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>a pension is part of your income It's usually part of a future worker's income. That is how they are underfunded. If the employee paid into a fund then these

>a pension is part of your income It's usually part of a future worker's income. That is how they are underfunded. If the employee paid into a fund then these problems would happen less. The problem is it's a promise to pay future money to today workers in the future, and when future money does not pan out, there is no reason one debt holder (pensioner) should have absolute precedence over another (lender, who sometimes lends enough to get the company past bad times). For example, putting a pensioner absolutely first would make lenders stay away, and any companies that have a chance of being saved by lenders would then die, causing more pain.

tw04 8y ago
>For example, putting a pensioner absolutely first would make lenders stay away, and any companies that have a chance of being saved by lenders would then die, causing more pain. And when is the last time one of these companies had their pensions cut, executives paid, then turned around the ship to be successful? I mean, that's a great story on paper, but it's never the way this plays out. BEST CASE a PE firm buys up the company then sells off the assets at a profit to themselves. The workers NEVER come out ahead and almost universally would be better off if the company went under leaving them with whatever the partial pension funding was.
- ChrisLomont 8y ago
  >And when is the last time one of these companies had their pensions cut, executives paid, then turned around the ship to be successful? GM just did that during the recession, saving a huge number of jobs, and enabling GM to pay partial pensions. In fact, probably any company (and municipality, of which there are many) that went through or was near bankruptcy and turned around did so because of access to capital. So you claim it never happens. I claim it happens in almost every case where some company was saved. Loans don't magically appear to help places without access to capital markets, which means in almost all cases PE. That you don't see it, even in high profile cases like this, doesn't make it uncommon. Simply google and you'll find lots of examples counter to your claims. If you want some academic studies, [1] shows that PE companies are better managed across developed and developing countries than non-PE, [2] shows that PE financed companies service debt at a lower cost to companies than non-PE firms (meaning that not taking PE, but using other sources, costs the company more), [3] shows that PE companies show more growth and employment than non-PE companies, and on and on. These are peer-reviewed journal articles that measure precisely what you likely have developed a feeling about from news and pop sources. These articles are representative of a google scholar search on private equity research since 2015, and all appear on the first page. The rest of the page that addresses your claims reads similarly. Check it yourself. [1] https://www.aeaweb.org/articles?id=10.1257/aer.p20151000 https://www.aeaweb.org/articles?id=10.1257/aer.p20151000 [2] https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/private-equity-firms-reputational-concerns-and-the-costs-of-debt-financing/F1A4D57107CA019F9DCDA53BAF8E9C1B https://www.cambridge.org/core/journals/journal-of-financial... [3] https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2015.2404 https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2015.240...
Kalium 8y ago
> It's usually part of a future worker's income. That is how they are underfunded. If the employee paid into a fund then these problems would happen less. I was operating under the understanding that what you have so wisely suggested is exactly how pensions are generally structured, plus contributions from employers. Have I been misinformed? I was also under the impression that these contributions are vulnerable to problems like assuming an incorrect long-term discount rate, life expectancy jumps, and more.
eropple 8y ago
> there is no reason one debt holder (pensioner) should have absolute precedence over another (lender, who sometimes lends enough to get the company past bad times). Yes, there is a reason: people matter more than companies. Lenders can price that risk in. If that makes lenders "stay away"? Then the executive teams that get their golden parachutes get screwed too, and I'm frankly pretty okay with that. And let's be real: pensions are virtually never (you might find one large example; you won't find ten) destroyed to save a business. They're destroyed to make their assets worth more in a flip. We need not be dishonest in this discussion.
- RestlessMind 8y ago
  If lenders stay away, then execs get screwed and rest of the company gets screwed as well because now everyone is out of their jobs. Isn't that a worse outcome overall?
  - eropple 8y ago
    The majority, when it isn't all, are functionally already out of their jobs. These bridge investments exist to provide the runway gut the company and sell off its assets. I have no real problem with PE firms not getting to do that at the expense of people who the company have promised things to.

tw04 8y ago

>For example, putting a pensioner absolutely first would make lenders stay away, and any companies that have a chance of being saved by lenders would then die, causing more pain. And when is the last time one of these companies had their pensions cut, executives paid, then turned around the ship to be successful? I mean, that's a great story on paper, but it's never the way this plays out. BEST CASE a PE firm buys up the company then sells off the assets at a profit to themselves. The workers NEVER come out ahead and almost universally would be better off if the company went under leaving them with whatever the partial pension funding was.

ChrisLomont 8y ago
>And when is the last time one of these companies had their pensions cut, executives paid, then turned around the ship to be successful? GM just did that during the recession, saving a huge number of jobs, and enabling GM to pay partial pensions. In fact, probably any company (and municipality, of which there are many) that went through or was near bankruptcy and turned around did so because of access to capital. So you claim it never happens. I claim it happens in almost every case where some company was saved. Loans don't magically appear to help places without access to capital markets, which means in almost all cases PE. That you don't see it, even in high profile cases like this, doesn't make it uncommon. Simply google and you'll find lots of examples counter to your claims. If you want some academic studies, [1] shows that PE companies are better managed across developed and developing countries than non-PE, [2] shows that PE financed companies service debt at a lower cost to companies than non-PE firms (meaning that not taking PE, but using other sources, costs the company more), [3] shows that PE companies show more growth and employment than non-PE companies, and on and on. These are peer-reviewed journal articles that measure precisely what you likely have developed a feeling about from news and pop sources. These articles are representative of a google scholar search on private equity research since 2015, and all appear on the first page. The rest of the page that addresses your claims reads similarly. Check it yourself. [1] https://www.aeaweb.org/articles?id=10.1257/aer.p20151000 https://www.aeaweb.org/articles?id=10.1257/aer.p20151000 [2] https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/private-equity-firms-reputational-concerns-and-the-costs-of-debt-financing/F1A4D57107CA019F9DCDA53BAF8E9C1B https://www.cambridge.org/core/journals/journal-of-financial... [3] https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2015.2404 https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2015.240...

Kalium 8y ago

> It's usually part of a future worker's income. That is how they are underfunded. If the employee paid into a fund then these problems would happen less. I was operating under the understanding that what you have so wisely suggested is exactly how pensions are generally structured, plus contributions from employers. Have I been misinformed? I was also under the impression that these contributions are vulnerable to problems like assuming an incorrect long-term discount rate, life expectancy jumps, and more.

eropple 8y ago

> there is no reason one debt holder (pensioner) should have absolute precedence over another (lender, who sometimes lends enough to get the company past bad times). Yes, there is a reason: people matter more than companies. Lenders can price that risk in. If that makes lenders "stay away"? Then the executive teams that get their golden parachutes get screwed too, and I'm frankly pretty okay with that. And let's be real: pensions are virtually never (you might find one large example; you won't find ten) destroyed to save a business. They're destroyed to make their assets worth more in a flip. We need not be dishonest in this discussion.

RestlessMind 8y ago
If lenders stay away, then execs get screwed and rest of the company gets screwed as well because now everyone is out of their jobs. Isn't that a worse outcome overall?
- eropple 8y ago
  The majority, when it isn't all, are functionally already out of their jobs. These bridge investments exist to provide the runway gut the company and sell off its assets. I have no real problem with PE firms not getting to do that at the expense of people who the company have promised things to.