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How common are pensions these days? None of my employers have offered pensions, just a 401k. Current employer is over a century old; seems they got savvy to the

How common are pensions these days? None of my employers have offered pensions, just a 401k. Current employer is over a century old; seems they got savvy to the pension liability long ago.

chrisseaton 7y ago
> None of my employers have offered pensions, just a 401k. A 401k is a pension isn't it? Just a defined-contribution pension instead of a defined-benefit pension. I get a pension at my large young tech company.
- Cymen 7y ago
  No, a 401k is not a pension. A pension guarantees a certain amount at specified dates while a 401k is a way of purchasing securities for you to manage your own retirement and is subject to the returns of your investment choices. In other words, a pension is a guarantee of future income in which the pension offerer is on the hook to ensure they have the funds to deliver the pension while the 401k pushes all that responsibility on to you. My wording is probably off on some of that so an article like this one is probably helpful to flesh out the details: https://www.fool.com/retirement/2018/06/13/whats-the-difference-between-a-pension-and-a-401k.aspx https://www.fool.com/retirement/2018/06/13/whats-the-differe...
  - deleted 7y ago
    [deleted]
  - chrisseaton 7y ago
    > A pension guarantees a certain amount at specified dates That's specifically a defined benefit pension - just one type of pension. There are many other types of pension. My pension is basically just a big saving account my employer and I both pay into - it's a defined contribution pension.
  - samatman 7y ago
    According to le Wik, IRAs and 401k plans are indeed defined-contribution pensions. https://en.wikipedia.org/wiki/Defined_contribution_plan#United_States https://en.wikipedia.org/wiki/Defined_contribution_plan#Unit...
- lotsofpulp 7y ago
  In the US, pension means defined benefit pension. At least in the UK, pension can mean either defined benefit pension or defined contribution retirement fund.
- madamelic 7y ago
  401k is a retirement plan. A self-funded retirement plan. It shifts the burden from employers to employees. As a positive, it means employees are more free to change employers while retaining their retirement / "pension" accounts.
  - ghaff 7y ago
    Traditional defined benefit plans were almost always oriented around long term employment (like a decade or more) at a single company/organization. If you moved around every few years, you'd basically not get a pension paid out by anyone. On the other hand, as you suggest, defined benefit was one traditional source of income in retirement that didn't require any action/saving discipline on the employee's part. But that's mostly gone in the private sector now.
  - briandear 7y ago
    It also means that employees can make their own investment decisions rather than being literally at the mercy of pension administrators and their investment decisions. You can also pass on your funds to your family, while defined benefit pensions generally end when you die.
- ghaff 7y ago
  At least in the US, the term "pension" is not usually used for defined-contribution plans. If you say "pension" most people assume you mean defined-benefit. It may not be technically incorrect but people will misunderstand you.
- umeshunni 7y ago
  401k's aren't pensions. They're attached to the employee rather than the employer. Even if your employer goes bust, you still have an account with Vanguard/Fidelity etc that has your money.
  - chrisseaton 7y ago
    > They're attached to the employee rather than the employer. Even if your employer goes bust, you still have an account with Vanguard/Fidelity etc that has your money Yes that's the way my pension works. It's still a 'pension'!
    - justin66 7y ago
      > Yes that's the way my pension works. It's still a 'pension'! That's technically correct (for example, you'll see 401(k) accounts referred to as "pension" accounts on their wikipedia page) but people are so used to referring only to defined-benefit accounts as pensions in the United states that they will look at you funny if you call your 401(k) or IRA a "pension." As is virtually happening here.
      - deleted 7y ago
        [deleted]
- ineedasername 7y ago
  No, a pension is an immense obligation on future revenue/earnings. Unless a company has meticulously planned for and adequately funded it, and the market doesn't tank it's investments, it can all colapse. The obligations of a 401k could be abandoned almost immediately. Companies need not plan beyond paying their immediate contributions into an employee's fund, after which it is that employee's problem to deal with market fluctuations.
- cacois 7y ago
  That is the distinction that makes a 401k not a pension, in the traditional sense. The term "pension" implies something that is paid our after a worker leaves the company, rather than during their tenure. The problem here is pensions that require future payout over an indeterminate length of time.
cagenut 7y ago
It doesn't matter how common they are today, it matters how common they were 20 - 40 years ago, particularly for state/govt workers. And the answer then was "very".
- lotsofpulp 7y ago
  It's still way too common for government employees, although some have had success in cutting benefits for current employees. Although, no reason to assume politicians will defer costs into the future even for the reduced benefits, so it will still be the same problem.
- jagged-chisel 7y ago
  I'm thinking 20-40 years in the future. Will this pension problem be reduced? Perhaps the aftereffects of the current crop of problems will still be felt, but how long will he have new pensioners "contributing" to the problem?
ghaff 7y ago
Mostly just public sector of some sort--though that's a lot of people. There are also some number of legacy plans at private employers even if they don't apply to new employees. I'll get one from a long ago employer who was purchased. The plan was discontinued when the sale happened but the existing pensions will still pay out from the current owner (Dell) who bought the acquiring company.
rwmj 7y ago
Even defined contribution pensions [in the US apparently called "401(k)"] require that young people work so that the retired investors can take a share of that productive output. It may not manifest itself directly as those pensions "imploding", but something will happen such as incredibly poor returns or low interest rate that will make them worth less than we think.
- paganel 7y ago
  That has already started happening in Chile, which afaik was one of the first countries that started implementing the defined contribution system.
- tomrod 7y ago
  How? I thought the money was actually banked?
  - mumblemumble 7y ago
    It's typically invested in securities such as the stock market. If the market value of those securities takes a nose dive, so, too, will the cash value of one's life savings. Market value is driven by supply and demand. If, for example, you get a sudden glut of people looking to sell their securities - say, because all the baby boomers start dipping into their retirement savings at about the same time - that isn't matched by a sudden glut of people looking to buy those securities, then a lot of retirees are going to suddenly discover that their life savings is basically just evaporating at the very moment when they started to rely on it. Some Gen Xers and Millennials might remember having seen a small version of this play out a decade or two ago, when everyone tried cashing out of their comic book collection at about the same time.
  - barrkel 7y ago
    Stuff pensioners need today, beyond non-depreciating physical assets, needs to be supplied out of stuff which is produced today. If the economy is growing at a faster rate than pensioners are increasing their consumption, anything they've "banked" can proportionally hold & increase its value (unless it was very poorly invested). But if pensioner consumption grows faster than the economy, then there's less stuff to go around. Either pensions are worth less, or a bigger slice of the pie goes to pensioners (e.g. propping up asset prices with cheap money) and young people are screwed over (since they don't have many assets). The weird politics we're seeing these days is driven by a mix of the latter effects, I believe, amongst other things (like loss aversion in older people with less productive capacity, and cohort effects in communication media choice leading to information bubbles).
Shivetya 7y ago
the biggest abuse of the system is public employee pension systems which are a super big time bomb. My favorite example is Illinois[0] but they are not the state in the worst condition. Politicians bend over to the public employee unions to keep their political support and in turn make very generous pension and health retirement plans that truly are not affordable. Worse, many at the top of the food chain pull down pensions well North of 100k and some hit 250k +. Imagine that, receiving a pension higher than the average salary of a working member of society. However this is what politicians and government employees have engineered behind the scenes. There are two bets being placed here, first being courts will force the states and cities to tax their way back to compliance, the second is a Federal bail out at full $ [0]https://www.forbes.com/sites/adamandrzejewski/2018/10/26/illinois-100000-club-94000-six-figure-public-employees-and-retirees-cost-taxpayers-12b/#66fcf943481a https://www.forbes.com/sites/adamandrzejewski/2018/10/26/ill...
- evgen 7y ago
  That is a particularly deceptive way to describe the situation, but at least you are not hiding your bias. The reality is that the public demands more and more from public service employees but then throws a complete hissy-fit when it comes time to raise taxes to keep government salaries even vaguely competitive with private salaries so that they can fill those jobs with more than the bottom of the barrel. The way the government hides the ongoing pay increases is by offering those employees more generous pensions. Now this cycle of holding down above the line payroll costs by padding pensions is starting to break down and so people are starting to notice.

How common are pensions these days? None of my employers have offered pensions, just a 401k. Current employer is over a century old; seems they got savvy to the pension liability long ago.

chrisseaton 7y ago

> None of my employers have offered pensions, just a 401k. A 401k is a pension isn't it? Just a defined-contribution pension instead of a defined-benefit pension. I get a pension at my large young tech company.

Cymen 7y ago
No, a 401k is not a pension. A pension guarantees a certain amount at specified dates while a 401k is a way of purchasing securities for you to manage your own retirement and is subject to the returns of your investment choices. In other words, a pension is a guarantee of future income in which the pension offerer is on the hook to ensure they have the funds to deliver the pension while the 401k pushes all that responsibility on to you. My wording is probably off on some of that so an article like this one is probably helpful to flesh out the details: https://www.fool.com/retirement/2018/06/13/whats-the-difference-between-a-pension-and-a-401k.aspx https://www.fool.com/retirement/2018/06/13/whats-the-differe...
- deleted 7y ago
  [deleted]
- chrisseaton 7y ago
  > A pension guarantees a certain amount at specified dates That's specifically a defined benefit pension - just one type of pension. There are many other types of pension. My pension is basically just a big saving account my employer and I both pay into - it's a defined contribution pension.
- samatman 7y ago
  According to le Wik, IRAs and 401k plans are indeed defined-contribution pensions. https://en.wikipedia.org/wiki/Defined_contribution_plan#United_States https://en.wikipedia.org/wiki/Defined_contribution_plan#Unit...
lotsofpulp 7y ago
In the US, pension means defined benefit pension. At least in the UK, pension can mean either defined benefit pension or defined contribution retirement fund.
madamelic 7y ago
401k is a retirement plan. A self-funded retirement plan. It shifts the burden from employers to employees. As a positive, it means employees are more free to change employers while retaining their retirement / "pension" accounts.
- ghaff 7y ago
  Traditional defined benefit plans were almost always oriented around long term employment (like a decade or more) at a single company/organization. If you moved around every few years, you'd basically not get a pension paid out by anyone. On the other hand, as you suggest, defined benefit was one traditional source of income in retirement that didn't require any action/saving discipline on the employee's part. But that's mostly gone in the private sector now.
- briandear 7y ago
  It also means that employees can make their own investment decisions rather than being literally at the mercy of pension administrators and their investment decisions. You can also pass on your funds to your family, while defined benefit pensions generally end when you die.
ghaff 7y ago
At least in the US, the term "pension" is not usually used for defined-contribution plans. If you say "pension" most people assume you mean defined-benefit. It may not be technically incorrect but people will misunderstand you.
umeshunni 7y ago
401k's aren't pensions. They're attached to the employee rather than the employer. Even if your employer goes bust, you still have an account with Vanguard/Fidelity etc that has your money.
- chrisseaton 7y ago
  > They're attached to the employee rather than the employer. Even if your employer goes bust, you still have an account with Vanguard/Fidelity etc that has your money Yes that's the way my pension works. It's still a 'pension'!
  - justin66 7y ago
    > Yes that's the way my pension works. It's still a 'pension'! That's technically correct (for example, you'll see 401(k) accounts referred to as "pension" accounts on their wikipedia page) but people are so used to referring only to defined-benefit accounts as pensions in the United states that they will look at you funny if you call your 401(k) or IRA a "pension." As is virtually happening here.
    - deleted 7y ago
      [deleted]
ineedasername 7y ago
No, a pension is an immense obligation on future revenue/earnings. Unless a company has meticulously planned for and adequately funded it, and the market doesn't tank it's investments, it can all colapse. The obligations of a 401k could be abandoned almost immediately. Companies need not plan beyond paying their immediate contributions into an employee's fund, after which it is that employee's problem to deal with market fluctuations.
cacois 7y ago
That is the distinction that makes a 401k not a pension, in the traditional sense. The term "pension" implies something that is paid our after a worker leaves the company, rather than during their tenure. The problem here is pensions that require future payout over an indeterminate length of time.

cagenut 7y ago

It doesn't matter how common they are today, it matters how common they were 20 - 40 years ago, particularly for state/govt workers. And the answer then was "very".

lotsofpulp 7y ago
It's still way too common for government employees, although some have had success in cutting benefits for current employees. Although, no reason to assume politicians will defer costs into the future even for the reduced benefits, so it will still be the same problem.
jagged-chisel 7y ago
I'm thinking 20-40 years in the future. Will this pension problem be reduced? Perhaps the aftereffects of the current crop of problems will still be felt, but how long will he have new pensioners "contributing" to the problem?

ghaff 7y ago

Mostly just public sector of some sort--though that's a lot of people. There are also some number of legacy plans at private employers even if they don't apply to new employees. I'll get one from a long ago employer who was purchased. The plan was discontinued when the sale happened but the existing pensions will still pay out from the current owner (Dell) who bought the acquiring company.

rwmj 7y ago

Even defined contribution pensions [in the US apparently called "401(k)"] require that young people work so that the retired investors can take a share of that productive output. It may not manifest itself directly as those pensions "imploding", but something will happen such as incredibly poor returns or low interest rate that will make them worth less than we think.

paganel 7y ago
That has already started happening in Chile, which afaik was one of the first countries that started implementing the defined contribution system.
tomrod 7y ago
How? I thought the money was actually banked?
- mumblemumble 7y ago
  It's typically invested in securities such as the stock market. If the market value of those securities takes a nose dive, so, too, will the cash value of one's life savings. Market value is driven by supply and demand. If, for example, you get a sudden glut of people looking to sell their securities - say, because all the baby boomers start dipping into their retirement savings at about the same time - that isn't matched by a sudden glut of people looking to buy those securities, then a lot of retirees are going to suddenly discover that their life savings is basically just evaporating at the very moment when they started to rely on it. Some Gen Xers and Millennials might remember having seen a small version of this play out a decade or two ago, when everyone tried cashing out of their comic book collection at about the same time.
- barrkel 7y ago
  Stuff pensioners need today, beyond non-depreciating physical assets, needs to be supplied out of stuff which is produced today. If the economy is growing at a faster rate than pensioners are increasing their consumption, anything they've "banked" can proportionally hold & increase its value (unless it was very poorly invested). But if pensioner consumption grows faster than the economy, then there's less stuff to go around. Either pensions are worth less, or a bigger slice of the pie goes to pensioners (e.g. propping up asset prices with cheap money) and young people are screwed over (since they don't have many assets). The weird politics we're seeing these days is driven by a mix of the latter effects, I believe, amongst other things (like loss aversion in older people with less productive capacity, and cohort effects in communication media choice leading to information bubbles).

Shivetya 7y ago

the biggest abuse of the system is public employee pension systems which are a super big time bomb. My favorite example is Illinois[0] but they are not the state in the worst condition. Politicians bend over to the public employee unions to keep their political support and in turn make very generous pension and health retirement plans that truly are not affordable. Worse, many at the top of the food chain pull down pensions well North of 100k and some hit 250k +. Imagine that, receiving a pension higher than the average salary of a working member of society. However this is what politicians and government employees have engineered behind the scenes. There are two bets being placed here, first being courts will force the states and cities to tax their way back to compliance, the second is a Federal bail out at full $ [0]https://www.forbes.com/sites/adamandrzejewski/2018/10/26/illinois-100000-club-94000-six-figure-public-employees-and-retirees-cost-taxpayers-12b/#66fcf943481a https://www.forbes.com/sites/adamandrzejewski/2018/10/26/ill...

evgen 7y ago
That is a particularly deceptive way to describe the situation, but at least you are not hiding your bias. The reality is that the public demands more and more from public service employees but then throws a complete hissy-fit when it comes time to raise taxes to keep government salaries even vaguely competitive with private salaries so that they can fill those jobs with more than the bottom of the barrel. The way the government hides the ongoing pay increases is by offering those employees more generous pensions. Now this cycle of holding down above the line payroll costs by padding pensions is starting to break down and so people are starting to notice.