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Faulty Perceptions

Richard Quinn

THERE’S A SAYING that “perception is reality,” meaning that what you believe is your reality, whether it’s true or not. Changing our perception isn’t easy. It takes effort, along with a willingness to discover and accept facts.

Many Americans’ perceptions are incorrect, leading them to make subpar financial decisions. Consider:

  • Social Security. Nobody stole the trust fund, it’s not going broke and, yes, it will be there for you.
  • Medicare. It’s not socialized medicine. Care is rendered by the private sector and patients get to select who provides care.
  • Taxes. The U.S. is not among the highest-taxed countries.
  • Affordable Care Act. It’s not government-run health insurance. Like Medicare, care is provided by the private sector.
  • Paycheck to paycheck. Struggling to pay bills isn’t just a low-income phenomenon. High earners can live that way, too. Paycheck-to-paycheck living is as much about spending as income.

Recently, I was in a coffee shop when a worker from my old employer came in. I recognized the logo on his hard hat and struck up a conversation. “How are things at the company?” I asked. “Pretty bad” was his reply. He asked where I’d worked. I told him I’d been in the main office and had been in charge of employee benefits.

Then I took a big risk and asked how he liked his employee benefits program. “It stinks,” he replied. I should have stopped there, but I pressed on.

I’m the person who installed a new benefits program at the company in 1996, which was the year this man was hired. The program is different from that enjoyed by longer-tenured workers, which I also mentioned. His response was quick and to the point— “you suck”—though said with a smile on his face.

Back in 1996, we were trying to lower costs and liabilities without reducing benefits for longer-time workers. A two-tiered scheme worked for several years. But when the majority of workers had the new plan, older workers became a target of envy. The company broke various commitments made to long-term workers and retirees, and reduced their benefits anyway. Still, longer-tenured workers continue to have a traditional defined benefit pension, plus company-subsidized retiree health benefits. 

My new friend claimed that, because of me, he and his fellow post-1996 employees would be on welfare when they retired. That’s his perception. But it isn’t reality. In truth, he has a cash-balance pension, plus a 401(k) with an employer match. He wasn’t impressed when I explained he had it better than about 85% of U.S. private sector workers. His perception went no further than comparing his situation to that of longer-tenured workers still in the pre-1996 plans.

He went into detail about his complaints. He had only $1.1 million in his 401(k). He’d had $1.3 million last year and he blamed the company for the decline. Go figure. According to him, his cash balance plan was worth “nothing,” which turned out to be $126,000, and that sum will be even higher by the time he retires.

His pay as a union worker, including overtime, is $160,000 a year. I said, “Gee, that’s twice the median household income in the United States.” He ignored me. Nevertheless, his perception is that, in a few years, he’s heading for the welfare rolls—because of me.

The changes made at the company nearly three decades ago also eliminated health benefits for future retirees. That was a big liability for the company. Since then, the Affordable Care Act came along, so many early retirees will receive government subsidies and have more health insurance choices. He also has a health account, plus the company makes modest annual payments to a retiree medical fund that workers can tap in retirement.

He claimed to be paying $330 per week for health insurance for his family. That seemed high to me, but I confirmed it was true. Here’s the thing, though: Like many people, he equates the cost of premiums with his plan’s value. That’s often a big mistake.

In this case, his selection is an option that has become so expensive the company is eliminating it next year. The plan is subject to adverse selection—sicker people choose it because of its generous benefits—and that results in higher premiums. Once again, his perception of better coverage has gotten in the way of reality, and it’s costing him money.

I’m back in that coffee shop today. I’m hoping the guy doesn’t return with a cadre of his fellow workers.

Richard Quinn blogs at QuinnsCommentary.net. Before retiring in 2010, Dick was a compensation and benefits executive. Follow him on Twitter @QuinnsComments and check out his earlier articles.

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