4 ms·

Pensions seem like an outdated concept, when 401Ks and IRAs are options. Pensions are essentially a tradeoff of lower pay now in exchange for benefits in the fu

Pensions seem like an outdated concept, when 401Ks and IRAs are options. Pensions are essentially a tradeoff of lower pay now in exchange for benefits in the future, with a sprinkle of an incentive for increased retention added in, but with the critical downside (to the employer) of it basically being an unbounded, undefined financial downside for them at the tail end. Employers should pay people, contribute to their retirement funds if further tax-advantaged incentives are needed (and society can and should have further discussions on how complicated these tax laws are), but people should own and be in charge of their own retirement funds.

didgetmaster 3y ago
Exactly. Pensions might have been practical back in the day when people worked for "the company" for their whole career. But when so many change jobs every 5 years or less, they make no sense.
- cguess 3y ago
  Not every company is a tech company and not every worker is in their 20's. If you're a truck driver there's a good chance you do work for the same company for your entire career.
  - nradov 3y ago
    You've got to be kidding. Trucking has very high employee turnover. Drivers will jump quickly to a competitor that offers slightly higher wages or better scheduling.
- toomuchtodo 3y ago
  Union pensions are typically paid into by companies, but the pension is maintained by the union. Teamsters, IBEWs, etc pensions operate in this manner. You won't work for the same company your entire career, but you're likely to remain in the same field for it. Pensions work just the same as 401ks, but better when properly funded and governed, because your average worker is unsophisticated as it relates to investing. 401ks were a scam foisted on the public as pension replacements, with corporations instead juicing shareholder returns with what was previously pension contributions. If you're a high earner without any life events that would cause you to liquidate your 401k (extended job loss, medical event), congrats! You have won the lottery. You can require pension operators to be fiduciaries and act in the best interest of their members, with penalties if they don't (this exists today, current state). If individuals fuck up their retirement (or could not save enough because of their lifetime wage trajectory), oh well, you're going to die in poverty because the socioeconomic system pulled a fast one on you. https://www.nbcnews.com/business/retirement/great-401-k-experiment-has-failed-many-americans-n327321 https://www.nbcnews.com/business/retirement/great-401-k-expe... https://www.economicpolicyresearch.org/images/docs/research/retirement_security/401k_Plans_A_Failed_Experiment.pdf https://www.economicpolicyresearch.org/images/docs/research/... https://www.gao.gov/financial-security-older-americans https://www.gao.gov/financial-security-older-americans https://web.archive.org/web/20201026175751/https://www.gao.gov/assets/320/317143.html https://web.archive.org/web/20201026175751/https://www.gao.g... https://www.empower.com/the-currency/life/average-401k-balance-age https://www.empower.com/the-currency/life/average-401k-balan... (direct your attention to median balances; assuming 4% withdrawal rate, the high water median 401k balance translates to $185/month in retirement income) https://corpgov.law.harvard.edu/2023/03/01/fiduciary-duties-of-public-pension-systems-and-registered-investment-advisors/ https://corpgov.law.harvard.edu/2023/03/01/fiduciary-duties-...
  - nradov 3y ago
    Union pensions were a scam foisted on workers by corrupt union leaders who wanted access to a huge pot of money. https://www.ojp.gov/ncjrs/virtual-library/abstracts/invisible-enterprise-part-4-most-abused-misused-pension-fund https://www.ojp.gov/ncjrs/virtual-library/abstracts/invisibl... https://www.dea.gov/sites/default/files/pubs/states/newsrel/boston101703.html https://www.dea.gov/sites/default/files/pubs/states/newsrel/... I would much rather have my retirement funds in a 401(k). The assets are in my name and can't be arbitrarily taken away.
- imglorp 3y ago
  > when so many change jobs every 5 years or less That wording implies voluntary. The new loyalty relationship is immensely asymmetric: "the company" holds you by the heart plug (health plan, visa, vesting) while at the same time will boot out a substantial fraction of its workforce, regardless of merit, the moment a quarter turns yellow in some spreadsheet or the M+A pendulum comes around again. There are very few places anyone can spend their whole career at one company even if they wanted to. I've been at this 30 years and I think I've had 10 jobs but only quit once.
pm215 3y ago
My counterargument to this is: Pension/retirement arrangements where the contributions are defined but the benefits are not are a risk to the individual -- you have to figure out "how much do I want to invest, what do I think the market will do, where should I put the money?", and if you get it wrong you don't have enough money in retirement. For the company, on the other hand, they're very low risk, because the amount of the company's liability is clearly defined and limited up front. Arrangements where the benefits are defined are not a risk to the individual (who knows how much they will get, and will get it regardless of market conditions over the next few decades); instead they're a risk to the company/government/etc that provides them (if they set the defined final pension too high and investments don't go so well then it costs the company more than they expected). In general my preference is that (as a society) we should prefer to impose risks not on individuals but on large organizations who can afford to employ people who take the time to assess those risks and make the necessary decisions, and who have the resources and timescales to be able to weather unexpected downturns. So I think defined-benefit is better than defined-contribution. (This is of course entirely not the way the pension setup has gone, at least in the UK -- defined-benefit is getting rarer and rarer, and defined-contribution is pretty much the standard for the private sector these days. But I think it's an unfortunate trend.)
- seiferteric 3y ago
  > if they set the defined final pension too high and investments don't go so well then it costs the company more than they expected Like the whole company? Only a government that can print money can really offer such a defined benefit, and even then it is just a mirage since the actual value can be inflated away. The real issue is that it is actually impossible to make such guarantees since conditions can always change, but some people don't want to accept that reality.
- nmhancoc 3y ago
  > Pension/retirement arrangements where the contributions are defined but the benefits are not are a risk to the individual ... and if you get it wrong you don't have enough money in retirement. I think this is slightly overstated. The most common outcome in this situation is that you work more, the amount of extra work being determined by the size of the error. > In general my preference is that (as a society) we should prefer to impose risks not on individuals but on large organizations who can afford to employ people who take the time to assess those risks and make the necessary decisions, and who have the resources and timescales to be able to weather unexpected downturns. So I think defined-benefit is better than defined-contribution. This isn’t a bad point, and is strengthened by the observation that pensions benefit from pooled risk. E.g. those that live longer are subsidized by those who unluckily die younger, so everyone on average gets away with slightly lesser contributions (or earlier retirements). But it misses out on incentive mismatches with pensions. A pension administrator is probably not going to work at the company in question for their whole career, and their incentive career wise is probably not the long term maximization of risk adjusted return for this pension, but instead perhaps taking risky bets hoping they pay off for notoriety, or avoiding risk at all costs to avoid complaints. And this dovetails into some really hairy aspects of pensions that aren’t often brought up. For one, they generally punish people for alternative lifestyles. Imagine trying to be a childless person retiring early with a pension that doesn’t kick in until 65 because the typical person has kids and works that long. Also, pensions can be discriminatory. Imagine having a disease that shortens your lifespan, like MS, or a higher risk factor for something like early onset dementia. It’s entirely possible you’re forced to contribute to a pension program you have every likelihood of not being able to benefit from in your natural lifespan. For a more common example, women live longer than men. Should men have to contribute less for the same benefits then?
dehrmann 3y ago
Regardless of how you feel about pensions, tying them to the employer is silly because it limits employee mobility and is a liability most businesses don't want to deal with. What's ironic is the people promoting them tend to be the same as the ones promoting nationalized healthcare (or vice versa).
- mech765 3y ago
  In some industries low worker mobility is very desirable for the company. Offering long time horizon benefits is a good way to reduce turnover. I would prefer my local nuclear plant operator to have employees that stick around and get to know the equipment very well.
  - dehrmann 3y ago
    Then pay them significantly more than they can get at their next job.
    - azinman2 3y ago
      A pension would be a form of that.
azinman2 3y ago
401k and IRA were created in a system that included pensions. Now without them, we have a huge shift towards a volatile market with a lot less guarantees, and lower limits. This isn’t a good system we have. Most are ill prepared.
- nradov 3y ago
  The guarantees provided by the PBGC are very limited and create a terrible moral hazard. Defined contribution plans such as 401(k) are much safer because the assets are in individual named accounts which aren't at risk if the employer or plan sponsor goes bankrupt. Most such plans allow employees to invest in risk-free assets such as Treasuries if they desire.

didgetmaster 3y ago

Exactly. Pensions might have been practical back in the day when people worked for "the company" for their whole career. But when so many change jobs every 5 years or less, they make no sense.

cguess 3y ago
Not every company is a tech company and not every worker is in their 20's. If you're a truck driver there's a good chance you do work for the same company for your entire career.
- nradov 3y ago
  You've got to be kidding. Trucking has very high employee turnover. Drivers will jump quickly to a competitor that offers slightly higher wages or better scheduling.
toomuchtodo 3y ago
Union pensions are typically paid into by companies, but the pension is maintained by the union. Teamsters, IBEWs, etc pensions operate in this manner. You won't work for the same company your entire career, but you're likely to remain in the same field for it. Pensions work just the same as 401ks, but better when properly funded and governed, because your average worker is unsophisticated as it relates to investing. 401ks were a scam foisted on the public as pension replacements, with corporations instead juicing shareholder returns with what was previously pension contributions. If you're a high earner without any life events that would cause you to liquidate your 401k (extended job loss, medical event), congrats! You have won the lottery. You can require pension operators to be fiduciaries and act in the best interest of their members, with penalties if they don't (this exists today, current state). If individuals fuck up their retirement (or could not save enough because of their lifetime wage trajectory), oh well, you're going to die in poverty because the socioeconomic system pulled a fast one on you. https://www.nbcnews.com/business/retirement/great-401-k-experiment-has-failed-many-americans-n327321 https://www.nbcnews.com/business/retirement/great-401-k-expe... https://www.economicpolicyresearch.org/images/docs/research/retirement_security/401k_Plans_A_Failed_Experiment.pdf https://www.economicpolicyresearch.org/images/docs/research/... https://www.gao.gov/financial-security-older-americans https://www.gao.gov/financial-security-older-americans https://web.archive.org/web/20201026175751/https://www.gao.gov/assets/320/317143.html https://web.archive.org/web/20201026175751/https://www.gao.g... https://www.empower.com/the-currency/life/average-401k-balance-age https://www.empower.com/the-currency/life/average-401k-balan... (direct your attention to median balances; assuming 4% withdrawal rate, the high water median 401k balance translates to $185/month in retirement income) https://corpgov.law.harvard.edu/2023/03/01/fiduciary-duties-of-public-pension-systems-and-registered-investment-advisors/ https://corpgov.law.harvard.edu/2023/03/01/fiduciary-duties-...
- nradov 3y ago
  Union pensions were a scam foisted on workers by corrupt union leaders who wanted access to a huge pot of money. https://www.ojp.gov/ncjrs/virtual-library/abstracts/invisible-enterprise-part-4-most-abused-misused-pension-fund https://www.ojp.gov/ncjrs/virtual-library/abstracts/invisibl... https://www.dea.gov/sites/default/files/pubs/states/newsrel/boston101703.html https://www.dea.gov/sites/default/files/pubs/states/newsrel/... I would much rather have my retirement funds in a 401(k). The assets are in my name and can't be arbitrarily taken away.
imglorp 3y ago
> when so many change jobs every 5 years or less That wording implies voluntary. The new loyalty relationship is immensely asymmetric: "the company" holds you by the heart plug (health plan, visa, vesting) while at the same time will boot out a substantial fraction of its workforce, regardless of merit, the moment a quarter turns yellow in some spreadsheet or the M+A pendulum comes around again. There are very few places anyone can spend their whole career at one company even if they wanted to. I've been at this 30 years and I think I've had 10 jobs but only quit once.

pm215 3y ago

My counterargument to this is: Pension/retirement arrangements where the contributions are defined but the benefits are not are a risk to the individual -- you have to figure out "how much do I want to invest, what do I think the market will do, where should I put the money?", and if you get it wrong you don't have enough money in retirement. For the company, on the other hand, they're very low risk, because the amount of the company's liability is clearly defined and limited up front. Arrangements where the benefits are defined are not a risk to the individual (who knows how much they will get, and will get it regardless of market conditions over the next few decades); instead they're a risk to the company/government/etc that provides them (if they set the defined final pension too high and investments don't go so well then it costs the company more than they expected). In general my preference is that (as a society) we should prefer to impose risks not on individuals but on large organizations who can afford to employ people who take the time to assess those risks and make the necessary decisions, and who have the resources and timescales to be able to weather unexpected downturns. So I think defined-benefit is better than defined-contribution. (This is of course entirely not the way the pension setup has gone, at least in the UK -- defined-benefit is getting rarer and rarer, and defined-contribution is pretty much the standard for the private sector these days. But I think it's an unfortunate trend.)

seiferteric 3y ago
> if they set the defined final pension too high and investments don't go so well then it costs the company more than they expected Like the whole company? Only a government that can print money can really offer such a defined benefit, and even then it is just a mirage since the actual value can be inflated away. The real issue is that it is actually impossible to make such guarantees since conditions can always change, but some people don't want to accept that reality.
nmhancoc 3y ago
> Pension/retirement arrangements where the contributions are defined but the benefits are not are a risk to the individual ... and if you get it wrong you don't have enough money in retirement. I think this is slightly overstated. The most common outcome in this situation is that you work more, the amount of extra work being determined by the size of the error. > In general my preference is that (as a society) we should prefer to impose risks not on individuals but on large organizations who can afford to employ people who take the time to assess those risks and make the necessary decisions, and who have the resources and timescales to be able to weather unexpected downturns. So I think defined-benefit is better than defined-contribution. This isn’t a bad point, and is strengthened by the observation that pensions benefit from pooled risk. E.g. those that live longer are subsidized by those who unluckily die younger, so everyone on average gets away with slightly lesser contributions (or earlier retirements). But it misses out on incentive mismatches with pensions. A pension administrator is probably not going to work at the company in question for their whole career, and their incentive career wise is probably not the long term maximization of risk adjusted return for this pension, but instead perhaps taking risky bets hoping they pay off for notoriety, or avoiding risk at all costs to avoid complaints. And this dovetails into some really hairy aspects of pensions that aren’t often brought up. For one, they generally punish people for alternative lifestyles. Imagine trying to be a childless person retiring early with a pension that doesn’t kick in until 65 because the typical person has kids and works that long. Also, pensions can be discriminatory. Imagine having a disease that shortens your lifespan, like MS, or a higher risk factor for something like early onset dementia. It’s entirely possible you’re forced to contribute to a pension program you have every likelihood of not being able to benefit from in your natural lifespan. For a more common example, women live longer than men. Should men have to contribute less for the same benefits then?

dehrmann 3y ago

Regardless of how you feel about pensions, tying them to the employer is silly because it limits employee mobility and is a liability most businesses don't want to deal with. What's ironic is the people promoting them tend to be the same as the ones promoting nationalized healthcare (or vice versa).

mech765 3y ago
In some industries low worker mobility is very desirable for the company. Offering long time horizon benefits is a good way to reduce turnover. I would prefer my local nuclear plant operator to have employees that stick around and get to know the equipment very well.
- dehrmann 3y ago
  Then pay them significantly more than they can get at their next job.
  - azinman2 3y ago
    A pension would be a form of that.

azinman2 3y ago

401k and IRA were created in a system that included pensions. Now without them, we have a huge shift towards a volatile market with a lot less guarantees, and lower limits. This isn’t a good system we have. Most are ill prepared.

nradov 3y ago
The guarantees provided by the PBGC are very limited and create a terrible moral hazard. Defined contribution plans such as 401(k) are much safer because the assets are in individual named accounts which aren't at risk if the employer or plan sponsor goes bankrupt. Most such plans allow employees to invest in risk-free assets such as Treasuries if they desire.