5 ms·

Pensions seem nice to have, but IMHO, it's generally better for employer and employee when compensation is paid immediately. The accounting is simpler, accounta

by toast0 2y ago

Pensions seem nice to have, but IMHO, it's generally better for employer and employee when compensation is paid immediately. The accounting is simpler, accountability is easier, and there's no long term entanglements.

plussed_reader 2y ago
So it's better to assume my current employer is insolvent and to just follow that old conservative truism, "Fuck you, got mine."?
- spywaregorilla 2y ago
  It's better to not gamble your retirement on the assumption that your company will be solvent in 40 years. That's not really antagonistic in any way.
  - toomuchtodo 2y ago
    You require the company to fund a pension held at a custodian. If the company goes bust, your pension benefits are not impacted. Importantly, the retirement contributions are on top of your wages, versus being expected to find the cash for retirement exposure out of your own wages such that a 401k requires. Australia's system is a model: https://en.wikipedia.org/wiki/Superannuation_in_Australia https://en.wikipedia.org/wiki/Superannuation_in_Australia
    - MajimasEyepatch 2y ago
      Employers match employee contributions to a 401(k), so it's not purely out of one's own wages. In this case, Boeing is matching up to 12% of the employee's income, which is very high.
      - toomuchtodo 2y ago
        Based on a preponderance of the evidence, how successful has that token match been in achieving successful outcomes? It is a match, if you don't contribute, there is no match. That is not how pension contributions and benefits work.
        deleted 2y ago
        [deleted]
        MajimasEyepatch 2y ago
        I guess it depends on what you define as a successful outcome. Recent changes to the law mean that employees are automatically enrolled at the matching rate and then their contribution automatically escalates by 1 percentage point per year up to a max of 15%. I suspect that that's pretty effective at getting people to contribute and get the match.
        Manuel_D 2y ago
        Most employees are bright enough to at least contribute as much to max out the company match. It's free money.
        ghaff 2y ago
        I'm skeptical. A quick search suggests that 41% of eligible employees don't contribute anything to a 401-K. The main argument for defined benefit pensions is that while they never covered most employees, they did represent money that people got in retirement without doing anything and which "society" would otherwise have been on the hook for to some degree.
        clown_strike 2y ago
        A younger me was not so bright. At the time I needed the few extra bucks and retirement seemed a lifetime away; I had all the time in the world to make up for it. Years later I got a mortgage and learned what compound interest is. I'd been underfunding for most of my career. You overestimate collective intelligence.
        stale2002 2y ago
    - spywaregorilla 2y ago
      The pension funds are protected, but that does not mean anything close to your promised benefit is available for you to receive. It also creates a recurring liability that the company is on the hook for. This has historically worked out to cases where employees must either get a partial payout from available funds and tank the loss, or have the company fold and everyone gets laid off. Pensions are a better deal until they catastrophically fail.
      - MajimasEyepatch 2y ago
        See also state governments' pension problems.
    - AnotherGoodName 2y ago
      Superannuation is very very similar to the 401k honestly. I remember when Australia brought in superannuation system and the biggest pushback was that it was blatantly a move to the us system (we had government pensions in the 90s). The tax treatment isn’t that different since 401k contributions aren’t taxed like income either. I work for an employer that pays 15% 401k contributions on top of salary. The main difference is that employers aren’t required to pay 401k contributions and I think that would be the better point to make.
    - Manuel_D 2y ago
      This is no silver bullet. If the pension custodian assumed retirees would live to 75 on average and they start living until 90 then it's going to have a problem.
- Manuel_D 2y ago
  If the employer goes insolvent your 401k still has money. The whole point of 401k match is to prevent the "fuck you, got mine" when a company goes belly up
  - plussed_reader 2y ago
    More of the same; just follow our idea and it wo 't hurt your future outcome....
yohannparis 2y ago
Technically a pension is a trust that is independent from the employer. Its duties are to hold the shareholders (employees) funds. The issue is that the trustees is most likely the employer. So in the event of a employer insolvency, the pension is not affected by.
- toast0 2y ago
  What usually happens is the trust is underfunded, and the company makes it up in real time. When the company goes under, the pension plan gets assigned to the federal government's Pension Guarantee Corporation and if your promised pension is above the guarantee amount and above the funded amount, you take a hair cut. If you're lucky, you've been getting audit reports about the underfunded pension for years, so you could prepare, but you probably couldn't do anything about it. If your employer had put the pension funding in a 401k account for you, you would know what you have, and be able to separate from the employer and not have to keep in touch to make sure they're holding their end of the bargain.
  - dehrmann 2y ago
    Pension mechanics are always important to remember, but especially important when the company is struggling.
- kbolino 2y ago
  The pension may be held in trust, but if the employer goes under, the pension stops getting new contributions. In many cases, this led to insolvency of the fund as well, since contributions before employer insolvency were usually not high enough to ensure fund assets could cover future obligations.
  - yohannparis 2y ago
    Indeed. A proper fund should be a managed investment fund like the Canadian Pension Plan fund for example. I do not think a fund is better than a 401k in terms of returns over investment. But it's for sure easier for the employee, as retirement fund is a complex topic better managed by professionals.
Steuerheaven 2y ago
Only if your tax system supports it. In germany a pension comes from your gross salary, is untaxed and moved away. It then will be taxed later when you are retired but because you probably earn a lot less as a retire, you pay less taxes on it.
- SonicScrub 2y ago
  You can do this with your own salary through a 401k in the US or an RRSP in Canada.
  - vundercind 2y ago
    You can’t come anywhere near maxing tax-exempt contributions to a 401k without substantial employer contributions, though, because of how they’re structured. The employer’s separate cap is higher than the employees. No matter how dedicated to saving a person is, they can’t even hit 50% of the max without the employer separately contributing.
    - toast0 2y ago
      Most pensions involve a substantial employer contribution too. I'm just saying, if they're contributing, great, I'd rather it go into a 401k where it's in a specific account for me and I can easily track it and complain timely if it's missing and I can fully separate from the employer when I leave versus going into a pension trust which I have much less visibility and a much longer connection with the company. Of the four companies I've had 401ks with, one is totally dead, I think. Another is merged into Verizon and may as well be dead. The fourth bought the third and might last until I'd get a pension. I'm quite happy I have no further financial connection to these companies, and don't have to pay attention to their solvency anymore.
- tengwar2 2y ago
  Similar in the UK: employers can offer a defined benefit pension plan (usually based on something like 1/60 of final salary time number of years worked) or more commonly now a defined contribution scheme (invest in to a market-based pension fund, where the employer selects the fund manager). Both of these are taken from pre-tax income, though at higher rates of income tax the employee will have to claim some tax back at the end of the tax year. These contrast with the SIPP, which is private to the individual and does not involve the employer, but has similar tax advantages to the DC employer scheme.
sidewndr46 2y ago
It depends on your income level in the US, but in general a 401k is a tax dodge for the employee
- Retric 2y ago
  In an ideal world yes, but the amount of money people lose from the 10% early withdrawal penalty is huge. You don’t want anywhere close to 100% of your long term savings in a 401k.
  - sidewndr46 2y ago
    What does early withdrawal have to do with this? I'm talking about the tax status of contributions
    - Retric 2y ago
      Contributions are taxed at withdrawal, cash in your bank account isn’t. If you’re saving 30% when you contribute but paying 40% when you withdraw, that can be worse than paying upfront. Obviously, long term capital gains should be part of the equation but if you’re young in a lower tax bracket but a lucrative career, 401k can be a terrible financial decision.
      - gavindean90 2y ago
        I get where you’re coming from, but keeping retirement separate from an ‘in case shit happens’ fund is key. A nominal contribution to a 401k isn’t entirely a bad move, though—it still offers tax deferral and potential employer matches, which can be worthwhile even if you’re not going all-in on it as your only long-term savings strategy.
      - sidewndr46 2y ago
        that isn't how Roth 401ks work. Also you still aren't explaining what an early withdrawal has to do with this
legitster 2y ago
A pension is easier for people who are bad at money. You get your allowance doled out and then spend retirement complaining about prices and the economy. On paper a well-funded 401k is better. You don't have to worry about the fund collapsing. You're safer against inflation. And your money doesn't disappear when you die. Etc. 12% matching is an insanely good deal for people smart enough to use it well. But you are going to have people who make really bad choices end up in a lurch. So it's a higher-ceiling/lower-floor range of outcomes for each individual.
- johnnyanmac 2y ago
  Main issue: depends on your age. If you're 26 this is a great deal and you'll carry it wherever you go if you are 50+, worked there 30 years, and had your pension frozen after 20 years of work, you are so far behind the curve even if you max out your 401k for your remaining years. You need to do a lot of work and probably invest in high risk stocks to even begin to make up for that 25 years of lost compound interest in your career. Also: I realize I'm spoiled, but I had quarter matching 401ks in tech (which apparently isn't that amazing to begin with), so I don't see this as an insane deal for the effort and sacrifice they put out.
  - legitster 2y ago
    I have no details on the plan, but the assumption would be that the current pension still would pay out as it did before. Even if you contribute late, you probably don't need to draw down on the 401k until much later in your retirement to make up the difference between your pension payouts and inflation. So that could still mean a few decades of compounding growth.
    - johnnyanmac 2y ago
      >you probably don't need to draw down on the 401k until much later in your retirement to make up the difference between your pension payouts and inflation How much "later" do you have? you're 65, life expectancy is 76 IIRC in America. Worse depending on various socioeconomic factors. If I'm not living after some 40 years of labor what was the point of life? Also, call me paranoid but I wouldn't be surprised if they tried to raise the retirement age like they did in other countries. >but the assumption would be that the current pension still would pay out as it did before. Does a frozen pension accumulate interest? If not, I don't see how the difference is ever made up.
hamandcheese 2y ago
What i don't understand about 401k is why is there such a strict limit on personal contributions, but employer can contribute significantly more? It's all compensation one way or another, why shouldn't I be able to allocate my compensation how I please?
- davio 2y ago
  If you are self-employed, you can make the normal employee contributions and your employer (also you) can make the additional contributions of roughly 25% of salary. For 2025 this would be a total of 70k instead of the normal 23k
- legitster 2y ago
  The IRS doesn't want 401k to be a tax-avoidance scheme for the rich so individual plans are heavily capped. But you should have the same cap as your employer in a plan they administer.
  - soco 2y ago
    Not trying to be a smartass but the rich have quite enough other very profitable ways to avoid being taxed, where bribing lawmakers is only one of them.
  - FireBeyond 2y ago
    There's always a way: https://www.washingtonexaminer.com/news/1143872/paypal-founder-peter-thiel-amassed-5b-fortune-in-roth-ira-tax-leak-reveals/ https://www.washingtonexaminer.com/news/1143872/paypal-found...
    - buildsjets 2y ago
      I mean I absolutely detest Peter Thiel and all, but I don't get why you think having and using a Roth IRA (which is, BTW, not a 401k) is a loophole? I max mine out every year and you should too. You should also recognize that it is to your tax advantage to make your riskiest investments with your Roth account, because sometimes high risk brings high reward, which is then untaxed reward, which is the entire point of a why the government both incentivized the creation of Roth accounts, and limited the yearly contribution to a small ammount to begin with. It's not gaming the system, it's the system functioning as intended.
PittleyDunkin 2y ago
> and there's no long term entanglements. Well, except for our crippling lifelong dependency on index funds.

by toast0 2y ago

plussed_reader 2y ago

So it's better to assume my current employer is insolvent and to just follow that old conservative truism, "Fuck you, got mine."?

spywaregorilla 2y ago
It's better to not gamble your retirement on the assumption that your company will be solvent in 40 years. That's not really antagonistic in any way.
- toomuchtodo 2y ago
  You require the company to fund a pension held at a custodian. If the company goes bust, your pension benefits are not impacted. Importantly, the retirement contributions are on top of your wages, versus being expected to find the cash for retirement exposure out of your own wages such that a 401k requires. Australia's system is a model: https://en.wikipedia.org/wiki/Superannuation_in_Australia https://en.wikipedia.org/wiki/Superannuation_in_Australia
  - MajimasEyepatch 2y ago
    Employers match employee contributions to a 401(k), so it's not purely out of one's own wages. In this case, Boeing is matching up to 12% of the employee's income, which is very high.
    - toomuchtodo 2y ago
      Based on a preponderance of the evidence, how successful has that token match been in achieving successful outcomes? It is a match, if you don't contribute, there is no match. That is not how pension contributions and benefits work.
      - deleted 2y ago
        [deleted]
      - MajimasEyepatch 2y ago
        I guess it depends on what you define as a successful outcome. Recent changes to the law mean that employees are automatically enrolled at the matching rate and then their contribution automatically escalates by 1 percentage point per year up to a max of 15%. I suspect that that's pretty effective at getting people to contribute and get the match.
      - Manuel_D 2y ago
        Most employees are bright enough to at least contribute as much to max out the company match. It's free money.
        ghaff 2y ago
        I'm skeptical. A quick search suggests that 41% of eligible employees don't contribute anything to a 401-K. The main argument for defined benefit pensions is that while they never covered most employees, they did represent money that people got in retirement without doing anything and which "society" would otherwise have been on the hook for to some degree.
        clown_strike 2y ago
        A younger me was not so bright. At the time I needed the few extra bucks and retirement seemed a lifetime away; I had all the time in the world to make up for it. Years later I got a mortgage and learned what compound interest is. I'd been underfunding for most of my career. You overestimate collective intelligence.
      - stale2002 2y ago
  - spywaregorilla 2y ago
    The pension funds are protected, but that does not mean anything close to your promised benefit is available for you to receive. It also creates a recurring liability that the company is on the hook for. This has historically worked out to cases where employees must either get a partial payout from available funds and tank the loss, or have the company fold and everyone gets laid off. Pensions are a better deal until they catastrophically fail.
    - MajimasEyepatch 2y ago
      See also state governments' pension problems.
  - AnotherGoodName 2y ago
    Superannuation is very very similar to the 401k honestly. I remember when Australia brought in superannuation system and the biggest pushback was that it was blatantly a move to the us system (we had government pensions in the 90s). The tax treatment isn’t that different since 401k contributions aren’t taxed like income either. I work for an employer that pays 15% 401k contributions on top of salary. The main difference is that employers aren’t required to pay 401k contributions and I think that would be the better point to make.
  - Manuel_D 2y ago
    This is no silver bullet. If the pension custodian assumed retirees would live to 75 on average and they start living until 90 then it's going to have a problem.
Manuel_D 2y ago
If the employer goes insolvent your 401k still has money. The whole point of 401k match is to prevent the "fuck you, got mine" when a company goes belly up
- plussed_reader 2y ago
  More of the same; just follow our idea and it wo 't hurt your future outcome....

yohannparis 2y ago

Technically a pension is a trust that is independent from the employer. Its duties are to hold the shareholders (employees) funds. The issue is that the trustees is most likely the employer. So in the event of a employer insolvency, the pension is not affected by.

toast0 2y ago
What usually happens is the trust is underfunded, and the company makes it up in real time. When the company goes under, the pension plan gets assigned to the federal government's Pension Guarantee Corporation and if your promised pension is above the guarantee amount and above the funded amount, you take a hair cut. If you're lucky, you've been getting audit reports about the underfunded pension for years, so you could prepare, but you probably couldn't do anything about it. If your employer had put the pension funding in a 401k account for you, you would know what you have, and be able to separate from the employer and not have to keep in touch to make sure they're holding their end of the bargain.
- dehrmann 2y ago
  Pension mechanics are always important to remember, but especially important when the company is struggling.
kbolino 2y ago
The pension may be held in trust, but if the employer goes under, the pension stops getting new contributions. In many cases, this led to insolvency of the fund as well, since contributions before employer insolvency were usually not high enough to ensure fund assets could cover future obligations.
- yohannparis 2y ago
  Indeed. A proper fund should be a managed investment fund like the Canadian Pension Plan fund for example. I do not think a fund is better than a 401k in terms of returns over investment. But it's for sure easier for the employee, as retirement fund is a complex topic better managed by professionals.

Steuerheaven 2y ago

Only if your tax system supports it. In germany a pension comes from your gross salary, is untaxed and moved away. It then will be taxed later when you are retired but because you probably earn a lot less as a retire, you pay less taxes on it.

SonicScrub 2y ago
You can do this with your own salary through a 401k in the US or an RRSP in Canada.
- vundercind 2y ago
  You can’t come anywhere near maxing tax-exempt contributions to a 401k without substantial employer contributions, though, because of how they’re structured. The employer’s separate cap is higher than the employees. No matter how dedicated to saving a person is, they can’t even hit 50% of the max without the employer separately contributing.
  - toast0 2y ago
    Most pensions involve a substantial employer contribution too. I'm just saying, if they're contributing, great, I'd rather it go into a 401k where it's in a specific account for me and I can easily track it and complain timely if it's missing and I can fully separate from the employer when I leave versus going into a pension trust which I have much less visibility and a much longer connection with the company. Of the four companies I've had 401ks with, one is totally dead, I think. Another is merged into Verizon and may as well be dead. The fourth bought the third and might last until I'd get a pension. I'm quite happy I have no further financial connection to these companies, and don't have to pay attention to their solvency anymore.
tengwar2 2y ago
Similar in the UK: employers can offer a defined benefit pension plan (usually based on something like 1/60 of final salary time number of years worked) or more commonly now a defined contribution scheme (invest in to a market-based pension fund, where the employer selects the fund manager). Both of these are taken from pre-tax income, though at higher rates of income tax the employee will have to claim some tax back at the end of the tax year. These contrast with the SIPP, which is private to the individual and does not involve the employer, but has similar tax advantages to the DC employer scheme.

sidewndr46 2y ago

It depends on your income level in the US, but in general a 401k is a tax dodge for the employee

Retric 2y ago
In an ideal world yes, but the amount of money people lose from the 10% early withdrawal penalty is huge. You don’t want anywhere close to 100% of your long term savings in a 401k.
- sidewndr46 2y ago
  What does early withdrawal have to do with this? I'm talking about the tax status of contributions
  - Retric 2y ago
    Contributions are taxed at withdrawal, cash in your bank account isn’t. If you’re saving 30% when you contribute but paying 40% when you withdraw, that can be worse than paying upfront. Obviously, long term capital gains should be part of the equation but if you’re young in a lower tax bracket but a lucrative career, 401k can be a terrible financial decision.
    - gavindean90 2y ago
      I get where you’re coming from, but keeping retirement separate from an ‘in case shit happens’ fund is key. A nominal contribution to a 401k isn’t entirely a bad move, though—it still offers tax deferral and potential employer matches, which can be worthwhile even if you’re not going all-in on it as your only long-term savings strategy.
    - sidewndr46 2y ago
      that isn't how Roth 401ks work. Also you still aren't explaining what an early withdrawal has to do with this

legitster 2y ago

A pension is easier for people who are bad at money. You get your allowance doled out and then spend retirement complaining about prices and the economy. On paper a well-funded 401k is better. You don't have to worry about the fund collapsing. You're safer against inflation. And your money doesn't disappear when you die. Etc. 12% matching is an insanely good deal for people smart enough to use it well. But you are going to have people who make really bad choices end up in a lurch. So it's a higher-ceiling/lower-floor range of outcomes for each individual.

johnnyanmac 2y ago
Main issue: depends on your age. If you're 26 this is a great deal and you'll carry it wherever you go if you are 50+, worked there 30 years, and had your pension frozen after 20 years of work, you are so far behind the curve even if you max out your 401k for your remaining years. You need to do a lot of work and probably invest in high risk stocks to even begin to make up for that 25 years of lost compound interest in your career. Also: I realize I'm spoiled, but I had quarter matching 401ks in tech (which apparently isn't that amazing to begin with), so I don't see this as an insane deal for the effort and sacrifice they put out.
- legitster 2y ago
  I have no details on the plan, but the assumption would be that the current pension still would pay out as it did before. Even if you contribute late, you probably don't need to draw down on the 401k until much later in your retirement to make up the difference between your pension payouts and inflation. So that could still mean a few decades of compounding growth.
  - johnnyanmac 2y ago
    >you probably don't need to draw down on the 401k until much later in your retirement to make up the difference between your pension payouts and inflation How much "later" do you have? you're 65, life expectancy is 76 IIRC in America. Worse depending on various socioeconomic factors. If I'm not living after some 40 years of labor what was the point of life? Also, call me paranoid but I wouldn't be surprised if they tried to raise the retirement age like they did in other countries. >but the assumption would be that the current pension still would pay out as it did before. Does a frozen pension accumulate interest? If not, I don't see how the difference is ever made up.

hamandcheese 2y ago

What i don't understand about 401k is why is there such a strict limit on personal contributions, but employer can contribute significantly more? It's all compensation one way or another, why shouldn't I be able to allocate my compensation how I please?

davio 2y ago
If you are self-employed, you can make the normal employee contributions and your employer (also you) can make the additional contributions of roughly 25% of salary. For 2025 this would be a total of 70k instead of the normal 23k
legitster 2y ago
The IRS doesn't want 401k to be a tax-avoidance scheme for the rich so individual plans are heavily capped. But you should have the same cap as your employer in a plan they administer.
- soco 2y ago
  Not trying to be a smartass but the rich have quite enough other very profitable ways to avoid being taxed, where bribing lawmakers is only one of them.
- FireBeyond 2y ago
  There's always a way: https://www.washingtonexaminer.com/news/1143872/paypal-founder-peter-thiel-amassed-5b-fortune-in-roth-ira-tax-leak-reveals/ https://www.washingtonexaminer.com/news/1143872/paypal-found...
  - buildsjets 2y ago
    I mean I absolutely detest Peter Thiel and all, but I don't get why you think having and using a Roth IRA (which is, BTW, not a 401k) is a loophole? I max mine out every year and you should too. You should also recognize that it is to your tax advantage to make your riskiest investments with your Roth account, because sometimes high risk brings high reward, which is then untaxed reward, which is the entire point of a why the government both incentivized the creation of Roth accounts, and limited the yearly contribution to a small ammount to begin with. It's not gaming the system, it's the system functioning as intended.

PittleyDunkin 2y ago

> and there's no long term entanglements. Well, except for our crippling lifelong dependency on index funds.