Poll:Prefer One, Two, or Three Legs?

[growing_older]

If I was sure I would collect the pension, then a generous pension with a COLA is something I would certainly want. But for all those years when I am "earning" the pension I am locked into employment with a single company and even if I do stay there, they can always unilaterally change the plan. That never worked out for me.

[timwalsh300]

Quote:

Originally Posted by seraphim I'm curious, though if there are any government employees who get SS AND a pension? I don't know the answer, there. I don't believe I contributed to SS when in the military.

I don't know if/when it changed, but today's military personnel pay into both SS and Medicare, at least on the taxable portion of earnings (taxed on "base pay" and a few others, but not "basic allowance for housing" or "basic allowance for subsistence"). Military retirees receiving a pension for 20+ years of service also receive SS benefits.

Tim

[Cassie]

Quote:

Originally Posted by seraphim Alaska was a blast. Glad I'm not there now, though lol. I'm curious, though if there are any government employees who get SS AND a pension? I don't know the answer, there. I don't believe I contributed to SS when in the military. I think everyone deserves a defined benefit plan, whether SS, state level, or privately sponsored.

Federal government employees in the defined contribution FERS plan get SS, a small pension plus what they invest in the Thrift Saving Plan. I'm under the old civil service system and only have one leg...a defined benefit cola'ed pension. I couldn't pay into to SS, however, I did pay into Medicare.

[jollystomper]

My plan is to start with the 2 legged option not listed in the poll - Pension + Personal Savings. I'm trying to see if just those two will cover target expenses. Then SS becomes more of a third leg "bonus" than need. We'll see if that works out.

[Ronstar]

Two legged stool

1. Personal savings
2. SS when I turn 70 in 12 years (if I can wait that long)

[traineeinvestor]

While I would prefer to have some kind of guaranteed income coming in each month (preferably with a COLI adjustment), we don't have those options here so its all personal savings for us (mostly invested in real estate and equities).

[donheff]

I selected number 1 but my preference would change depending on how big the total pot pot is. If the total is low relative to needs I would move more toward the SS/Pension/SPIA camp because of the advantage of guaranteed (or close to guaranteed) sources of income and longevity insurance. As the total grows and needs are covered I would prefer a growing amount of savings which would cover lifestyle enhancements and legacy.

[sengsational]

Quote:

Originally Posted by aim-high Social Security is a federally backed pension with COLA, more or less. They won't change the terms for current holders (only future ones) and even at that they do so with plenty of notice. Any monetary policies that affects $$$'s affects them in the other two legs also. Pension are usually corporate or local government backed and seem to change or be done away with more easily. Personal Savings gives an individual the most control. For the purposes of this, I was considering IRAs, ROTHs and 401Ks as personal savings.

If someone was in the position of having personal savings, but no pension and no (or low) SS, I wonder if you could create a "do it yourself SS"?

If you bought yourself a TIPS ladder, it seems like you'd have a low cost "government backed" COLA'd SPIA replacement without having to worry about trusting anybody except (don't laugh), the US governement. It would take a hearty spreadsheet, an account linked to Treasury Direct, and self-control to only cut the checks to yourself that your spreadsheet says, but I think it would be possible.

[Fermion]

Quote:

Originally Posted by sengsational If someone was in the position of having personal savings, but no pension and no (or low) SS, I wonder if you could create a "do it yourself SS"? If you bought yourself a TIPS ladder, it seems like you'd have a low cost "government backed" COLA'd SPIA replacement without having to worry about trusting anybody except (don't laugh), the US governement. It would take a hearty spreadsheet, an account linked to Treasury Direct, and self-control to only cut the checks to yourself that your spreadsheet says, but I think it would be possible.

This would be ok if you had enough room in your tax deferred or tax exempt portfolio to place the TIPS. If not, they almost are negative because the inflation adjustment is taxed even though you have the exact same spending power.

If the government would pay 5% real rate on TIPS like some pension funds assume when they promise benefits, then it would make a great alternative.

[gozer]

Quote:

Originally Posted by youbet Did your company go bankrupt? I don't know of any private pension plans that "completely disappeared overnight" in the past 25 years. Some closed to new credits/earnings but I think all still maintained credits already earned or pensions already being paid unless they declared bankruptcy. Even then, the PBGC covered all or most of what the annuitant was to receive. It's gov't pensions (think Illinois or the military) where the already earned pensions of annuitants are being reduced.

The 10 Biggest Failed Pension Plans - US News would appear to list 10 private pensions that did indeed fail. Many of these were big news when they happened. I am surprised more people don't remember. All you have to do is know an airline pilot who lost more than half of his pension benefit when moved to the PBGC.

[growing_older]

I participated in several pension plans during my working career. While the plans themselves didn't directly fail, they were always discontinued, modified or the company was bought out or failed and the rank and file (me) never got any benefits. In one case the owners managed to end up with a payout, but no one else did. It's a good thing I was saving all along intending to take care of myself, because the pension schemes never delivered on their promises, though technically I suspect these aren't "failures" and probably followed the letter of the law because management discontinued them (unilaterally) before they were required to deliver benefit.

[youbet]

Quote:

Originally Posted by gozer The 10 Biggest Failed Pension Plans - US News would appear to list 10 private pensions that did indeed fail. Many of these were big news when they happened. I am surprised more people don't remember. All you have to do is know an airline pilot who lost more than half of his pension benefit when moved to the PBGC.

These companies all declared bankruptcy and either were reorganized or stopped existing altogether under court supervision.

[pb4uski]

Quote:

Originally Posted by gozer The 10 Biggest Failed Pension Plans - US News would appear to list 10 private pensions that did indeed fail. Many of these were big news when they happened. I am surprised more people don't remember. All you have to do is know an airline pilot who lost more than half of his pension benefit when moved to the PBGC.

Interesting that airlines and steel dominate the list.

It somehow seem wrong to me that many of these companies reorganized and continue in business, probably with many of the same employees, but with the pension obligation passed off to taxpayers.

For an individual who declares bankruptcy, there are some obligations that you cannot get rid of (like student loans if I recall correctly). I would think that pensions should be treated similarly for corporate reorganizations. Both obligations represent the past cost of knowledge that is used by the entity to generate income in the future (education in the case of and individual and employees in the case of a corporation).

[gozer]

Quote:

Originally Posted by pb4uski It somehow seem wrong to me that many of these companies reorganized and continue in business, probably with many of the same employees, but with the pension obligation passed off to taxpayers.

The taxpayers do not fund the PBGC. See https://www.pbgc.gov/about/how-pbgc-operates.html

[pb4uski]

Quote:

Originally Posted by gozer The taxpayers do not fund the PBGC. See https://www.pbgc.gov/about/how-pbgc-operates.html

Good to know. Thanks.

So we essentially pay for these corporations who avoid their pension obligations through bankruptcy as an equity investor rather than as a taxpayer.

[gozer]

Quote:

Originally Posted by youbet These companies all declared bankruptcy and either were reorganized or stopped existing altogether under court supervision.

In these 10 instances that would be the case. Pension assets are transferred to the PBGC in either "standard" or "distress" termination of the plans. What you are talking about is "distress".

Under "standard" the pension plan must be 100% funded when transferred. I'm not sure how or if the PBGC benefit limits effect people when this is done.

[gozer]

Quote:

Originally Posted by pb4uski Good to know. Thanks. So we essentially pay for these corporations who avoid their pension obligations through bankruptcy as an equity investor rather than as a taxpayer.

I don't have numbers to support this, but suspect you could make arguments in "distress" terminations that this is the case. If enough underfunded pensions get dumped on the PBGC, the PBGC rates charged to pension plans will have to go up to keep it afloat. Increased rates means money off the companies bottom line, which negatively effects shareholders.

In "standard" terminations I suspect we as shareholders are sometimes rewarded when this occurs. Several years ago my company had to inject 17ish million into the pension fund to stay over 100% funded. That would have negatively impacted the bottom line. So, less money to reward shareholders. If they didn't have a pension, no surprises like this. So no negative impact.

I read the form 5500 filings for my pension plans every year. I want to see problems before I get a welcome to the PBGC letter. And it's comforting to see your pension fully funded or over funded every year for a couple of decades. (see EFAST2 Filing - Welcome if you have one and really like looking at things that are kind of like tax forms, there is a search link about a third of the way down the page)

[M Paquette]

Quote:

Originally Posted by pb4uski Good to know. Thanks. So we essentially pay for these corporations who avoid their pension obligations through bankruptcy as an equity investor rather than as a taxpayer.

Yup. Pension insurance is an operating expense, like liability insurance, taxes, wages, and such. Cue the usual arguments...

[ERD50]

Quote:

Originally Posted by M Paquette Yup. Pension insurance is an operating expense, like liability insurance, taxes, wages, and such. Cue the usual arguments...

I'm not sure what the 'usual arguments' are, but I would think the PBGC payments the company makes would be more closely tied to the salary of the employee than the equity investor.

My reasoning is that the insurance payment isn't made unless there is an employee. So it isn't a general across-the board expense, it reflects the total cost of employing someone.

I imagine it's not so pure as to be one-for-one, but I also have to believe that overall, that cost affects what a companies can offer in salary in the open market. IOW, if no company had to pay that insurance, labor would effectively cost less, and demand for that labor would therefore rise, which would then drive labor prices up? I suppose it meets somewhere in the middle, so I think it's probably fair to say it gets split between the worker and the equity holder?

-ERD50

[nash031]

I trust myself with money more than I trust anyone else. Option D. My reality is option A, however...