9 ms·

Pensions are a tricky subject. In cases where a pension job paid less than prevailing wages, that pension is in reality deferred payment for time already worke

Pensions are a tricky subject. In cases where a pension job paid less than prevailing wages, that pension is in reality deferred payment for time already worked. So taking away the pension is wage theft. It would be similar to if an organization decided to take back a large portion of your 401K because they retroactively deleted the company matching benefit. In reality, that deferred pay should have been properly invested / managed from the beginning, but that would mean higher taxes or lower spending on other programs at the time the wages were earned.

lotsofpulp 3y ago
Defined benefit pensions have a simple fix. They should be illegal (along with all other deferred compensation schemes) for taxpayer funded entities. The moral hazard of letting today’s voters and today’s politicians and today’s senior government employees (the union leaders) steal from taxpayers 30 years in the future is obvious. Not to mention it is all going into the same SP500 anyway, so just cut out the middleman and moral hazard, and give everyone a Fidelity/Vanguard/Schwab 401k and let them buy the SP500/target date retirement fund they want. Having a lien on future taxpayers is literally the only difference between taxpayer funded defined benefit pension funds and 401K/IRA.
- ghaff 3y ago
  Defined benefit pensions are also largely a product of a more paternalistic time when there was an implicit deal of spend your career (or at least a big chunk of it) working for us and we'll help take care of you in retirement. It doesn't really work for private company employees these days given you often don't get much of anything if you leave in less than 5 years. And the public sector has even more moral hazard as you say; there is at least regulatory oversight of private pensions.
  - dragonwriter 3y ago
    > Defined benefit pensions are also largely a product of a more paternalistic time when there was an implicit deal of spend your career (or at least a big chunk of it) working for us and we'll help take care of you in retirement. There's no reason you can't have portable DB pensions (you'd need standards for employers set by the plan, and a common DB plan, but in a way that's how many non-federal public DB plans already work—they serve multiple different public sector employers.) Its a policy choice not to do that in a way which provides universally portable plans covering private as well as public sector employers.
    - ghaff 3y ago
      At that point, why not just increase the level of social security? It sounds like you're mostly creating an additional universal system to layer on top. And, if it's not universal (including small businesses that now have an additional administrative cost) you have now created a retirement plan that basically favors public sector and big companies (which admittedly 401k already does to an extent).
      - dragonwriter 3y ago
        > At that point, why not just increase the level of social security? I was mostly thinking in the context of state governments in creating their existing multi-employer DB plans making that policy choice, but, yes, the Feds could also expand SS contribution and benefits to make it a universal first-line pension instead of a near-universal safety net pension.
        lotsofpulp 3y ago
        Multiemployer DB pension plans are a specific thing unrelated to taxpayer funded DB pension plans. An examples would be multi employer Teamsters truck driver pension plans, and they are notable because in a multi employer DB pension plan, when an employer goes bankrupt, the unfunded liabilities get distributed amongst the remaining employers. Which means once things start going downward, the longer you stay in, the more of the bag you are left holding. Which precipitated the recent bailout of some multi employer pension plans, since they had enough political sway: https://www.nytimes.com/2021/03/07/business/dealbook/bailout-pensions-stimulus.html https://www.nytimes.com/2021/03/07/business/dealbook/bailout...
      - xgl5k 3y ago
        Will only work assuming population and economy will continue to grow in the future. While this has always been the case in the USA, it is not always the case globally.
- MAGZine 3y ago
  Not paying pensions should be illegal. I think after Sears and the rest, people prefer money now vs money later. But if I knew the money was good, I'd rather not manage it myself.
  - ghaff 3y ago
    There are very low effort ways like target date funds. Of course, that means you have to pro-actively take money out of your paycheck and deposit it. A bankruptcy does not mean the pension funding is gone. In the case of Sears it transferred to the PBGC with the federal government. In my case, the pension administration is handled (well outsourced) by the current owner of my long ago employer.
  - Spivak 3y ago
    Does your employer not (optionally) manage your 401k? Mine has been doing better than my other accounts on index funds.
    - ghaff 3y ago
      I've never heard of such a thing. For me, it's always been a choice of funds (and maybe company stock) held at a brokerage that allows me to reallocate investments as I wish. I have to believe that if a company is "managing" 401k investments, it's just an abstraction on top of some agreed-to investment strategy at the brokerage.
    - digitalapnea 3y ago
      Depends on what you mean by "manage". The money is explicitly yours, the company can never touch it. However; you are locked into the company agreement with the custodian (e.g. Vanguard and their list of investment funds).
      - xgl5k 3y ago
        Not locked. You can roll it over into a IRA/ roth IRA and manage yourself. You won't pay early withdrawal taxes as long as you roll over within 60 days.
- cool_dude85 3y ago
  How is a governmental DB pension stealing? Or are we talking about Libertopia "taxation is theft" garbage?
  - HDThoreaun 3y ago
    The way pensions are currently implemented in the state is "don't invest, just transfer tax revenue to pensioners" social security style. The issue is todays tax payers did not agree to those pensions. The people who voted for the pensions are mostly no longer working, they foisted all the costs onto their children and grand children.
    - cool_dude85 3y ago
      No, this is not true. CalPERS is a huge investment fund. My own much smaller pension has a (nominally) large investment fund and believe me it ain't sitting in a money market fund at Wells Fargo. I don't have survey data for you but I am going to go ahead and state that the vast majority of money in pension funds is invested to hit some assumed rate of return with minimized risk / diversification targets.
      - HDThoreaun 3y ago
        Im talking specifically about Illinois pension funds, which were unfunded for decades. There's no money sitting in them at all, everything that comes in immediately goes out.
        cool_dude85 3y ago
        Pay-as-you-go is more risky and more costly overall but it's not an unworkable system. Since you clarified that you mean one specific state has this system, then I'd say the rest of your post is bogus too. Current taxpayers didn't agree to build old bridges or whatever either. Few people living agreed to build out the state highway system. Yet taxes today pay for their maintenance and upkeep and it's not some great moral problem.
- mikewarot 3y ago
  I think the shift away from defined benefits retirement was the shafting of a generation. Any fixed sum of money saved away got killed when interest rates were slammed to zero. It was theft on a massive scale.
- fastaguy88 3y ago
  It’s easy to pick on defined benefit plans when they are underfunded, but they do have advantages for the employer - when the retiree (and spouse) die, the obligation is over. A given contribution can fund more people at a higher level if the obligation ends when they die.
  - ghaff 3y ago
    Is that really true? It's an actuarial calculation. They win some they lose some.
    - fastaguy88 3y ago
      It's an actuarial calculation with good statistics on (for governments and large corporations) very large populations. So the estimates are accurate. But mostly, defined benefit pensions do not go the the heirs, so there is more money for the people getting the pension.
      - dragonwriter 3y ago
        > But mostly, defined benefit pensions do not go the the heirs, Right, most DB pensions I've seen, public or private, extend benefits at full value to exactly one designated person after the covered worker dies, for life, and then expire.
        lotsofpulp 3y ago
        I have not seen that in the US. Usually, you get to choose how much benefit you want to go to a spouse, inversely correlated with the benefit you receive. So you can choose your whole monthly benefit for just your life, then less for a joint and survivor (J&S) 50% benefit, and an even lesser amount for J&S 75% benefit, and finally a J&S 100% benefit option.
        xp84 3y ago
        Thanks, I had wondered how that worked. My grandmother had a pension which came from her late husband (in addition to her own pension). She avoided remarrying because that would have also terminated that survivor pension, apparently. She cohabited for decades with a man (my de-facto grandfather) who also collected a similar pension from his late wife. A rather silly restriction, if you ask me. They made the right call.
- SoftTalker 3y ago
  > Having a lien on future taxpayers is literally the only difference between taxpayer funded defined benefit pension funds and 401K/IRA. The other difference is that the governmental authority cannot "borrow" money from the pension fund if each employee owns his or her own 401K account. The problem with a lot of these insolvent pension funds is that they are nothing but a stack of IOUs.
- bsder 3y ago
  > The moral hazard of letting today’s voters and today’s politicians and today’s senior government employees (the union leaders) steal from taxpayers 30 years in the future is obvious. You don't seem to want to state the other obvious solution--all defined benefits plans should have to be funded as the person is paying in. The problem with defined benefits plans is that they are allowed to be funded when the person retires rather than as the person is working. That simple change takes the problem out of defined benefits plans.
  - lotsofpulp 3y ago
    That "simple" change involves a ton of agency risk, which we already have. Who is going to force the politician to make the payment? Who is going to force the pension plan board of trustees to use appropriate assumptions in their calculation of liabilities and the requisite funding? Who is going to watch out to make sure the board members are not investing in their brother in law's cousins' real estate project?
PopAlongKid 3y ago
>n cases where a pension job paid less than prevailing wages, How often is that actually the case? I think it was the ideal and expected result at one time (civil service job + pension = private market job) but the connection was broken long ago.
- ghaff 3y ago
  It's probably a pretty tenuous connection given a lot of large private sector companies used to have defined benefit pensions too. It was one of a bucket of benefits that was sort of expected. At some level, modulo tax effects, a dollar in benefits is theoretically a dollar not paid in salary but that's not really how things work--certainly not on a 1:1 basis. If I weren't going to start collecting a pension soon from some ago company that by now has gone through a couple generations of acquisitions would I have been paid more at the time? Maybe I guess. But it's very indirect.
  - bluGill 3y ago
    The problem was a few companies went bankrupt and then the workers discovered not only did they lose their job, but it turns out the pension they had been in for decades was invested in company stock and thus worthless. We have a lot of laws around pensions these days to prevent that. However they were written when the investing environment was different (higher interest rates made AAA bonds a great investment, so investing in risky stocks didn't make sense). The result is pensions are generally have a terrible return on investment. You are much better off with a well managed 401k in modern funds (at least as I write this and the 30 years before, while I can only guess what the future will hold I think that trend will hold for the next 10 years at least). 401k has one other advantage: it is clear where the money is and who controls it. Pensions often are setup as a great deal if you work for the same company for 40+ years (25-65), but if you switch jobs you don't get nearly as much, even if all the other companies have a pension plan your total is much worse.
    - ghaff 3y ago
      >401k has one other advantage: it is clear where the money is and who controls it. I'll add another one: the investor can tailor their risk to where they are in life. At some point, it probably makes sense to put even most of my savings in very low risk, low yield bonds. But that point is probably not when I'm in my twenties. I actually understand the appeal of a (presumably) low risk "guaranteed" annuity payout at retirement that may have been a long ago benefit you never really thought about. But it probably wasn't really free and probably doesn't represent a better investment than if you were given the actuarial share of the money paid into the pension on your behalf instead.
behringer 3y ago
maybe those employees shouldn't have screwed up the county then.

lotsofpulp 3y ago

Defined benefit pensions have a simple fix. They should be illegal (along with all other deferred compensation schemes) for taxpayer funded entities. The moral hazard of letting today’s voters and today’s politicians and today’s senior government employees (the union leaders) steal from taxpayers 30 years in the future is obvious. Not to mention it is all going into the same SP500 anyway, so just cut out the middleman and moral hazard, and give everyone a Fidelity/Vanguard/Schwab 401k and let them buy the SP500/target date retirement fund they want. Having a lien on future taxpayers is literally the only difference between taxpayer funded defined benefit pension funds and 401K/IRA.

ghaff 3y ago
Defined benefit pensions are also largely a product of a more paternalistic time when there was an implicit deal of spend your career (or at least a big chunk of it) working for us and we'll help take care of you in retirement. It doesn't really work for private company employees these days given you often don't get much of anything if you leave in less than 5 years. And the public sector has even more moral hazard as you say; there is at least regulatory oversight of private pensions.
- dragonwriter 3y ago
  > Defined benefit pensions are also largely a product of a more paternalistic time when there was an implicit deal of spend your career (or at least a big chunk of it) working for us and we'll help take care of you in retirement. There's no reason you can't have portable DB pensions (you'd need standards for employers set by the plan, and a common DB plan, but in a way that's how many non-federal public DB plans already work—they serve multiple different public sector employers.) Its a policy choice not to do that in a way which provides universally portable plans covering private as well as public sector employers.
  - ghaff 3y ago
    At that point, why not just increase the level of social security? It sounds like you're mostly creating an additional universal system to layer on top. And, if it's not universal (including small businesses that now have an additional administrative cost) you have now created a retirement plan that basically favors public sector and big companies (which admittedly 401k already does to an extent).
    - dragonwriter 3y ago
      > At that point, why not just increase the level of social security? I was mostly thinking in the context of state governments in creating their existing multi-employer DB plans making that policy choice, but, yes, the Feds could also expand SS contribution and benefits to make it a universal first-line pension instead of a near-universal safety net pension.
      - lotsofpulp 3y ago
        Multiemployer DB pension plans are a specific thing unrelated to taxpayer funded DB pension plans. An examples would be multi employer Teamsters truck driver pension plans, and they are notable because in a multi employer DB pension plan, when an employer goes bankrupt, the unfunded liabilities get distributed amongst the remaining employers. Which means once things start going downward, the longer you stay in, the more of the bag you are left holding. Which precipitated the recent bailout of some multi employer pension plans, since they had enough political sway: https://www.nytimes.com/2021/03/07/business/dealbook/bailout-pensions-stimulus.html https://www.nytimes.com/2021/03/07/business/dealbook/bailout...
    - xgl5k 3y ago
      Will only work assuming population and economy will continue to grow in the future. While this has always been the case in the USA, it is not always the case globally.
MAGZine 3y ago
Not paying pensions should be illegal. I think after Sears and the rest, people prefer money now vs money later. But if I knew the money was good, I'd rather not manage it myself.
- ghaff 3y ago
  There are very low effort ways like target date funds. Of course, that means you have to pro-actively take money out of your paycheck and deposit it. A bankruptcy does not mean the pension funding is gone. In the case of Sears it transferred to the PBGC with the federal government. In my case, the pension administration is handled (well outsourced) by the current owner of my long ago employer.
- Spivak 3y ago
  Does your employer not (optionally) manage your 401k? Mine has been doing better than my other accounts on index funds.
  - ghaff 3y ago
    I've never heard of such a thing. For me, it's always been a choice of funds (and maybe company stock) held at a brokerage that allows me to reallocate investments as I wish. I have to believe that if a company is "managing" 401k investments, it's just an abstraction on top of some agreed-to investment strategy at the brokerage.
  - digitalapnea 3y ago
    Depends on what you mean by "manage". The money is explicitly yours, the company can never touch it. However; you are locked into the company agreement with the custodian (e.g. Vanguard and their list of investment funds).
    - xgl5k 3y ago
      Not locked. You can roll it over into a IRA/ roth IRA and manage yourself. You won't pay early withdrawal taxes as long as you roll over within 60 days.
cool_dude85 3y ago
How is a governmental DB pension stealing? Or are we talking about Libertopia "taxation is theft" garbage?
- HDThoreaun 3y ago
  The way pensions are currently implemented in the state is "don't invest, just transfer tax revenue to pensioners" social security style. The issue is todays tax payers did not agree to those pensions. The people who voted for the pensions are mostly no longer working, they foisted all the costs onto their children and grand children.
  - cool_dude85 3y ago
    No, this is not true. CalPERS is a huge investment fund. My own much smaller pension has a (nominally) large investment fund and believe me it ain't sitting in a money market fund at Wells Fargo. I don't have survey data for you but I am going to go ahead and state that the vast majority of money in pension funds is invested to hit some assumed rate of return with minimized risk / diversification targets.
    - HDThoreaun 3y ago
      Im talking specifically about Illinois pension funds, which were unfunded for decades. There's no money sitting in them at all, everything that comes in immediately goes out.
      - cool_dude85 3y ago
        Pay-as-you-go is more risky and more costly overall but it's not an unworkable system. Since you clarified that you mean one specific state has this system, then I'd say the rest of your post is bogus too. Current taxpayers didn't agree to build old bridges or whatever either. Few people living agreed to build out the state highway system. Yet taxes today pay for their maintenance and upkeep and it's not some great moral problem.
mikewarot 3y ago
I think the shift away from defined benefits retirement was the shafting of a generation. Any fixed sum of money saved away got killed when interest rates were slammed to zero. It was theft on a massive scale.
fastaguy88 3y ago
It’s easy to pick on defined benefit plans when they are underfunded, but they do have advantages for the employer - when the retiree (and spouse) die, the obligation is over. A given contribution can fund more people at a higher level if the obligation ends when they die.
- ghaff 3y ago
  Is that really true? It's an actuarial calculation. They win some they lose some.
  - fastaguy88 3y ago
    It's an actuarial calculation with good statistics on (for governments and large corporations) very large populations. So the estimates are accurate. But mostly, defined benefit pensions do not go the the heirs, so there is more money for the people getting the pension.
    - dragonwriter 3y ago
      > But mostly, defined benefit pensions do not go the the heirs, Right, most DB pensions I've seen, public or private, extend benefits at full value to exactly one designated person after the covered worker dies, for life, and then expire.
      - lotsofpulp 3y ago
        I have not seen that in the US. Usually, you get to choose how much benefit you want to go to a spouse, inversely correlated with the benefit you receive. So you can choose your whole monthly benefit for just your life, then less for a joint and survivor (J&S) 50% benefit, and an even lesser amount for J&S 75% benefit, and finally a J&S 100% benefit option.
        xp84 3y ago
        Thanks, I had wondered how that worked. My grandmother had a pension which came from her late husband (in addition to her own pension). She avoided remarrying because that would have also terminated that survivor pension, apparently. She cohabited for decades with a man (my de-facto grandfather) who also collected a similar pension from his late wife. A rather silly restriction, if you ask me. They made the right call.
SoftTalker 3y ago
> Having a lien on future taxpayers is literally the only difference between taxpayer funded defined benefit pension funds and 401K/IRA. The other difference is that the governmental authority cannot "borrow" money from the pension fund if each employee owns his or her own 401K account. The problem with a lot of these insolvent pension funds is that they are nothing but a stack of IOUs.
bsder 3y ago
> The moral hazard of letting today’s voters and today’s politicians and today’s senior government employees (the union leaders) steal from taxpayers 30 years in the future is obvious. You don't seem to want to state the other obvious solution--all defined benefits plans should have to be funded as the person is paying in. The problem with defined benefits plans is that they are allowed to be funded when the person retires rather than as the person is working. That simple change takes the problem out of defined benefits plans.
- lotsofpulp 3y ago
  That "simple" change involves a ton of agency risk, which we already have. Who is going to force the politician to make the payment? Who is going to force the pension plan board of trustees to use appropriate assumptions in their calculation of liabilities and the requisite funding? Who is going to watch out to make sure the board members are not investing in their brother in law's cousins' real estate project?

PopAlongKid 3y ago

>n cases where a pension job paid less than prevailing wages, How often is that actually the case? I think it was the ideal and expected result at one time (civil service job + pension = private market job) but the connection was broken long ago.

ghaff 3y ago
It's probably a pretty tenuous connection given a lot of large private sector companies used to have defined benefit pensions too. It was one of a bucket of benefits that was sort of expected. At some level, modulo tax effects, a dollar in benefits is theoretically a dollar not paid in salary but that's not really how things work--certainly not on a 1:1 basis. If I weren't going to start collecting a pension soon from some ago company that by now has gone through a couple generations of acquisitions would I have been paid more at the time? Maybe I guess. But it's very indirect.
- bluGill 3y ago
  The problem was a few companies went bankrupt and then the workers discovered not only did they lose their job, but it turns out the pension they had been in for decades was invested in company stock and thus worthless. We have a lot of laws around pensions these days to prevent that. However they were written when the investing environment was different (higher interest rates made AAA bonds a great investment, so investing in risky stocks didn't make sense). The result is pensions are generally have a terrible return on investment. You are much better off with a well managed 401k in modern funds (at least as I write this and the 30 years before, while I can only guess what the future will hold I think that trend will hold for the next 10 years at least). 401k has one other advantage: it is clear where the money is and who controls it. Pensions often are setup as a great deal if you work for the same company for 40+ years (25-65), but if you switch jobs you don't get nearly as much, even if all the other companies have a pension plan your total is much worse.
  - ghaff 3y ago
    >401k has one other advantage: it is clear where the money is and who controls it. I'll add another one: the investor can tailor their risk to where they are in life. At some point, it probably makes sense to put even most of my savings in very low risk, low yield bonds. But that point is probably not when I'm in my twenties. I actually understand the appeal of a (presumably) low risk "guaranteed" annuity payout at retirement that may have been a long ago benefit you never really thought about. But it probably wasn't really free and probably doesn't represent a better investment than if you were given the actuarial share of the money paid into the pension on your behalf instead.

behringer 3y ago

maybe those employees shouldn't have screwed up the county then.