road approach" would not work in Kentucky and that current retiree benefits would have to be cut.

“This is the time to act,” said Michael Nadol of PFM. “This is not the time to craft a solution that kicks the can down the road.”

“All of the unfunded liability that the commonwealth now faces is associated with folks that are already on board or already retired,” he said. “Modifying benefits for future hires only helps you stop the hole from getting deeper, it doesn’t help you climb up and out on to more solid footing going forward.”

Of course, no amount of math and logic will ever be sufficient to convince a bunch of retired public employees that they have been sold a lie that will inevitably fail now or fail later (take your pick) if drastic measures aren"t taken in the very near future. 

Nicolai Jilek, the legislative representative for the Kentucky Fraternal Order of Police, said expecting first responders to work until they are 60 is problematic given the physical requirements of the job.

“We’re very grateful that PFM is just offering recommendations … that they are not lawmakers because his plan would be horrible for first responders,” Jilek said.

Stephanie Winkler, president of the Kentucky Education Association, shared a similar sentiment.

“The PFM had some pretty drastic recommendations that we think are not what’s in the best interest of public school employees and public school students,” Winkler said.

Jim Carroll, president of Kentucky Government Retirees, said his group would likely sue if the legislature proceeds with PFM’s recommendation to roll back the cost of living adjustment that retirees received between 1996 and 2012.

“We think its very clear that the cost of living adjustments that were granted to us are ours as long as we are retirees in the system,” Carroll said.

As such, no matter the long-term consequences, we suspect the "kick the can down the road" approach to pension reform will continue to win right up until the plans actually run out of money...then we"ll all lose together.

Can Americans Really Depend On Social Security?

Submitted by Dennis Miller via MillerOnTheMoney.com,

In 1935 the government passed Social Security into law setting up a government managed retirement plan for the majority of US workers. To fund the plan, they passed the Federal Insurance Contribution Act (FICA). The law mandates that employers withhold a portion of the worker’s salary (contribution) and requires the employer to match the contribution.

It was sold to the public as a form of annuity, with each worker’s contributions and benefits based on their income. While Social Security has features similar to an annuity (paying lifetime benefits), in many ways it is different.

In 1960 the Supreme Court (Flemming v. Nestor) ruled, “that no one has an accrued property right to benefits from Social Security.” Contributions are now taxes with an indirect correlation to benefits.

An annuity with a private insurance company is a legally binding contract. The insurance company must honor the agreement or risk being sued for breach of contract.

With Social Security the government is the insurer holding all the power.

Social Security is nothing more than a government promise that can be unilaterally modified or broken.

The government has made many modifications since 1935.

There is a “Social Security Trust Fund” which many feel has been raided. While there may be a fund, allegedly $2.6 trillion, it consists of Treasury IOU’s. It was great for the government when the amount of social security taxes collected exceeded benefits being paid. Today baby boomers are retiring at a rate of 10,000 per day and benefits paid exceed current taxes. The government must borrow to make up the difference – in addition to the normal government borrowing to support their deficit spending.

US government debt roughly doubled from $10 to $20 trillion from 2009-2016. Debt will continue to escalate unless there are radical changes in taxes and spending. Raising taxes and cutting spending is politically unpopular, creating class warfare, while politicians pander to their political base.

Young people today must understand what Social Security is, and is not. A portion of their salary will be taxed, with a government promise to pay them benefits for their lifetime once they retire. How much those benefits will be, when they can retire, and the correlation of benefits to their personal wealth is undetermined.

Workers will probably get something; however it’s likely the promises will be modified many times. The government will jerk them around like The Wild Mouse roller coaster before the end of their ride. Benefits are nothing more than political promises.

The negotiation games are beginning

Yahoo Finance published the First Draft of the GOP’s Plan to Overhaul Social Security. Rep. Sam Johnson (R-TX), Chair of the House Ways and Means Subcommittee on Social Security, drafted the plan and has now introduced it as a bill.

A second group chimed in:

“…Rep. Tom Cole of Oklahoma, an influential House Republican, and Rep. John Delaney of Maryland, a moderate Democrat, renewed their support for a plan to create a bipartisan, 13-member panel to recommend to Congress ways to prevent the massive trust fund from running out of money …”

Remember a camel is a horse designed by a committee. A bipartisan committee of politicians produces a camel the size of a giant blow up balloon in a Macy’s parade! It is jam packed with compromises to satisfy everyone to the point it is unlikely to come close to the original objective.

Here are highlights in the current bill in the House of Representatives:

• Gradually increasing the retirement age for full benefits from age 67 to 69.

• Adopting a less generous Cost of Living Adjustment (COLA) Formula.

• Means testing, reducing benefit payments to wealthier retirees.

• Eliminate COLA increases for wealthier individuals.

• Increase the minimum benefit for lower-income workers.

The article summarizes, “Johnson’s proposal … is little more than an opening bid in a much larger conversation about entitlement reform in the coming year.”

The government is broke and eventually changes will be made. Everyone will bear some burden of “entitlement reform.” Young workers will see higher taxes. Increasing benefits for low-income workers, benefits based on means testing and eliminating COLA adjustments for wealthier individuals is turning Social Security into a wealth redistribution program.

Inflation – the elephant in the room!

The impact of COLA changes will have major negative effects on baby boomers and retirees.

Prior to the high inflation Carter presidency, retirees had a fixed monthly check. Congress occasionally voted to increase benefits. The elderly cheered – the benevolent Uncle Sam gave them a raise. Historically the increases did not come close to keeping up with inflation.

Future inflation risk cannot be accurately calculated. During the five-year period, 1977-1981, accumulated inflation amounted to 59.9%. If a person retired on 1/1/77 and received $1,000 per month, five years later they would need $1,599 per month to have the same buying power.

Will we experience high inflation in the future? The way the government is creating trillions out of thin air, there is a high probability. No worker, young or old wants to bet his or her future financial survival on low inflation for the next several decades. Inflation is the government’s friend and stated goal. They want inflation to sneak up on seniors, unlike the double-digit increases like the Carter years.

The deck is stacked. Younger workers will find their taxes increasing and their retirement date pushed back, while seniors and savers will see reduction in the buying power of their benefits.

What’s missing from the plan?

If the Hon. Representative Sam Johnson (R-TX) wants his bill passed he needs more public appeal. How about a provision calling for immediate elimination of all pensions for current and former federal elected officials? Congress should be on Social Security, just like the rest of us. The public is fed up with the elites. Put all elected officials under Social Security and Medicare like most Americans and then address changes.

While it is fun to dream, putting congress on the same plan with everyone else is for our emotional benefit. The system is broken and expecting politicians to fix it is foolhardy.

What should all workers do now?

1. Recognize Social Security for what it is and work around it. Social Security was designed to provide supplemental income for retirees based on their income. It’s now another typical government “entitlement program” redistributing the wealth of the nation. The working class may end up with something; however the benefits will have little correlation to your contributions.

2. Maximize your savings, particularly your 401(k). Workers cannot depend on Social Security to protect their lifestyle. The proposed changes are designed to punish savers; the wealthier you become the more your benefits will be reduced. Workers will have to go head on into the incoming tide and move forward. Maximize your savings in 401(k) type accounts – particularly if you have some sort of employer matching. You have the benefit of reducing your current taxable income and accumulating wealth on a tax-deferred basis.

3. Invest your 401(k) wisely. Having your investment income tax deferred is a good benefit but only if you grow your wealth. Don’t just make contributions and ignore where it is invested. If you need professional help to guide you, it is money well spent.

4. Increase your inflation hedge. The most buying power a retiree will have will be their first monthly check. By design, the buying power of each additional monthly check will decrease. For the “wealthy” the process will be faster. In addition to maxing out your 401(k), continue to regularly buy gold. Only Gold provides historical gold prices. On 1/1/77 the gold price was priced at $133.77/oz. On 12/31/81 the price rose to $400/oz. During the Carter years gold almost tripled in value, appreciating well ahead of the inflation rate. Buy and accumulate well past your normal retirement age. Your social security check will not keep up with inflation. Eventually retirees will have to sell small amounts to make up the difference to pay the bills.

5. Think before deciding to defer benefits. The government offers higher benefits to those who defer taking them when they are eligible. Making the wrong decision could cost thousands of dollars. The decision about when to draw benefits is different for each individual. Not only do you need to “run the numbers”, realize you are making a bet with the government on how long you will live. How much do you trust the government not to change things?

6. Can Americans really depend on Social Security? It depends on your definition of depend! Retirees need “income certainty” – having enough money to pay the bills regardless of what happens in the markets, inflation increases or any other unexpected economic changes – without having to worry. Should means testing and reduced COLA adjustments become part of the revision, income certainty will be replaced with worry. Retirees can depend on the government to send them something every month, but they cannot depend on it to continue to pay all the bills it may have covered in the past.

And finally…

A government big enough to give you everything you want, is strong enough to take everything you have. – Thomas Jefferson

Republican Version Of 'Cadillac Tax' In Obamacare Replacement Drawing Fire From Employers And Unions

Back in 2009, the Obama administration drew a lot of fire from employers and labor unions over Obamacare"s so-called "Cadillac Tax", a tax on healthcare premiums over a certain threshold.  Apparently, the United Auto Workers in the Midwest had grown accustomed to their unlimited supply of Viagra, completely free of charge, and were unwilling to "go down" without a fight.

Fast forward eight years and now several Republican plans for replacing the ACA include their own curb on generous health plans: a cap on how much of employer-provided health benefits could be shielded from taxes. Such a cap could force certain workers to start paying income tax on a portion of the cost of their coverage.

Currently, when an employee receives health insurance, the value of that benefit isn’t subject to either income or payroll taxes. On average, employer coverage for a single worker last year ran $6,435, while for a family, the tab was $18,142, according to a survey by the Kaiser Family Foundation. Employers bore about 82% of the cost for single plans, and about 70% for family coverage.

While the Republican plan would limit the deductibility of premium payments as opposed to implementing a special tax, as the Wall Street Journal points out, “in the end, they both would have similar effects,” including pushing companies toward skinnier health plans, according to Steve Wojcik, an official with the National Business Group on Health, which represents employers. “It’s six of one, a half-dozen of the other.”

Of course, many politicians in Washington D.C. view a tax on "Cadillac" plans as a huge revenue opportunity that could add $20 billion annually to federal coffers by 2025.

House Speaker Paul Ryan (R., Wis.) said recently he has long supported a cap on the health-benefits tax exclusion, but that it was an “open question” where Congress would end up on the issue. Mr. Hatch in a statement said, “We must study the open-ended tax preference and its impact on costs for employees and increased spending by employers.”

The tax exclusion for employer health benefits represents a huge pool of potential federal revenue, estimated at $266 billion in 2016, according to the Congressional Budget Office. Capping the exclusion would bring in a small fraction of that total. The Cadillac tax, the CBO said, would raise federal revenue by $2 billion in 2020, growing to $20 billion in 2025—money that could help defray the cost of expanded health coverage under the ACA.

That said, it"s not just C-suite executives who would be hit by the "Cadillac tax" as many unionized employees are also at risk, after decades of negotiating ever better healthcare plans far in excess of what their counterparts in non-unionized, private-sector jobs get.

Still, the current proposals to limit the tax exclusion are drawing sharp pushback from employers, which say the change could limit their flexibility and add to their costs, and labor groups, which fear their members could end up paying additional taxes. A December letter to members of Congress that criticized both the Cadillac tax and the health-benefits exclusion cap was signed by groups including the U.S. Chamber of Commerce and the National Retail Federation.

The cap is also drawing opposition from the Alliance to Fight the 40, a coalition that lobbies against the Cadillac tax, which would impose a 40% levy on the value of health plans above certain cutoff levels. Last month, the group, which includes employers, unions and health companies, paid to blast an ad at electronic devices in the vicinity of congressional Republicans’ Philadelphia retreat, with the message: “Taxes on employer-sponsored health care are a bad idea.”

Members of unions that have negotiated robust health benefits are among those likely to be hit by taxes tied to high-cost plans. Capping the health-benefits exclusion “would be a huge tax increase on the middle class,” said D. Taylor, president of Unite Here, which represents hospitality workers.

Meanwhile, economists have long said the tax exclusion for health benefits has negative effects, encouraging employers to offer too-generous health coverage. That, they argue, leads to excessive health spending because employees are shielded from the full cost of medical care.  The existing health-benefits tax exclusion “has been an important factor in promoting the kinds of inefficiencies in the health-care system that we have seen,” said Joseph Antos, an expert at the conservative-leaning American Enterprise Institute, who supports a cap on the employer health-benefits tax exclusion.

Of course, the real question is how Trump"s largely unionized supporters in Michigan, Wisconsin and Pennsylvania will respond to an assault on their unlimited chiropractic visits, "therapeutic" massages and Viagra.