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Why did pensions go away? Is the dynamic nature of 401ks that much better? I always found it quite strange that not only am I expected to be an expert in my f

Why did pensions go away? Is the dynamic nature of 401ks that much better? I always found it quite strange that not only am I expected to be an expert in my field, but also must be a near expert in financial investing to not end up being homeless in my old age.

dfxm12 3y ago
The American experience is not designed for people like us, workers, to succeed. It is designed for a capitalist to extract more capital from us.
bluGill 3y ago
Pensions went away because for most they were worse. If you stay at the same company from 25 to 65 and live to 105 they are better than a 401k. However if you found a different job (including because you got laid off) the amount you got was severely reduced (not to zero, but my dad could have got $.75 month starting at 65, if he had joined a pension at 22 when he started in 1975 until 1985 when the nearly bankrupt company finally laid him off. In 1985 he got a job with a company that instead offered a 401k, and there got a small nest egg. If he had stayed at that company until 65 he would have got something like 1000/month, which sounded great in 1973, but there was a lot of inflation in the next decade. I don't remember exact years or numbers above, but they are close enough for discussion.
mhewett 3y ago
My wife worked at Boeing for seven years in the 1980s, in management. We tracked down her pension recently, hoping for a huge payout after it had been invested for 35 years. It turns out that she will get $96/month. We are very disappointed in the Boeing pension managers.
Rebelgecko 3y ago
Pensions are expensive and susceptible to interest rate swings. Defined contribution plans like 401ks are easier (for companies) to budget for.
pixelmonkey 3y ago
This was covered well in a PBS Frontline documentary, "The Pension Gamble": https://www.pbs.org/wgbh/frontline/documentary/the-pension-gamble/ https://www.pbs.org/wgbh/frontline/documentary/the-pension-g... And also in their followup, "The Retirement Gamble": https://www.pbs.org/wgbh/frontline/documentary/retirement-gamble/ https://www.pbs.org/wgbh/frontline/documentary/retirement-ga... Both can also be found on YouTube. I rewatched both just a few months ago, to understand the history a bit better. The short answer is that eliminating pensions was part of a larger restructuring in corporate America, wherein major companies that became megacaps in the 20th century used the Chapter 11 bankruptcy rules as a shield to eliminate employee pensions, while the burgeoning consumer finance industry of the 1980s and 1990s was all too eager to create a new fee-generating monster in the form of 401ks. These days, employer-matched 401ks with low-fee index funds are the only sane retirement tool available to middle-class workers, but much like US employer-sponsored healthcare, the system is about 10x more complex and 10x more precarious than it otherwise could be, and it benefits all sorts of ridiculous middleman paper-pushing rent-seeking corporations along the way. The news from IBM is ironic because employees will rightly revolt against this "pension" because now that Vanguard-style low fee funds have become ascendant in 401k accounts, a number of new unscrupulous financial actors are pitching "pension plans" to companies which are really opaque fee- and cash-grabs for employee retirement accounts.
PaulDavisThe1st 3y ago
Republican political philosophy. Company-administered pensions offered little to no opportunity for a financial services middleman to collect a percentage, and involved employers promising their employees things that might (might) cause some pain to the employer to deliver. So a story was made up that "you can do better on your own investing in the market", thus allowing Fidelity et al. to collect their cut, and to let employers off the hook. And of course, like all other Republican political policy that asserts that you are responsible for yourself and nobody else is, it has all turned out swimmingly, don't you agree\?
- marcus0x62 3y ago
  They also involved a not-insignificant risk to the employee in the event of bankruptcy, or losing their job before eligibility for full retirement. A close relative put in more than 20 years at Eastern Airlines. He collects less than 10 cents on the dollar from the PBGC backstop since Eastern went bankrupt. > So a story was made up that "you can do better on your own investing in the market" In his case, that story was true. After Eastern, he took a job at FedEx. FedEx killed their pension plan and the employees largely had to save for retirement via 401k accounts. He lives off of that money quite nicely now. The Eastern pension buys him a nice dinner once a month or so.
  - PaulDavisThe1st 3y ago
    This is an issue with the way corporate pensions are/were run, not the basic concept. The fact the the pension fund members got shafted in favor of other creditors is a detail that also stems mostly from, well, not exactly Republican political philosophy, but capitalism itself (in the sense that it is a system predicated on the concept that the rewards of human ventures go primarily to those who invest capital rather than labor or ideas). Certainly the facts are not contestable: plenty of corporate bankruptcies left their employee's pension funds screwed in a way that does not happen with a 401k plan. But it didn't have to be that way, it was a choice (of our legal, political and economic system). Other countries have made different choices, for examples.
    - 3y ago
scarface_74 3y ago
Really? You would want your retirement tied to your employer? You would want to have to stay committed to one employer your entire career? You don’t have to be an expert. Most 401K plans have index funds and target date funds.
barryrandall 3y ago
Changing from defined benefit plans (pensions) to defined contribution (401k/403b) plans shifts the risk of poor investment performance from the employer to the employee.

dfxm12 3y ago

The American experience is not designed for people like us, workers, to succeed. It is designed for a capitalist to extract more capital from us.

bluGill 3y ago

Pensions went away because for most they were worse. If you stay at the same company from 25 to 65 and live to 105 they are better than a 401k. However if you found a different job (including because you got laid off) the amount you got was severely reduced (not to zero, but my dad could have got $.75 month starting at 65, if he had joined a pension at 22 when he started in 1975 until 1985 when the nearly bankrupt company finally laid him off. In 1985 he got a job with a company that instead offered a 401k, and there got a small nest egg. If he had stayed at that company until 65 he would have got something like 1000/month, which sounded great in 1973, but there was a lot of inflation in the next decade. I don't remember exact years or numbers above, but they are close enough for discussion.

mhewett 3y ago

My wife worked at Boeing for seven years in the 1980s, in management. We tracked down her pension recently, hoping for a huge payout after it had been invested for 35 years. It turns out that she will get $96/month. We are very disappointed in the Boeing pension managers.

Rebelgecko 3y ago

Pensions are expensive and susceptible to interest rate swings. Defined contribution plans like 401ks are easier (for companies) to budget for.

pixelmonkey 3y ago

This was covered well in a PBS Frontline documentary, "The Pension Gamble": https://www.pbs.org/wgbh/frontline/documentary/the-pension-gamble/ https://www.pbs.org/wgbh/frontline/documentary/the-pension-g... And also in their followup, "The Retirement Gamble": https://www.pbs.org/wgbh/frontline/documentary/retirement-gamble/ https://www.pbs.org/wgbh/frontline/documentary/retirement-ga... Both can also be found on YouTube. I rewatched both just a few months ago, to understand the history a bit better. The short answer is that eliminating pensions was part of a larger restructuring in corporate America, wherein major companies that became megacaps in the 20th century used the Chapter 11 bankruptcy rules as a shield to eliminate employee pensions, while the burgeoning consumer finance industry of the 1980s and 1990s was all too eager to create a new fee-generating monster in the form of 401ks. These days, employer-matched 401ks with low-fee index funds are the only sane retirement tool available to middle-class workers, but much like US employer-sponsored healthcare, the system is about 10x more complex and 10x more precarious than it otherwise could be, and it benefits all sorts of ridiculous middleman paper-pushing rent-seeking corporations along the way. The news from IBM is ironic because employees will rightly revolt against this "pension" because now that Vanguard-style low fee funds have become ascendant in 401k accounts, a number of new unscrupulous financial actors are pitching "pension plans" to companies which are really opaque fee- and cash-grabs for employee retirement accounts.

PaulDavisThe1st 3y ago

Republican political philosophy. Company-administered pensions offered little to no opportunity for a financial services middleman to collect a percentage, and involved employers promising their employees things that might (might) cause some pain to the employer to deliver. So a story was made up that "you can do better on your own investing in the market", thus allowing Fidelity et al. to collect their cut, and to let employers off the hook. And of course, like all other Republican political policy that asserts that you are responsible for yourself and nobody else is, it has all turned out swimmingly, don't you agree\?

marcus0x62 3y ago
They also involved a not-insignificant risk to the employee in the event of bankruptcy, or losing their job before eligibility for full retirement. A close relative put in more than 20 years at Eastern Airlines. He collects less than 10 cents on the dollar from the PBGC backstop since Eastern went bankrupt. > So a story was made up that "you can do better on your own investing in the market" In his case, that story was true. After Eastern, he took a job at FedEx. FedEx killed their pension plan and the employees largely had to save for retirement via 401k accounts. He lives off of that money quite nicely now. The Eastern pension buys him a nice dinner once a month or so.
- PaulDavisThe1st 3y ago
  This is an issue with the way corporate pensions are/were run, not the basic concept. The fact the the pension fund members got shafted in favor of other creditors is a detail that also stems mostly from, well, not exactly Republican political philosophy, but capitalism itself (in the sense that it is a system predicated on the concept that the rewards of human ventures go primarily to those who invest capital rather than labor or ideas). Certainly the facts are not contestable: plenty of corporate bankruptcies left their employee's pension funds screwed in a way that does not happen with a 401k plan. But it didn't have to be that way, it was a choice (of our legal, political and economic system). Other countries have made different choices, for examples.
  - 3y ago

scarface_74 3y ago

Really? You would want your retirement tied to your employer? You would want to have to stay committed to one employer your entire career? You don’t have to be an expert. Most 401K plans have index funds and target date funds.

barryrandall 3y ago

Changing from defined benefit plans (pensions) to defined contribution (401k/403b) plans shifts the risk of poor investment performance from the employer to the employee.