42 ms·

Why? Pensions exist to serve retirees, not those retirees' former corporate masters. One of the only truly kind things an organization can do for an individual

by tomc1985 9y ago

Why? Pensions exist to serve retirees, not those retirees' former corporate masters. One of the only truly kind things an organization can do for an individual that serves them over a lifetime, and you would shit on it? 401(k) is a poor solution that requires individual initiative to deploy successfully. Those who don't contribute eventually burden those who do (even if that burden can potentially be paid for in advance, if you have the account type that taxes on deposit), and that's only if they withstood the lifetime of temptations that press people into early withdrawal.

Kalium 9y ago
You're absolutely right! Pensions exist to serve retirees, not their former overlords. Looking after the needs of the retired is the kind, decent, humane thing to do. It's not about whose interests they serve so much as it is how sustainable and practical they actually are. Is it kind to make a commitment to someone around which they will organize their life at the cost of crippling the lives of their successors? What if that organization isn't a company, but a government, and the resulting costs cripple its ability to perform other functions? Is it kind to cripple a city's services or a school's ability to teach in order to meet pension obligations that were poorly planned for decades? Who will pay a company's pension bill if the pensions push it into insolvency? These aren't trivial questions with easy, pre-baked answers. They also are real, pressing questions that face us today. Your heart is unquestionably in the right place - it's not about the investor class! It's about the retirees who have given their lives! But there might be some room for subtlety.
- tomc1985 9y ago
  You conflate mismanagement with the act itself... I agree with you that increased lifespans throw a wrench in the works, but that is not enough of a problem to justify throwing out the baby with the bathwater. Pensions represent a HUGE portion of market actors' institutional conservatism and that is a necessary counterweight to the sort of irrational exuberance that is endemic to tech and other forward-thinking sectors You want to talk about skyrocketing costs? Why not focus that energy on sorting out the mountains of institutional waste found elsewhere in the economy? Like, why the fuck does infrastructure here cost 10x other industrialized countries? Lots more money to be freed up that way
  - Kalium 9y ago
    In the US, public sector pensions have been mismanaged so frequently that no conflation is required. EDIT: Further, there's a basic accountability problem. It was - is - easy to gain politically in the short term by making promises about pensions. Promise bigger pensions, smaller contributions, and so on. The gains can be realized almost immediately. The price is paid much later, often decades later, and the people who made those unwise promises cannot be held to account so long after the fact. For many states and cities, pensions act as a counterweight to the ability to do anything other than pay pension costs. As before, you are absolutely right that there are mountains of waste to be investigated and addressed. You're completely right that there's a lot of money to be freed up there. Those issues are real, and they are pressing. Yet it is perhaps no more real or more pressing than the burden imposed by decades of financial mismanagement around pensions.
    - tomc1985 9y ago
      Out of curiosity I checked my admittedly-boring hometown's financials for 2017, and found their pension spend to be less than 10% of overall budget for the year (though they note a pending crisis and potential doubling of pension expenses over the next few years). Not knowing what other entities' books look like, and also knowing that one town is hardly representative, pension spend looks large (large enough that I'd guess many different types would like to optimize out of the equation) but not that large. How big of a crisis are we looking at -- 50% of total budgets? 30%? 20%? You're right- mismanagement needs to be addressed. And I have no idea how to bring these firms to heel -- I just think that a market-based solution ("let them have 401(k)s!") is not the right answer here.
      - Kalium 9y ago
        https://en.wikipedia.org/wiki/Pensions_crisis#U.S._State-level_issues https://en.wikipedia.org/wiki/Pensions_crisis#U.S._State-lev... In general, underfunded pensions and large increases in expenses are a looming threat to many state and local governments. In California, many cities are expecting their pension costs to increase by 50% or more. Few have much in the way of spare cash to begin with. It's not just the mismanagement of professional pension management funds, though you are of course right that that is a major concern. Broadly, the crisis is the result of applying unreasonable discount rates (8% or more) and making unrealistic promises about contributions and payouts. This is very, very easy to do when you're negotiating a union contract, as a state generally has little choice but to pay up when the time comes. It's also easy to do when you can bump up the assumed discount rate a bit and use the cash this frees up for goodies for your voters. These weren't just poor management decisions made by self-interested private companies. Indeed, private pensions often assumed much less rosy discount rates and fared much better. These poor financial management decisions were quite often made by union leadership and local officials, some of them elected. Sad to say, shifting from a defined-benefit system to a defined-contribution system seems to be the only way to guarantee that this particular form of politically expedient mismanagement will not recur. This doesn't have to be 401(k)s, 403(b)s, or other market-oriented system. But whatever the eventual system is, it clearly cannot look anything like the pensions of yesteryear. That system has failed, and the kindness and compassion and pure intentions at its heart has gone to waste. Let there be no doubt - this is tragedy.
ng12 9y ago
> 401(k) is a poor solution that requires individual initiative to deploy successfully That's why 401k's are good. I have control, and if my retirement is underfunded it's my own fault. Compare this to pensions (both public and private) which are chronically underfunded: https://www.bloomberg.com/graphics/2017-state-pension-funding-ratios/ https://www.bloomberg.com/graphics/2017-state-pension-fundin... https://www.bloomberg.com/graphics/2017-corporate-pensions/ https://www.bloomberg.com/graphics/2017-corporate-pensions/
- tomc1985 9y ago
  Except most don't. Many don't even have the opportunity, or realize that they have it. In a world where everyone takes advantages of all the opportunities presented to them I would agree with you, but for most (at least around me) 401(k) seems like afterthought or fantasy If I don't have steady work the last thing on my mind is retirement...
  - ng12 9y ago
    And in that situation how does a pension help you? If you don't have a stable, well-paying job you don't have a stable, well-funded pension. We need as better system for retirement but pensions are not the answer.
    - tomc1985 9y ago
      I can count the number of 401k holders in my social group with one or two hands. Many more than that set are employed, mostly semi-regularly, and their jobs offer them nothing retirement-wise Pensions may not be the answer, but neither are retirement accounts.
      - ng12 9y ago
        If your job doesn't offer a simple 401k plan there's no hope for them offering a pension, let alone a stable well-funded one. I agree with you that the future is murky for young people. That doesn't change my view that a 401k is preferable to a pension.
mfoy_ 9y ago
The way I see it, there are three pension scenarios: 1. You are promised a pension and the company delivers. 2. You are promised a pension and the company does some creative accounting to screw you. 3. You are not promised a pension and plan for your own retirement accordingly. 4. You are not promised a pension and fail to plan for your retirement. I don't believe #1 is reliable enough. Unless (and maybe even if) you are working for a government, your pension isn't rock solid. If you (more likely) run into #2 you end up betrayed, and have to scramble to make things work in your retirement. I am 100% in camp #3. Plan for your own retirement-- No expectations; no disappointment. Option #4? Well... there are consequences to your actions.
- phil21 9y ago
  I generally 100% agree with you. The problem with your stance (and mine) on #4 is that there aren't consequences to their actions. Those consequences will inevitably be put on group #3 since they will be vilified as a group and it will be very easy to politically take their money to give to group #4. I've not really figured out away around that problem. The numbers are simply too great too ignore - unless you truly feel something like 60% of retirees who have saved literally nothing other than their (meager) social security benefits will simply quietly die in the street. Unfortunately this fact is one of the larger reasons why I feel this social division in the country is just starting, not coming to a head as most I talk to seem to think.
kolbe 9y ago
I don't think there's too much of a difference between the sentiment of how you two want retirees to be treated. I think the main difference is that he respects people enough to believe they can plan for themselves, but you think they need to be coddled. But you both want them to have a prosperous and comfortable retirement.
Aunche 9y ago
Pensions aren't done out of kindness. Their original purpose is to allow a company to underpay its employees until the employees retire in a few decades. By that time, the original investors have long since cashed out. It's essentially a free loan to them.
typomatic 9y ago
> Why? Pensions exist to serve retirees, not those retirees' former corporate masters. One of the only truly kind things an organization can do for an individual that serves them over a lifetime, and you would shit on it? Morality left the building a long time ago in American capitalism--few consider there to be any real moral duty that a company owes its workers. If it's not in the contract, you're a sucker. It's not a good way to run a polity as far as I can tell, but that's the program.
zxcmx 9y ago
I would recommend googling for "airline bankruptcy pensions" to see how this plays out in a lot of cases. If pension liabilities get large enough, companies will tend to "go bankrupt" (not really!) or restructure in such a way as to shed the liability. An interesting midpoint, I think is super in australia or kiwisaver in nz - mandated retiredment savings which can be invested in a choice of compliant funds (or self managed if you really want). Variable % contribution but a legal minimum. From a regulatory POV you can set these up with mandatory "employer" contributions and/or add government sweeteners. Of course, it's all part of your compensation, just like a pension promise but more direct and payable immediately. I think these schemes also work more cleanly with modern reality: few people work for the same company for 30 years anymore.

Kalium 9y ago

You're absolutely right! Pensions exist to serve retirees, not their former overlords. Looking after the needs of the retired is the kind, decent, humane thing to do. It's not about whose interests they serve so much as it is how sustainable and practical they actually are. Is it kind to make a commitment to someone around which they will organize their life at the cost of crippling the lives of their successors? What if that organization isn't a company, but a government, and the resulting costs cripple its ability to perform other functions? Is it kind to cripple a city's services or a school's ability to teach in order to meet pension obligations that were poorly planned for decades? Who will pay a company's pension bill if the pensions push it into insolvency? These aren't trivial questions with easy, pre-baked answers. They also are real, pressing questions that face us today. Your heart is unquestionably in the right place - it's not about the investor class! It's about the retirees who have given their lives! But there might be some room for subtlety.

tomc1985 9y ago
You conflate mismanagement with the act itself... I agree with you that increased lifespans throw a wrench in the works, but that is not enough of a problem to justify throwing out the baby with the bathwater. Pensions represent a HUGE portion of market actors' institutional conservatism and that is a necessary counterweight to the sort of irrational exuberance that is endemic to tech and other forward-thinking sectors You want to talk about skyrocketing costs? Why not focus that energy on sorting out the mountains of institutional waste found elsewhere in the economy? Like, why the fuck does infrastructure here cost 10x other industrialized countries? Lots more money to be freed up that way
- Kalium 9y ago
  In the US, public sector pensions have been mismanaged so frequently that no conflation is required. EDIT: Further, there's a basic accountability problem. It was - is - easy to gain politically in the short term by making promises about pensions. Promise bigger pensions, smaller contributions, and so on. The gains can be realized almost immediately. The price is paid much later, often decades later, and the people who made those unwise promises cannot be held to account so long after the fact. For many states and cities, pensions act as a counterweight to the ability to do anything other than pay pension costs. As before, you are absolutely right that there are mountains of waste to be investigated and addressed. You're completely right that there's a lot of money to be freed up there. Those issues are real, and they are pressing. Yet it is perhaps no more real or more pressing than the burden imposed by decades of financial mismanagement around pensions.
  - tomc1985 9y ago
    Out of curiosity I checked my admittedly-boring hometown's financials for 2017, and found their pension spend to be less than 10% of overall budget for the year (though they note a pending crisis and potential doubling of pension expenses over the next few years). Not knowing what other entities' books look like, and also knowing that one town is hardly representative, pension spend looks large (large enough that I'd guess many different types would like to optimize out of the equation) but not that large. How big of a crisis are we looking at -- 50% of total budgets? 30%? 20%? You're right- mismanagement needs to be addressed. And I have no idea how to bring these firms to heel -- I just think that a market-based solution ("let them have 401(k)s!") is not the right answer here.
    - Kalium 9y ago
      https://en.wikipedia.org/wiki/Pensions_crisis#U.S._State-level_issues https://en.wikipedia.org/wiki/Pensions_crisis#U.S._State-lev... In general, underfunded pensions and large increases in expenses are a looming threat to many state and local governments. In California, many cities are expecting their pension costs to increase by 50% or more. Few have much in the way of spare cash to begin with. It's not just the mismanagement of professional pension management funds, though you are of course right that that is a major concern. Broadly, the crisis is the result of applying unreasonable discount rates (8% or more) and making unrealistic promises about contributions and payouts. This is very, very easy to do when you're negotiating a union contract, as a state generally has little choice but to pay up when the time comes. It's also easy to do when you can bump up the assumed discount rate a bit and use the cash this frees up for goodies for your voters. These weren't just poor management decisions made by self-interested private companies. Indeed, private pensions often assumed much less rosy discount rates and fared much better. These poor financial management decisions were quite often made by union leadership and local officials, some of them elected. Sad to say, shifting from a defined-benefit system to a defined-contribution system seems to be the only way to guarantee that this particular form of politically expedient mismanagement will not recur. This doesn't have to be 401(k)s, 403(b)s, or other market-oriented system. But whatever the eventual system is, it clearly cannot look anything like the pensions of yesteryear. That system has failed, and the kindness and compassion and pure intentions at its heart has gone to waste. Let there be no doubt - this is tragedy.

ng12 9y ago

> 401(k) is a poor solution that requires individual initiative to deploy successfully That's why 401k's are good. I have control, and if my retirement is underfunded it's my own fault. Compare this to pensions (both public and private) which are chronically underfunded: https://www.bloomberg.com/graphics/2017-state-pension-funding-ratios/ https://www.bloomberg.com/graphics/2017-state-pension-fundin... https://www.bloomberg.com/graphics/2017-corporate-pensions/ https://www.bloomberg.com/graphics/2017-corporate-pensions/

tomc1985 9y ago
Except most don't. Many don't even have the opportunity, or realize that they have it. In a world where everyone takes advantages of all the opportunities presented to them I would agree with you, but for most (at least around me) 401(k) seems like afterthought or fantasy If I don't have steady work the last thing on my mind is retirement...
- ng12 9y ago
  And in that situation how does a pension help you? If you don't have a stable, well-paying job you don't have a stable, well-funded pension. We need as better system for retirement but pensions are not the answer.
  - tomc1985 9y ago
    I can count the number of 401k holders in my social group with one or two hands. Many more than that set are employed, mostly semi-regularly, and their jobs offer them nothing retirement-wise Pensions may not be the answer, but neither are retirement accounts.
    - ng12 9y ago
      If your job doesn't offer a simple 401k plan there's no hope for them offering a pension, let alone a stable well-funded one. I agree with you that the future is murky for young people. That doesn't change my view that a 401k is preferable to a pension.

mfoy_ 9y ago

The way I see it, there are three pension scenarios: 1. You are promised a pension and the company delivers. 2. You are promised a pension and the company does some creative accounting to screw you. 3. You are not promised a pension and plan for your own retirement accordingly. 4. You are not promised a pension and fail to plan for your retirement. I don't believe #1 is reliable enough. Unless (and maybe even if) you are working for a government, your pension isn't rock solid. If you (more likely) run into #2 you end up betrayed, and have to scramble to make things work in your retirement. I am 100% in camp #3. Plan for your own retirement-- No expectations; no disappointment. Option #4? Well... there are consequences to your actions.

phil21 9y ago
I generally 100% agree with you. The problem with your stance (and mine) on #4 is that there aren't consequences to their actions. Those consequences will inevitably be put on group #3 since they will be vilified as a group and it will be very easy to politically take their money to give to group #4. I've not really figured out away around that problem. The numbers are simply too great too ignore - unless you truly feel something like 60% of retirees who have saved literally nothing other than their (meager) social security benefits will simply quietly die in the street. Unfortunately this fact is one of the larger reasons why I feel this social division in the country is just starting, not coming to a head as most I talk to seem to think.

kolbe 9y ago

I don't think there's too much of a difference between the sentiment of how you two want retirees to be treated. I think the main difference is that he respects people enough to believe they can plan for themselves, but you think they need to be coddled. But you both want them to have a prosperous and comfortable retirement.

Aunche 9y ago

Pensions aren't done out of kindness. Their original purpose is to allow a company to underpay its employees until the employees retire in a few decades. By that time, the original investors have long since cashed out. It's essentially a free loan to them.

typomatic 9y ago

> Why? Pensions exist to serve retirees, not those retirees' former corporate masters. One of the only truly kind things an organization can do for an individual that serves them over a lifetime, and you would shit on it? Morality left the building a long time ago in American capitalism--few consider there to be any real moral duty that a company owes its workers. If it's not in the contract, you're a sucker. It's not a good way to run a polity as far as I can tell, but that's the program.

zxcmx 9y ago

I would recommend googling for "airline bankruptcy pensions" to see how this plays out in a lot of cases. If pension liabilities get large enough, companies will tend to "go bankrupt" (not really!) or restructure in such a way as to shed the liability. An interesting midpoint, I think is super in australia or kiwisaver in nz - mandated retiredment savings which can be invested in a choice of compliant funds (or self managed if you really want). Variable % contribution but a legal minimum. From a regulatory POV you can set these up with mandatory "employer" contributions and/or add government sweeteners. Of course, it's all part of your compensation, just like a pension promise but more direct and payable immediately. I think these schemes also work more cleanly with modern reality: few people work for the same company for 30 years anymore.