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>This is obviously false given the underfunded states of pretty much all taxpayer funded pensions in the US. You have confused two different but related issues

>This is obviously false given the underfunded states of pretty much all taxpayer funded pensions in the US. You have confused two different but related issues. Let me be more explicit. My pension fund provides all employees who join with certain benefits. Let's say over the course of 50 years we look at what it costs to provide these benefits in some constant dollars and it's 100 bucks. I claim that the cost for all employees using individual retirement accounts to achieve the same benefits as the pension, they would have to had paid e.g. 110 bucks. I can't prove this claim but can provide some explanation: Each individual fund is much smaller and is paying much higher fees, both management fees and transaction type fees. Each individual is much harder to insure than the group and has to go to a for-profit insurer to get an annuity (as they have with the DB pension). They pay the risk and for the insurer's profit. Each individual has to manage pre-retirement market risk and pay a price to do so, e.g. they're using target date funds and the money is in low-yield bonds for the last few years before they retire, losing returns at exactly the time it's most costly. The question of funding is separate. It's up to my employer to decide if they want to set aside the whole 100 bucks up front that the pension costs or if they only want to set aside 80 bucks. So, either the pension is fully funded, or 20 short, either way it's cheaper.

lotsofpulp 3y ago
I do not see why costs arising from agency risk, as seen pervading the US on state and county and city levels, should be disregarded. > Each individual fund is much smaller and is paying much higher fees, both management fees and transaction type fees. Compared to Vanguard/Fidelity/Schwab/Blackrock/etc offerings that are easily available in any brokerage/IRA/401k? > Each individual is much harder to insure than the group and has to go to a for-profit insurer to get an annuity (as they have with the DB pension). They pay the risk and for the insurer's profit. And yet insurers are able to pay annuities without needing the power to tax entire populations. There is clearly a disconnect between the theory and practice, due to the aforementioned agency risk. > Each individual has to manage pre-retirement market risk and pay a price to do so, e.g. they're using target date funds and the money is in low-yield bonds for the last few years before they retire, losing returns at exactly the time it's most costly. Another way to look at it is they are invested in lower volatility investments because they are at a point in their life where they can not afford volatility. > The question of funding is separate. It's up to my employer to decide if they want to set aside the whole 100 bucks up front that the pension costs or if they only want to set aside 80 bucks. So, either the pension is fully funded, or 20 short, either way it's cheaper. Yes, it is cheaper and great for those who are early enough in the scheme to be a benefit recipient, which is why I specified older employees who compose union leadership in my original post. It is not cheaper for younger taxpayers and younger government employees shunted into lower paying tiers of the pension. I have a sister in law who is 7 years older than my other sister in law. Both work for a state government, and the older one has worked a lower paying job her whole life than the younger, by at least $20k per year. However, the older one will retire with a benefit worth at least 2x as much as the younger one.
- cool_dude85 3y ago
  >I do not see why costs arising from agency risk, as seen pervading the US on state and county and city levels, should be disregarded. Fair point, but individual accounts have similar issues. People give their money to wealth advisors or whatever all day long. >It is not cheaper for younger taxpayers and younger government employees shunted into lower paying tiers of the pension. I have a sister in law who is 7 years older than my other sister in law. Both work for a state government, and the older one has worked a lower paying job her whole life than the younger, by at least $20k per year. However, the older one will retire with a benefit worth at least 2x as much as the younger one. I'm arguing that benefit-for-benefit, the pension does it cheaper. It would be cheaper for a pension to provide your older sister's benefit and cheaper for a pension to provide your younger sister's benefit. But yeah, this kind of thing is fucked up and I don't know why unions agree to it.

lotsofpulp 3y ago

I do not see why costs arising from agency risk, as seen pervading the US on state and county and city levels, should be disregarded. > Each individual fund is much smaller and is paying much higher fees, both management fees and transaction type fees. Compared to Vanguard/Fidelity/Schwab/Blackrock/etc offerings that are easily available in any brokerage/IRA/401k? > Each individual is much harder to insure than the group and has to go to a for-profit insurer to get an annuity (as they have with the DB pension). They pay the risk and for the insurer's profit. And yet insurers are able to pay annuities without needing the power to tax entire populations. There is clearly a disconnect between the theory and practice, due to the aforementioned agency risk. > Each individual has to manage pre-retirement market risk and pay a price to do so, e.g. they're using target date funds and the money is in low-yield bonds for the last few years before they retire, losing returns at exactly the time it's most costly. Another way to look at it is they are invested in lower volatility investments because they are at a point in their life where they can not afford volatility. > The question of funding is separate. It's up to my employer to decide if they want to set aside the whole 100 bucks up front that the pension costs or if they only want to set aside 80 bucks. So, either the pension is fully funded, or 20 short, either way it's cheaper. Yes, it is cheaper and great for those who are early enough in the scheme to be a benefit recipient, which is why I specified older employees who compose union leadership in my original post. It is not cheaper for younger taxpayers and younger government employees shunted into lower paying tiers of the pension. I have a sister in law who is 7 years older than my other sister in law. Both work for a state government, and the older one has worked a lower paying job her whole life than the younger, by at least $20k per year. However, the older one will retire with a benefit worth at least 2x as much as the younger one.

cool_dude85 3y ago
>I do not see why costs arising from agency risk, as seen pervading the US on state and county and city levels, should be disregarded. Fair point, but individual accounts have similar issues. People give their money to wealth advisors or whatever all day long. >It is not cheaper for younger taxpayers and younger government employees shunted into lower paying tiers of the pension. I have a sister in law who is 7 years older than my other sister in law. Both work for a state government, and the older one has worked a lower paying job her whole life than the younger, by at least $20k per year. However, the older one will retire with a benefit worth at least 2x as much as the younger one. I'm arguing that benefit-for-benefit, the pension does it cheaper. It would be cheaper for a pension to provide your older sister's benefit and cheaper for a pension to provide your younger sister's benefit. But yeah, this kind of thing is fucked up and I don't know why unions agree to it.