15 ms·

Companies controlled by PE firms use bankruptcy to shed pension obligations

133 points by kaboro 8y ago

nickthemagicman 8y ago
Its a shame that pensioneers are so low on the bankruptcy list. The banks of America's and Lehman bros get their money before the people who are working the business to survive do. Without basic income you need a job to survive but at the same time you're being exploited while you work that job.
- bryanlarsen 8y ago
  In Canada, pensions are close to the top of who gets paid out in bankruptcy. Doesn't help a lot, they just sell off all the pieces and pay off insiders before entering bankruptcy.
- jandrese 8y ago
  The bankruptcy list is mostly pointless because there's so little to divvy up these days. By the time the bankruptcy happens all of the Wall Street types have already taken the money and run.
thinkr42 8y ago
I worked at Marsh from 2005-2015 in both corporate and the store. We were always skeptical of Sun, the CEOs that would cycle through didn't grasp the basics of grocery, and as an organization we failed to invest in basic infrastructure that would reduce our overall costs which are huge in the 2% margin grocery business. At the store we had registers with an OS from the 80's, a common thing if you look around, but we never invested in developing anything beyond the 80's unlike our competitors. We didn't ever implement a JIT style logistics program, which with massive in store staff cuts led to poor merchandise orders which in a perishable business kills you. Management in general was _highly_ skeptical of new technology and prone to spending a bunch of labor hours on repetitive, easily automated tasks (by my accounting at the time, I could have automated more than a million dollars of labor costs with a week of effort - something I brought up with management and demonstrated but was ultimately shot down, I wasn't some super genius - we had folks literally copying and pasting for 8 hours a day). Marsh was a good company with good people, several of those in the article I knew from my time in corporate. We had folks that would kill themselves working 60 hour weeks to keep a store afloat. It sucks to see what had happened to them.
- sct202 8y ago
  I wonder how much of that was politicking, where someone was keeping something purposefully bad so that they could sell a solution that "saves so much money" when a far cheaper solution would save as much money and cost way less.
  - Spooky23 8y ago
    Sometimes companies maintain high friction/high cost crap like that to scare off acquisition. A friend worked for a regional bank that had a strategy of purposeful obsolescence to maintain control with the core shareholders, who were mostly from one family. They were using 1980s era AS/400 systems with terminals as late as 2008, and had only 1 PC assigned to a manager in the branches, with connectivity via ISDN.
    - thinkr42 8y ago
      I hadn't thought of this to be honest, but I do faintly remember the IT / Dev team using the "not technically feasible" line a bunch whenever Marketing would come through with stuff. Used to get me angry quite a bit and I saw it translate a bunch to lost revenue and increased costs. I don't know how much of this got sent out of Marsh and up to Sun though.
      - Spooky23 8y ago
        Lazy IT people are always a good excuse too. Especially in CFO driven IT shops. I've seen people waste millions on magical systems that did very little out of inertia. In one case, a system with something $10M in annual costs that managed terminal (as in VT-102 terminal) and line printer assignments. A decade after the printers were trashed and terminals moved to a (almost equally offensive) very expensive web-based system.
  - thinkr42 8y ago
    I saw this a bunch in my next job after Marsh, which was analytics consulting. I'm not sure about Marsh doing this (at least internally), but who knows with Sun.
olliej 8y ago
Still amazing to me that owners and equity firms get money before pension funds. The literal theft - a pension is part of your income, and being able to sell off a company without paying off pension debts literally means retroactively stealing wages from workers. Remember that banks, etc all have insurance on their debt, apparently that doesn’t matter - companies are simply stealing from money that is not theirs, and that’s apparently ok.
- prklmn 8y ago
  It’s only ok because they’ve written all the laws for themselves. Of course the common person would not deem this to be ok.
  - late2part 8y ago
    We the people of the United States of America elect the people that write the laws. If we don't like what they're doing, vote them out and vote in people that will write the laws we want.
    - lightedman 8y ago
      Wrong, any person can write a law (and has been done multiple times in the past.) We elect the people that AMEND and PASS the laws.
    - michaelt 8y ago
      To do that should I vote Democrat, Republican or Independent?
      - deleted 8y ago
        [deleted]
      - JumpCrisscross 8y ago
        > should I vote Democrat, Republican or Independent? You should vote in your jurisdictions’ meaningful primaries, get involved with campaigns and causes that represent you and organise like-minded citizens.
raheemm 8y ago
When Sun bought Marsh Supermarkets, the company had three retirement plans. One for the top five Marsh executives, one for the store employees, and one for the warehouse workers. Only the executives’ plan, however, was fully funded under the sales agreement: With the completion of Sun’s purchase, Marsh’s top five executives were to be awarded $14 million in retirement payments, according to company financial documents. Among them: CEO Don Marsh at $7 million and corporate counsel P. Lawrence Butt at $2.2 million. Meanwhile, the other two retirement plans — the worker pensions — were short millions of dollars.
AdamM12 8y ago
On some levels the government insuring pensions like this creates an economic incentive to do exactly what these guys are doing.
- imglorp 8y ago
  If you don't want to do that, then jail would be a fine disincentive.
- sct202 8y ago
  Government pensions aren't insured like this and also have widespread issues with leaders coming in an slashing contributions so that they can spend the money elsewhere; eg, Illinois on every level of government. The insurance at least protects the pensioners to some degree.
  - AdamM12 8y ago
    Reread the article and what I said. The government insures some private pensions, not public pensions. This insurance provides some economic incentive for PE firms and other managers to behave in the manner derided in the article. All I was stating.
1001101 8y ago
Oliver Stone's Wall Street was not an instruction manual.
- rchaud 8y ago
  Neither was Liar's Poker, yet Michael Lewis has repeatedly commented that people saw it as something to aspire to. The same occurred with the glorified story of Jordan Belfort. Or Patrick Bateman (that one was of course fictional). What is it about our society that makes people oblivious to satire/cautionary tales as long as it's given a shiny cosmetic sheen?
pjc50 8y ago
This kind of thing is horribly common in declining firms - a last minute attempt to asset-strip everything of value and transfer it out of the corporate entity, which can then go bankrupt, stiffing creditors and employees. See also Radio Shack, Toys R Us, Maplin, and British Home Stores: https://www.theguardian.com/business/2017/feb/28/philip-green-agrees-pay-363m-bhs-pension-fund https://www.theguardian.com/business/2017/feb/28/philip-gree... (The astonishing thing there is that somehow the thief was shamed into returning the money.)
- charlesdm 8y ago
  His knighthood was likely worth the £363m.
- soared 8y ago
  Newspaper are an excellent example as well. https://www.bloomberg.com/opinion/articles/2018-03-26/alden-global-capital-s-business-model-destroys-newspapers-for-little-gain https://www.bloomberg.com/opinion/articles/2018-03-26/alden-...
moltar 8y ago
That’s why nobody shall rely on pension plan. Ya a scam. Just take the money and invest on your own terms.
- stevenwoo 8y ago
  Off the top of my head, what is the difference between these pensions and a.) public employee pensions like state/county/municipal employees or police/fireman pensions at full pay of last year of service b.) military retirement at half pay after 20 years of service? Those seem like a really good deal for the retiree ( that also look unsustainable in some areas for a.) at least)
  - moltar 8y ago
    I don’t know exactly how it works in all areas to be honest. But if there’s a pension deduction, and one is able to withhold it and invest on their own, I think it should be the default choice. Military is a whole different story. They need to incentivize people somehow and it ain’t going to be ping pong tables and beer fridge.
nradov 8y ago
Defined benefit pension plans create a huge moral hazard and are just too risky for employees, employers, and taxpayers alike. As a society we should be aggressively phasing out pensions and replacing them with defined contribution plans like 401(k) and 403(b). That way each employee's retirement funds are in an individual named account held by a brokerage and can't be taken away. Even if your employer goes bankrupt, everything already deposited in your account is still yours.
- jacquesm 8y ago
  So, we had something like that in NL for self employed people that have their own holding company ("pensioen in eigen beheer"). That got axed because 'reasons' and your options to save your pension for the future got changed into 'deal with these large corporations', or pay your higher bracket income tax today and hope the money you save will be worth something by the time you need it. I'm doing the latter and dumping it all into real estate, that seems to be the best bet at the moment.
- rileymat2 8y ago
  No. The real risk is not in the present, the real risk is outliving your retirement savings. You can predict how long a population will live, you cannot predict whether a single person will need 5 or 40 years of retirement savings. Collective defined benefit plans mitigate this risk and are the only thing that really make sense. They also end up cheaper because instead of each person needing to save the amount needed until the end of retirement, the group only needs to save the amount that the average person will need.
  - tome 8y ago
    In the UK you can buy an annuity with the proceeds of your pension fund at retirement. Is the same not true of a 401(k) in the US?
    - AlexTWithBeard 8y ago
      There's always a risk an annuity provider will go bust.
lefstathiou 8y ago
To me the bigger culprit is the unfunded pension as a tool of retirement planning. Unfunded pensions are failing or on the brink of failing almost everywhere they are tried. It's a huge scandal and deeply immoral IMO. I read the other day that NYC alone has over $100bn in unfunded pension liabilities. There is simply no budget to pay that down. Unfunded pensions taking down numerous economies in Europe. There is a county in Georgia (Sandy Springs) that effectively went private. Rather than offering a state pension to their employees (other than ones they were legally required to), they calculated the value of the pension contribution they would make and simply tacked it on to employee salaries. I personally think this is a good approach (with some room for incentives that help protect people from themselves). Note: not trying to mount a defense of PE - often people ask what is the purpose/role or value of PE in society. In a somewhat perverted sense, this is it. There are not many mechanisms that can almost instantly re-habilitate an enterprise that was mismanaged or made severely consequential long term false promises to employees. The alternative is a slow, timely and painful decline similar to Sears or Kmart and rather than this article we'd be reading articles about the towns that Marsh left behind.
- mlthoughts2018 8y ago
  I don’t think it’s as simple as this, because alternative instruments for retirement, like 401(k) or “higher wages now” have a lot of severe problems too and typically have no legal recourse for affected people when those instruments experience failures. My grandparents had 401(k) retirement savings and were basically wiped out by the 2008 financial crisis. I think it would be no exaggeration to say that the crisis directly caused her death when she likely would have had many more good quality years of life had they not been forced to live in a deeply meager way after the value of their retirement fund plummeted at a moment when they needed it severely. Asking average citizens to understand market volatility and diversification and to rely on the total abject falsehood that “markets just go up in value” is equally immoral. The aspect of pensions, to me, that satisfies the primary moral constraint of the situation is that you are guaranteed income of a certain level, so that the organization granting the pension has to bear the risk of volatility in whatever funding instruments are used to back it. The problem is more about determining why pensions became unfunded, what insurance products would be required to ensure that cannot happen (or at least cannot drop below some minimum insured level), and why government entities failed to budget and save accordingly, in an actuarial sense, to meet pension costs. In my view, we are part of an unbelievably huge quality of life theft right now, a generational heist, pulling wool over everyone’s eyes to think that defined contribution retirement vehicles are somehow an acceptable alternative to defined benefit retirement vehicles.
cityzen 8y ago
Just another illustration that the "America" you learned about is not the America™ we live in. As a parent I find it more and more difficult to try to teach my kids the reality of America without sounding like a conspiracy theory nut job. I do not want my kids growing up with blindly trusting that any institution (schools, corporations, government, etc.) have their best interests in mind. In a way I feel like selling them the "dream" is much less painful but I would feel like I failed as a parent to not warn my kids of the realities of the world.
- mythrwy 8y ago
  I feel similar, but think it's less the institutions are corrupt and more institutions have been co-opted by corrupt people seeing opportunity for profit without contribution. I don't know how to fix it, it seems a deeply entrenched problem at many levels and each level will vigorously deny they are the problem. Healthcare and education being two of the most egregious examples but similar problems exist in many areas in public and private institutions. It's like a fungus or rot or something. A food source exists, a store of value which is supposed to provide energy to the social whole which gets infected by middle (and upper) management, consultants etc, pathologically twisting the flow of energy away from the original purpose and into their own pockets. I don't think it's "conspiracy" to notice this seems to have grown rampantly in the past few decades in the USA. So it's very easy to get cynical. But we either solve these problems and return to standards of non-kleptocracy and general justice and welfare or we die as a society. This has happened before in human history. It's not easy to roll back corruption and usually it doesn't happen, but the possibility exists.
- stevenwoo 8y ago
  The two most depressing books I have read recently are A People's History of the United States and Lies My Teacher Told Me and I wish I had read them when I was a child but YMMV.
  - tome 8y ago
    Hopefully the fourth paragraph of the Wikipedia article will help you feel less depressed, since "A People's History of the United States has been criticized heavily by historians from across the political spectrum. Critics assert blatant omissions of important historical episodes, uncritical reliance on biased sources, and systematic failures to examine opposing views." https://en.wikipedia.org/wiki/A_People%27s_History_of_the_United_States https://en.wikipedia.org/wiki/A_People%27s_History_of_the_Un...
curtis 8y ago
Companies should never be responsible for managing the retirement savings of their employees. I can't imagine that this every made any sense, but it's an idea that comes from an era when there were a lot of big stable companies that people believed would be profitable for an entire lifetime. We've now seen ample evidence that such companies are really unusual.
pm24601 8y ago
As a natural person, our interest payments are NOT tax deductible. Corporations get to deduct interest costs from their taxes. So PE firms are incentivized to load up the firms they attack with debt. Additionally, PE firms are allowed to use a firm's own money as collateral for the loan used to take over the firm. This includes the pension funds. So any public firm responsibly run is subject to attack. Its almost irresponsible for a firm to fund the pension fund as it will be used against the firm. The solution: 1. Require that any loan be based on the assets currently controlled by the PE firm. 2. Eliminate tax deduction for debts that are not directly tied to capital purchases.
- corebit 8y ago
  Or just let the market move away from pensions entirely, like any sane, moral person would choose.
kokokokoko 8y ago
Sometimes I look back and wonder if this last 30+ years of PE firms consolidating and eating up all of these mid sized companies is actually the reason things haved trended towards very large corporations. As opposed to economies of scale etc. A large market cap is probably the best defense a company has against being bought out. It's almost like being a giant whale in the ocean as opposed to a fish.
n-exploit 8y ago
How is there not a government institution established to investigate fraud such as this?
bedhead 8y ago
Pensions get abused because they can be. (I'll limit this to public pensions) When a municipality issues a bond, that bond has an indenture which is a contract. It has a very specific set of rules about what the municipality can and cannot do (covenants) and a very specific schedule for when and how the money must be paid back. Try skipping an interest payment and all the sudden you instantly find that there are serious consequences, like you find yourself in court, or threatened with involuntary bankruptcy, and your credit rating goes down, etc. When a person obtains a mortgage, they too sign a contract specifying things they must do (eg get insurance) and a schedule for repaying principal and interest. Try skipping a month or two of payments and the bank starts calling, it affects your credit, and maybe you lose your house one day if you keep not paying. But pensions have nothing like this...it's almost the reverse set of incentives. There's virtually no enforcement of prudent management. The Chicago teacher's pension fund skipped making contributions for a decade in what they euphemistically called "pension holidays". Instead, the money got diverted mostly to higher salaries. The people who ran the city were actually rewarded for this malfeasance. And that's in addition to routinely underestimating critically important assumptions such as healthcare costs, lifespan, investment returns, and interest rates, which are hard enough as it is. The problems take multiple election cycles to manifest, and it creates a massive moral hazard. You couldn't design a more toxic form of IOU if you tried...I've long argued that public pensions should be illegal.
mud_dauber 8y ago
There's a special place in hell for private equity firms. Go ahead & downvote me. You're not changing my opinion.
juliebooth 8y ago
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133 points by kaboro 8y ago

Its a shame that pensioneers are so low on the bankruptcy list. The banks of America's and Lehman bros get their money before the people who are working the business to survive do. Without basic income you need a job to survive but at the same time you're being exploited while you work that job.

bryanlarsen 8y ago
In Canada, pensions are close to the top of who gets paid out in bankruptcy. Doesn't help a lot, they just sell off all the pieces and pay off insiders before entering bankruptcy.
jandrese 8y ago
The bankruptcy list is mostly pointless because there's so little to divvy up these days. By the time the bankruptcy happens all of the Wall Street types have already taken the money and run.

thinkr42 8y ago

I worked at Marsh from 2005-2015 in both corporate and the store. We were always skeptical of Sun, the CEOs that would cycle through didn't grasp the basics of grocery, and as an organization we failed to invest in basic infrastructure that would reduce our overall costs which are huge in the 2% margin grocery business. At the store we had registers with an OS from the 80's, a common thing if you look around, but we never invested in developing anything beyond the 80's unlike our competitors. We didn't ever implement a JIT style logistics program, which with massive in store staff cuts led to poor merchandise orders which in a perishable business kills you. Management in general was _highly_ skeptical of new technology and prone to spending a bunch of labor hours on repetitive, easily automated tasks (by my accounting at the time, I could have automated more than a million dollars of labor costs with a week of effort - something I brought up with management and demonstrated but was ultimately shot down, I wasn't some super genius - we had folks literally copying and pasting for 8 hours a day). Marsh was a good company with good people, several of those in the article I knew from my time in corporate. We had folks that would kill themselves working 60 hour weeks to keep a store afloat. It sucks to see what had happened to them.

sct202 8y ago
I wonder how much of that was politicking, where someone was keeping something purposefully bad so that they could sell a solution that "saves so much money" when a far cheaper solution would save as much money and cost way less.
- Spooky23 8y ago
  Sometimes companies maintain high friction/high cost crap like that to scare off acquisition. A friend worked for a regional bank that had a strategy of purposeful obsolescence to maintain control with the core shareholders, who were mostly from one family. They were using 1980s era AS/400 systems with terminals as late as 2008, and had only 1 PC assigned to a manager in the branches, with connectivity via ISDN.
  - thinkr42 8y ago
    I hadn't thought of this to be honest, but I do faintly remember the IT / Dev team using the "not technically feasible" line a bunch whenever Marketing would come through with stuff. Used to get me angry quite a bit and I saw it translate a bunch to lost revenue and increased costs. I don't know how much of this got sent out of Marsh and up to Sun though.
    - Spooky23 8y ago
      Lazy IT people are always a good excuse too. Especially in CFO driven IT shops. I've seen people waste millions on magical systems that did very little out of inertia. In one case, a system with something $10M in annual costs that managed terminal (as in VT-102 terminal) and line printer assignments. A decade after the printers were trashed and terminals moved to a (almost equally offensive) very expensive web-based system.
- thinkr42 8y ago
  I saw this a bunch in my next job after Marsh, which was analytics consulting. I'm not sure about Marsh doing this (at least internally), but who knows with Sun.

olliej 8y ago

Still amazing to me that owners and equity firms get money before pension funds. The literal theft - a pension is part of your income, and being able to sell off a company without paying off pension debts literally means retroactively stealing wages from workers. Remember that banks, etc all have insurance on their debt, apparently that doesn’t matter - companies are simply stealing from money that is not theirs, and that’s apparently ok.

prklmn 8y ago
It’s only ok because they’ve written all the laws for themselves. Of course the common person would not deem this to be ok.
- late2part 8y ago
  We the people of the United States of America elect the people that write the laws. If we don't like what they're doing, vote them out and vote in people that will write the laws we want.
  - lightedman 8y ago
    Wrong, any person can write a law (and has been done multiple times in the past.) We elect the people that AMEND and PASS the laws.
  - michaelt 8y ago
    To do that should I vote Democrat, Republican or Independent?
    - deleted 8y ago
      [deleted]
    - JumpCrisscross 8y ago
      > should I vote Democrat, Republican or Independent? You should vote in your jurisdictions’ meaningful primaries, get involved with campaigns and causes that represent you and organise like-minded citizens.

raheemm 8y ago

When Sun bought Marsh Supermarkets, the company had three retirement plans. One for the top five Marsh executives, one for the store employees, and one for the warehouse workers. Only the executives’ plan, however, was fully funded under the sales agreement: With the completion of Sun’s purchase, Marsh’s top five executives were to be awarded $14 million in retirement payments, according to company financial documents. Among them: CEO Don Marsh at $7 million and corporate counsel P. Lawrence Butt at $2.2 million. Meanwhile, the other two retirement plans — the worker pensions — were short millions of dollars.

AdamM12 8y ago

On some levels the government insuring pensions like this creates an economic incentive to do exactly what these guys are doing.

imglorp 8y ago
If you don't want to do that, then jail would be a fine disincentive.
sct202 8y ago
Government pensions aren't insured like this and also have widespread issues with leaders coming in an slashing contributions so that they can spend the money elsewhere; eg, Illinois on every level of government. The insurance at least protects the pensioners to some degree.
- AdamM12 8y ago
  Reread the article and what I said. The government insures some private pensions, not public pensions. This insurance provides some economic incentive for PE firms and other managers to behave in the manner derided in the article. All I was stating.

1001101 8y ago

Oliver Stone's Wall Street was not an instruction manual.

rchaud 8y ago
Neither was Liar's Poker, yet Michael Lewis has repeatedly commented that people saw it as something to aspire to. The same occurred with the glorified story of Jordan Belfort. Or Patrick Bateman (that one was of course fictional). What is it about our society that makes people oblivious to satire/cautionary tales as long as it's given a shiny cosmetic sheen?

pjc50 8y ago

This kind of thing is horribly common in declining firms - a last minute attempt to asset-strip everything of value and transfer it out of the corporate entity, which can then go bankrupt, stiffing creditors and employees. See also Radio Shack, Toys R Us, Maplin, and British Home Stores: https://www.theguardian.com/business/2017/feb/28/philip-green-agrees-pay-363m-bhs-pension-fund https://www.theguardian.com/business/2017/feb/28/philip-gree... (The astonishing thing there is that somehow the thief was shamed into returning the money.)

charlesdm 8y ago
His knighthood was likely worth the £363m.
soared 8y ago
Newspaper are an excellent example as well. https://www.bloomberg.com/opinion/articles/2018-03-26/alden-global-capital-s-business-model-destroys-newspapers-for-little-gain https://www.bloomberg.com/opinion/articles/2018-03-26/alden-...

moltar 8y ago

That’s why nobody shall rely on pension plan. Ya a scam. Just take the money and invest on your own terms.

stevenwoo 8y ago
Off the top of my head, what is the difference between these pensions and a.) public employee pensions like state/county/municipal employees or police/fireman pensions at full pay of last year of service b.) military retirement at half pay after 20 years of service? Those seem like a really good deal for the retiree ( that also look unsustainable in some areas for a.) at least)
- moltar 8y ago
  I don’t know exactly how it works in all areas to be honest. But if there’s a pension deduction, and one is able to withhold it and invest on their own, I think it should be the default choice. Military is a whole different story. They need to incentivize people somehow and it ain’t going to be ping pong tables and beer fridge.

nradov 8y ago

Defined benefit pension plans create a huge moral hazard and are just too risky for employees, employers, and taxpayers alike. As a society we should be aggressively phasing out pensions and replacing them with defined contribution plans like 401(k) and 403(b). That way each employee's retirement funds are in an individual named account held by a brokerage and can't be taken away. Even if your employer goes bankrupt, everything already deposited in your account is still yours.

jacquesm 8y ago
So, we had something like that in NL for self employed people that have their own holding company ("pensioen in eigen beheer"). That got axed because 'reasons' and your options to save your pension for the future got changed into 'deal with these large corporations', or pay your higher bracket income tax today and hope the money you save will be worth something by the time you need it. I'm doing the latter and dumping it all into real estate, that seems to be the best bet at the moment.
rileymat2 8y ago
No. The real risk is not in the present, the real risk is outliving your retirement savings. You can predict how long a population will live, you cannot predict whether a single person will need 5 or 40 years of retirement savings. Collective defined benefit plans mitigate this risk and are the only thing that really make sense. They also end up cheaper because instead of each person needing to save the amount needed until the end of retirement, the group only needs to save the amount that the average person will need.
- tome 8y ago
  In the UK you can buy an annuity with the proceeds of your pension fund at retirement. Is the same not true of a 401(k) in the US?
  - AlexTWithBeard 8y ago
    There's always a risk an annuity provider will go bust.

lefstathiou 8y ago

To me the bigger culprit is the unfunded pension as a tool of retirement planning. Unfunded pensions are failing or on the brink of failing almost everywhere they are tried. It's a huge scandal and deeply immoral IMO. I read the other day that NYC alone has over $100bn in unfunded pension liabilities. There is simply no budget to pay that down. Unfunded pensions taking down numerous economies in Europe. There is a county in Georgia (Sandy Springs) that effectively went private. Rather than offering a state pension to their employees (other than ones they were legally required to), they calculated the value of the pension contribution they would make and simply tacked it on to employee salaries. I personally think this is a good approach (with some room for incentives that help protect people from themselves). Note: not trying to mount a defense of PE - often people ask what is the purpose/role or value of PE in society. In a somewhat perverted sense, this is it. There are not many mechanisms that can almost instantly re-habilitate an enterprise that was mismanaged or made severely consequential long term false promises to employees. The alternative is a slow, timely and painful decline similar to Sears or Kmart and rather than this article we'd be reading articles about the towns that Marsh left behind.

mlthoughts2018 8y ago
I don’t think it’s as simple as this, because alternative instruments for retirement, like 401(k) or “higher wages now” have a lot of severe problems too and typically have no legal recourse for affected people when those instruments experience failures. My grandparents had 401(k) retirement savings and were basically wiped out by the 2008 financial crisis. I think it would be no exaggeration to say that the crisis directly caused her death when she likely would have had many more good quality years of life had they not been forced to live in a deeply meager way after the value of their retirement fund plummeted at a moment when they needed it severely. Asking average citizens to understand market volatility and diversification and to rely on the total abject falsehood that “markets just go up in value” is equally immoral. The aspect of pensions, to me, that satisfies the primary moral constraint of the situation is that you are guaranteed income of a certain level, so that the organization granting the pension has to bear the risk of volatility in whatever funding instruments are used to back it. The problem is more about determining why pensions became unfunded, what insurance products would be required to ensure that cannot happen (or at least cannot drop below some minimum insured level), and why government entities failed to budget and save accordingly, in an actuarial sense, to meet pension costs. In my view, we are part of an unbelievably huge quality of life theft right now, a generational heist, pulling wool over everyone’s eyes to think that defined contribution retirement vehicles are somehow an acceptable alternative to defined benefit retirement vehicles.

cityzen 8y ago

Just another illustration that the "America" you learned about is not the America™ we live in. As a parent I find it more and more difficult to try to teach my kids the reality of America without sounding like a conspiracy theory nut job. I do not want my kids growing up with blindly trusting that any institution (schools, corporations, government, etc.) have their best interests in mind. In a way I feel like selling them the "dream" is much less painful but I would feel like I failed as a parent to not warn my kids of the realities of the world.

mythrwy 8y ago
I feel similar, but think it's less the institutions are corrupt and more institutions have been co-opted by corrupt people seeing opportunity for profit without contribution. I don't know how to fix it, it seems a deeply entrenched problem at many levels and each level will vigorously deny they are the problem. Healthcare and education being two of the most egregious examples but similar problems exist in many areas in public and private institutions. It's like a fungus or rot or something. A food source exists, a store of value which is supposed to provide energy to the social whole which gets infected by middle (and upper) management, consultants etc, pathologically twisting the flow of energy away from the original purpose and into their own pockets. I don't think it's "conspiracy" to notice this seems to have grown rampantly in the past few decades in the USA. So it's very easy to get cynical. But we either solve these problems and return to standards of non-kleptocracy and general justice and welfare or we die as a society. This has happened before in human history. It's not easy to roll back corruption and usually it doesn't happen, but the possibility exists.
stevenwoo 8y ago
The two most depressing books I have read recently are A People's History of the United States and Lies My Teacher Told Me and I wish I had read them when I was a child but YMMV.
- tome 8y ago
  Hopefully the fourth paragraph of the Wikipedia article will help you feel less depressed, since "A People's History of the United States has been criticized heavily by historians from across the political spectrum. Critics assert blatant omissions of important historical episodes, uncritical reliance on biased sources, and systematic failures to examine opposing views." https://en.wikipedia.org/wiki/A_People%27s_History_of_the_United_States https://en.wikipedia.org/wiki/A_People%27s_History_of_the_Un...

curtis 8y ago

Companies should never be responsible for managing the retirement savings of their employees. I can't imagine that this every made any sense, but it's an idea that comes from an era when there were a lot of big stable companies that people believed would be profitable for an entire lifetime. We've now seen ample evidence that such companies are really unusual.

pm24601 8y ago

As a natural person, our interest payments are NOT tax deductible. Corporations get to deduct interest costs from their taxes. So PE firms are incentivized to load up the firms they attack with debt. Additionally, PE firms are allowed to use a firm's own money as collateral for the loan used to take over the firm. This includes the pension funds. So any public firm responsibly run is subject to attack. Its almost irresponsible for a firm to fund the pension fund as it will be used against the firm. The solution: 1. Require that any loan be based on the assets currently controlled by the PE firm. 2. Eliminate tax deduction for debts that are not directly tied to capital purchases.

corebit 8y ago
Or just let the market move away from pensions entirely, like any sane, moral person would choose.

kokokokoko 8y ago

Sometimes I look back and wonder if this last 30+ years of PE firms consolidating and eating up all of these mid sized companies is actually the reason things haved trended towards very large corporations. As opposed to economies of scale etc. A large market cap is probably the best defense a company has against being bought out. It's almost like being a giant whale in the ocean as opposed to a fish.

n-exploit 8y ago

How is there not a government institution established to investigate fraud such as this?

bedhead 8y ago

Pensions get abused because they can be. (I'll limit this to public pensions) When a municipality issues a bond, that bond has an indenture which is a contract. It has a very specific set of rules about what the municipality can and cannot do (covenants) and a very specific schedule for when and how the money must be paid back. Try skipping an interest payment and all the sudden you instantly find that there are serious consequences, like you find yourself in court, or threatened with involuntary bankruptcy, and your credit rating goes down, etc. When a person obtains a mortgage, they too sign a contract specifying things they must do (eg get insurance) and a schedule for repaying principal and interest. Try skipping a month or two of payments and the bank starts calling, it affects your credit, and maybe you lose your house one day if you keep not paying. But pensions have nothing like this...it's almost the reverse set of incentives. There's virtually no enforcement of prudent management. The Chicago teacher's pension fund skipped making contributions for a decade in what they euphemistically called "pension holidays". Instead, the money got diverted mostly to higher salaries. The people who ran the city were actually rewarded for this malfeasance. And that's in addition to routinely underestimating critically important assumptions such as healthcare costs, lifespan, investment returns, and interest rates, which are hard enough as it is. The problems take multiple election cycles to manifest, and it creates a massive moral hazard. You couldn't design a more toxic form of IOU if you tried...I've long argued that public pensions should be illegal.

mud_dauber 8y ago

There's a special place in hell for private equity firms. Go ahead & downvote me. You're not changing my opinion.

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