6 ms·

If you want to fix this going forward, make all new defined-benefit pensions plans illegal, as we have amply demonstrated that they can't be trusted over the co

If you want to fix this going forward, make all new defined-benefit pensions plans illegal, as we have amply demonstrated that they can't be trusted over the course of a lifetime. Putting your future in the hands of an automaker was bad enough; why do we expect someone to put their future in the hands of a dairy? A defined-contribution pension plan, where you end up actually owning the assets in question, is the only way to be sure that no one will shrink your pension in bankruptcy, or (for a public pension) reduce them by legislative fiat.

matthewdgreen 7y ago
This just turns into another class of scam, where a different class of financial vampire takes the guaranteed stream of revenue from your pension system and systematically diverts a larger and larger share into their own pocket.
- fennecfoxen 7y ago
  Historically? Maybe a little, yeah, but even at ridiculous rate of, say, 2% annual fees, you're just not looking at the same sort of massive capital losses you could expect following a major corporate insolvency... And more and more pension funds offer low-fee index funds than ever before. Praise Vanguard.
Spooky23 7y ago
Or not allow the type of behavior that makes these boring industries less boring. Borden has been around for like 150 years. The whole scenario of giant global entities taking over agriculture and food services is probably the most obviously bad but ok things that will happen in my lifetime. We've declared dairy some sort of environmental catastrophe, to be replaced by cloudy water percolated through soy, almonds and similar products, which ultimately will roll up to 4-6 companies like Coke, Pepsi, Inbev, etc.
ghaff 7y ago
>A defined-contribution pension plan, where you end up actually owning the assets in question Assuming of course that you have actually saved over time and have picked appropriate assets to invest in. Defined benefit plans have their problems--both the funding and the fact that they were historically designed around long-term employment at a single organization. But they do have the virtue of being a retirement income stream that requires no action on an employee's part. ADDED: >no one will shrink your pension in bankruptcy Except the market depending upon where you have invested your money
- fennecfoxen 7y ago
  The difference is that a typical asset allocation strategy in a target-date fund isn't going to suddenly fall 85% and leave you with 15% of any promised benefits, whereas the 1963 Studebaker bankruptcy did exactly that to its employees. (If you're about to retire, it will have at least half of its assets in bonds.) This risk is why Congress passed ERISA and created the PBGC, which nevertheless is at risk of failure itself, with its own projection for its insolvency being about 5 years out.
LatteLazy 7y ago
Sorry in advance, this is a bit of a rant... The problem is not defined benefit vs defined contribution really, it's that companies are not really required to fund defined benefit. There are 1001 third party companies (normally insurers) who will happily underwrite a defined benefit scheme (so if the employer goes under the pensions are fine). But that would mean employers actually making pensions contributions that would actually fund the actual cost. Firms prefer to under pay the schemes. Depending on the scheme/firm/local-laws, that might be by just underpaying it, or by more cunning means like using the funds to buy company stock (so it looks like its funded on paper but you're just as screwed when the employer fails, Ironically this is what the federal government is doing with social security too) or by making optimistic assumptions (if I assume all workers die a week after retirement age and a 9% interest rate, final salary pensions need only cost me 5cents a head today! Can you prove I'm wrong?) Unions (where they exist and have influence) also don't want to push this. Admitting the employer is unlikely to pay is a serious accusation that won't be proven for 20+ years. If you press hard and the employer DOES up their (real) contributions then that means you'll lose out somewhere else in the compensation package (so less health coverage or lower raises). Plus, If you get someone 1000 dollars more in 20 years, but 10 dollars less now, they won't thank you,they'll demand to know where there 10 dollars is! This is also the reason politicians won't regulate harder: it would push firms to declare bankruptcy sooner (and the electorate punishes that, better let the problem worsen and hope its the next guys issue) and it would mean many firms withdrawing or cutting back their schemes. And again, people would rather have the promise of a good pension (that will likely never happen) than the certainty of a mediocre pension. The key issue here is a mix of costs and people being strongly incentivised to lie about a cost now as the problem won't happen for decades. The only advantage defined contribution has is that it is harder to cheat. But actually, defined benefit schemes are less risky and far more appropriate for the average dummy than defined contribution schemes.
- scandox 7y ago
  > But actually, defined benefit schemes are less risky and far more appropriate for the average dummy than defined contribution schemes. Well, yeah because defined benefit actually makes some kind of commitment on what you're going to get, whereas defined contribution just tells you what you'll give, right? I mean it's all in the name. DC is just "give us yer money and sure we'll do our best for you, as long as our fees are paid"....
jellicle 7y ago
That's like making banks illegal because you discovered bank robbery exists. The obvious solution is simply to get rid of the laws that allow and encourage corporations and courts to collude in stealing employee pensions.
_bxg1 7y ago
I was talking about the private equity load-and-dump schemes that have been intentionally killing one functioning company after another.

matthewdgreen 7y ago

This just turns into another class of scam, where a different class of financial vampire takes the guaranteed stream of revenue from your pension system and systematically diverts a larger and larger share into their own pocket.

fennecfoxen 7y ago
Historically? Maybe a little, yeah, but even at ridiculous rate of, say, 2% annual fees, you're just not looking at the same sort of massive capital losses you could expect following a major corporate insolvency... And more and more pension funds offer low-fee index funds than ever before. Praise Vanguard.

Spooky23 7y ago

Or not allow the type of behavior that makes these boring industries less boring. Borden has been around for like 150 years. The whole scenario of giant global entities taking over agriculture and food services is probably the most obviously bad but ok things that will happen in my lifetime. We've declared dairy some sort of environmental catastrophe, to be replaced by cloudy water percolated through soy, almonds and similar products, which ultimately will roll up to 4-6 companies like Coke, Pepsi, Inbev, etc.

ghaff 7y ago

>A defined-contribution pension plan, where you end up actually owning the assets in question Assuming of course that you have actually saved over time and have picked appropriate assets to invest in. Defined benefit plans have their problems--both the funding and the fact that they were historically designed around long-term employment at a single organization. But they do have the virtue of being a retirement income stream that requires no action on an employee's part. ADDED: >no one will shrink your pension in bankruptcy Except the market depending upon where you have invested your money

fennecfoxen 7y ago
The difference is that a typical asset allocation strategy in a target-date fund isn't going to suddenly fall 85% and leave you with 15% of any promised benefits, whereas the 1963 Studebaker bankruptcy did exactly that to its employees. (If you're about to retire, it will have at least half of its assets in bonds.) This risk is why Congress passed ERISA and created the PBGC, which nevertheless is at risk of failure itself, with its own projection for its insolvency being about 5 years out.

LatteLazy 7y ago

Sorry in advance, this is a bit of a rant... The problem is not defined benefit vs defined contribution really, it's that companies are not really required to fund defined benefit. There are 1001 third party companies (normally insurers) who will happily underwrite a defined benefit scheme (so if the employer goes under the pensions are fine). But that would mean employers actually making pensions contributions that would actually fund the actual cost. Firms prefer to under pay the schemes. Depending on the scheme/firm/local-laws, that might be by just underpaying it, or by more cunning means like using the funds to buy company stock (so it looks like its funded on paper but you're just as screwed when the employer fails, Ironically this is what the federal government is doing with social security too) or by making optimistic assumptions (if I assume all workers die a week after retirement age and a 9% interest rate, final salary pensions need only cost me 5cents a head today! Can you prove I'm wrong?) Unions (where they exist and have influence) also don't want to push this. Admitting the employer is unlikely to pay is a serious accusation that won't be proven for 20+ years. If you press hard and the employer DOES up their (real) contributions then that means you'll lose out somewhere else in the compensation package (so less health coverage or lower raises). Plus, If you get someone 1000 dollars more in 20 years, but 10 dollars less now, they won't thank you,they'll demand to know where there 10 dollars is! This is also the reason politicians won't regulate harder: it would push firms to declare bankruptcy sooner (and the electorate punishes that, better let the problem worsen and hope its the next guys issue) and it would mean many firms withdrawing or cutting back their schemes. And again, people would rather have the promise of a good pension (that will likely never happen) than the certainty of a mediocre pension. The key issue here is a mix of costs and people being strongly incentivised to lie about a cost now as the problem won't happen for decades. The only advantage defined contribution has is that it is harder to cheat. But actually, defined benefit schemes are less risky and far more appropriate for the average dummy than defined contribution schemes.

scandox 7y ago
> But actually, defined benefit schemes are less risky and far more appropriate for the average dummy than defined contribution schemes. Well, yeah because defined benefit actually makes some kind of commitment on what you're going to get, whereas defined contribution just tells you what you'll give, right? I mean it's all in the name. DC is just "give us yer money and sure we'll do our best for you, as long as our fees are paid"....

jellicle 7y ago

That's like making banks illegal because you discovered bank robbery exists. The obvious solution is simply to get rid of the laws that allow and encourage corporations and courts to collude in stealing employee pensions.

_bxg1 7y ago

I was talking about the private equity load-and-dump schemes that have been intentionally killing one functioning company after another.