The pension system destruction continues

[youbet]

Lazarus,

I doubt that current public sector teachers will lose their pensions.  They are highly unionized and they work for the government.  It is possible, however, that some sort of new retirement structure may eventually be negotiated for new hires.  Teachers also have 403b's which are almost identical to 401k's.  And, of course, IRA's.

It's too bad teachers don't have a more portable pension arrangement.  So many are totally burned out and itching to do something else after 25 or 30 years.  Yet, they must clinch their teeth and go through the motions another few years to maximize their pension.  Same thing happens within the private sector.

Portable pensions for everyone gets my vote!

 

[MJ]

When I join my former employer 20 years ago, I wasn't looking for a pension plan just a great salary which I got as an IT professional. I was happy to find out that they had a profit sharing plan and 13 years later started a pension plan. When I got laid off I received a nice check for $39k from my profit sharing plan. At 65, I will get a small noncola pension of $12k a year. Even though inflation will eat up about 1/3 by the time I start collecting, it still will be nice pocket money.

MJ

 

[justin]

Portable pensions for everyone gets my vote!

Portable pensions = 401k's

 

[youbet]

Portable pensions = 401k's

In addition to 401K's, cash balance DBP pensions are also portable. 

 

[Texas Proud]

Call it what you wish, the facts still remain.

My former company spun off a division of the company and a whole new company was created from it.  The new corporation has no ties to the parent company.  The empoyees that were spun off from the mother company were not able to take their pension benefits with them.  Employees were not allowed to retire from the mother company during the transision.  


The mother company had a DBP; the new company does not.  

Employees of the new company (former employees of the mother company) no longer have a DBP since they are no longer employed by the mother company.  
Only those employees who actually retired before the new company was formed are able to take their pension. I was lucky to have bailed before this happend.  

And that is the rest of the story...

Wow, many pages of comments I have not read...

Steve... from what you say, the people still have a retirement benefit in their 'old' company.. they can not just decide to not pay you what you have earned... ie. you had 20 years at your old company which gave you a 40% benefit... they can not say, well, you now work for the NEW company and we owe you NOTHING... and this is what is sounds like you are saying.. they get nothing from either company.

 

[Texas Proud]

Bottom line

If a company can get the worker to work for no pension GREAT for the share holders.

If they should be able to CHANGE THE RULES for workers who have put in 20 25 30 35+ years of service, well my friends the government will let them get away with it and sorry to say the person is efed!
PERIOD!

You do not change the rules during the game.

Again my situation is one where I WAS TOLD AND REQUIRED TO JOIN IN the teacher pension annuity fund when I started my teaching carrer in the mid 1970s!

And today the rules are gonna change BECAUSE darn BAD AWFUL politicians elected by the dumb masses stole funds from a system that was WORKING!!!

America quite frankly STINKS! And CHINA will be the BIG DOG sooner than later, while we all try to stay alive working at mcDonalds at 80+ years of age! 

Newguy.. I understand you positon completely.. your were promised something and now they are saying we are changing the rules aftet the fact (that is what I am reading)... but, here in Houston there was a problem in that the old mayor decided to up the percent per year to appease the workers... so he did not have to come up with the money. Well, somebody finally calculated the result of this increase and found it would bankrupt the city in the future!!! So, they 'rolled back' the increase. Now, employees were upset, but the percent was way to high and only there for a couple of years... they went back to the 'standard' 2.2% per year x high salary etc...

Was this renigging on a promise? Yes. Was it the right thing to do? Yes. You should only promise something you can afford.

 

[region2]

I have been following this thread with interest. I do not have a DBP or a DCP. DW has a government DBP (teacher).

My question is this:

Are DBP benefits contractual "promises"? From what I read, the answer is no.

 

[Texas Proud]

I have been following this thread with interest. I do not have a DBP or a DCP. DW has a government DBP (teacher).

My question is this:

Are DBP benefits contractual "promises"? From what I read, the answer is no.

Actually they are.. what some people are complaining about is that they are hired by a company. The company says we will give you a pension of say 1% of your 'final' salary for every year you work.... so, you say, OK, if I work 30 years I get 30% of my final salary...

NOW, after 20 years they say... we do not want to continue this benefit.. what we want to do is .... (whatever they now do).. take it or leave... you now scream, BUT, you PROMISED that if I worked 30 years I would get 30%... BUT YOU HAVE NOT WORKED 30 YEARS... you have only worked 20 years and they will pay you your 20% you have earned, they just do not want to pay you any MORE than what you have earned. Is this a broken promise... YES and NO... Yes, in that YOU were planning on that 30% if you kept working.. and now you have to scramble to replace that 10% 'you were promised'.... NO in that you have only worked 20 years... the company can change thier mind just like you can change yours... YOU do not have to work there anymore.. you are now a 'new' employee at the old company..

Now, in the above example... what is they had laid you off after 20 years... do you think you should earn any MORE than the 20% It is what they PROMISED..

 

[SteveR]

Wow, many pages of comments I have not read...

Steve... from what you say, the people still have a retirement benefit in their 'old' company.. they can not just decide to not pay you what you have earned... ie. you had 20 years at your old company which gave you a 40% benefit... they can not say, well, you now work for the NEW company and we owe you NOTHING...  and this is what is sounds like you are saying.. they get nothing from either company.

Texas Proud,

This is the very reason there is a class action suit against the "mother" company.  They failed to honor the original "contract" to provide pension and medical benefits to their former employees by spinning them off into a whole new public company.  I have not seen the actual court docuement but the judge in the case has ruled it is a valid case and will go to trial.  It seems that the employees affected were long term employees who were near but not yet eligible for retirement (less than 50 and 20 years of service).  It seems that the mother company would not transfer the balance of their company paid pension to the daughter company.  The daughter company has no pension program so the spun off employees no longer have a pension available to them.  This is the information I have obtained from the media and former employees.  I guess we will have to wait and see what happens at the trial.

 

[sgeeeee]

Portable pensions = 401k's

No. This is not equivalent at all.

A pension guarantees future payment for service rendered today. The benefitee does not choose how and when to invest money. The benefitee does not take on risk of stock/bond fluctuations. The benefitee has to spend no time educating themselves about investments, worrying about fees, etc.

While you and I may prefer to invest our own money, I think it is naive to believe that every worker has the right temperment and training to wisely invest their money for retirement. Nor does it seem efficient to require every worker to become an expert on investments.

Pensions were a good idea that worked well for this country and the economy for over 60 years. They didn't stop working for the American worker. They are still a good idea. Executives in the 80's and 90's simply robbed the funds for short-term corporate gains and large bonuses for themselves. The robbery was done legally, but they did have to lobby regulating agencies to change acceptable standards. Now, it would cost them to put replacement funds back in the kitty, so they prefer to get out entirely.

But Americans are not saving. Social security and medicare are almost certainly going to be diminished. And pensions are disappearing. I don't understand why anyone thinks these are good things. When the crises from the above trends comes, what do you think is going to happen? I don't believe for a minute that I will be spared from the pain simply because I have saved and planned for my retirement. I believe our government will find any pockets of money that exist, pass laws to tax it, and take it to fight the problems. That's what a politician who wants to get re-elected would do. If social security, medicare and the pension system are not fixed, those who have saved and invested will pay.

 

[Spanky]

If social security, medicare and the pension system are not fixed, those who have saved and invested will pay. [/quoue]
Those who have not will also have to pay in the form of increased tax. In other words, everyone has to pay.

 

[Texas Proud]

Texas Proud,

This is the very reason there is a class action suit against the "mother" company.  They failed to honor the original "contract" to provide pension and medical benefits to their former employees by spinning them off into a whole new public company.  I have not seen the actual court docuement but the judge in the case has ruled it is a valid case and will go to trial.  It seems that the employees affected were long term employees who were near but not yet eligible for retirement (less than 50 and 20 years of service).  It seems that the mother company would not transfer the balance of their company paid pension to the daughter company.  The daughter company has no pension program so the spun off employees no longer have a pension available to them.  This is the information I have obtained from the media and former employees.  I guess we will have to wait and see what happens at the trial.

SteveR... wow... I have not heard something like this before... but, I would say the mother company does not have any way to prevent paying as ERISA is there to protect the employees on something like this... I would love to hear how things are.... can you say what the company's name is so we can read up on it??

Now, if it was like what happend to me... I worked for a bank that was closed... The FDIC is able to break all contracts... we would not get any more pension, severence etc. based on the old company. (now, the old bank had closed the pension twice in the last few years but paid us our accrued amount, not much, but something).. We were sold to a new bank and the new bank said our first day of hire was the day they bought us...

 

[REWahoo]

Now, if it was like what happend to me... I worked for a bank that was closed... The FDIC is able to break all contracts... we would not get any more pension, severence etc. based on the old company. (now, the old bank had closed the pension twice in the last few years but paid us our accrued amount, not much, but something).. We were sold to a new bank and the new bank said our first day of hire was the day they bought us...

I'm guessing this wasn't a recent event, since only a handful of Texas banks have been taken over by the FDIC in the past 10 years. That compares to dozens that bit the dust in the early 90's.

 

[Caroline]

I work for the company in question. Not because I planned on it, but because my former employer was bought.

Accordingly, I do not have a significant pension coming to me. But my colleages, many of whom have worked here for decades, have been looking forward to retiring in relative comfort. They are surprised and disheartened to learn that they'll have much, much less than planned upon.

They WILL have the opportunity to contribute more to their 401(k)s in the coming years. The question is, "with what?" While I moved from one tech company to the other over the years, increasing my salary as I went, these people stayed in place and accepted promises of a pension in lieu of the significant raises they could have gotten in the open market.

The result -- many of them make HALF!!!!! as much as I do in salary. At my level they traded upwards of $80K per year, cash-in-hand, for the safety of the pension plan.

Once the plan is frozen they'll get to put 8% of salary into a 401(k). But their 8% is one hell of a lot less than my 8%. (And because they've made so much less for so long they do NOT have the fancy cars, the houses, the vacations, etc.)

In the meantime, the company has been able to pay competent, professional, and loyal employees far less than the going rate, for many, many years, in exchange for a promise they are now reneging on. Those who argue that the company has to do it in order to survive aren't factoring in the untold millions in benefits already reaped by paying sub-standard wages.

As someone else put it, I have no dog in this fight. But a lot of good people do, and it's a shame.

 

[justin]

A pension guarantees future payment for service rendered today. The benefitee does not choose how and when to invest money. The benefitee does not take on risk of stock/bond fluctuations. The benefitee has to spend no time educating themselves about investments, worrying about fees, etc.

While you and I may prefer to invest our own money, I think it is naive to believe that every worker has the right temperment and training to wisely invest their money for retirement. Nor does it seem efficient to require every worker to become an expert on investments.

It all boils down to corporate responsibility. If plan sponsors provided reasonable 401k plans with decent plan options and some guidance on what to invest in, the 401k would be superior to the defined benefit plan. You work your 20-30 years wherever you want, you retire, roll your 401k into an IRA and buy an annuity if you want - stream of benefits forever.

401k plans should have the "dumb" option or "default" option of Target Retirement type funds or balanced Lifestrategy type funds that are essentially idiotproof, with the guidance of an idiotproof glossy color brochure explaining the plan options. Sure, the more sophisticated plan options would be available, but if the plan participant can't/won't decide on the more sophisticated options, then dump them into the default fund choice(s).

Have a 401k administrator or outside source come in for "portfolio guidance" once a year to do a checkup on your plan participants' selections. It wouldn't cost much on a per-employee basis, and would probably be cheaper than administering a DBP.

DBP's are still at risk of stock market fluctuations. Market crashes - plans can go broke. Then the PBGC takes over, after slashing benefits for some or all.

To suggest that some people don't have the "right temperment and training" to make their own decisions over their investments and financial affairs is patronizing and elitist. Part of the continued dumbing down of America and removing the "personal" element of "personal responsibility". We let people buy the cars they want to, the houses they want to, and enter into the loans and credit contracts they want to, for better or for worse. People are responsible for filing their own taxes. Can't they be responsible for picking their own fund(s) from a short list of funds?

I don't think your efficiency argument carries much weight either. How hard is it for plan participants? Give them easy options - target retirement type funds - with instructions to pick the default fund based on their age unless the plan participant has particular knowledge of investments and is willing to risk their money. Pass a new law to shield employers from liability for giving this advice to all employees.

Maybe I'm naive and I place too much faith in the ability of people to make informed decisions.

 

[sgeeeee]

It all boils down to corporate responsibility.  If plan sponsors provided reasonable 401k plans with decent plan options and some guidance on what to invest in, the 401k would be superior to the defined benefit plan. 

Look to the sky, Justin. Do you see any flying pork?

. . .
To suggest that some people don't have the "right temperment and training" to make their own decisions over their investments and financial affairs is patronizing and elitist. . . .

No. This is something that has been determined in many studies over many decades. If I said most people don't have the temperment and training to fish, would you consider that elitist?

Now, you can argue that people can be trained to have the temperment and training to invest for long-term returns and stability. If I had said that people were incapable of learning, that might have been elitist. But I didn't. And my argument about efficiency is based on the fact that it would take a considerable amount of energy to train all of the people who do not currently have the temperment, training (and probably even the inclination) to develop investment skills. It would require corporations to hire HR departments that knew their @ss from a hole in the ground which would require additional money. It would require that all workers go through the training. Compute the cost of every worker in every industry spending several hours per year learning about investments.

I don't think your efficiency argument carries much weight either. How hard is it for plan participants? Give them easy options - target retirement type funds - with instructions to pick the default fund based on their age unless the plan participant has particular knowledge of investments and is willing to risk their money. Pass a new law to shield employers from liability for giving this advice to all employees.

  Now you are proposing a prescription that involves new government laws and regulations, revision of existing 401(k) plans to match the new laws and regulations as well as massive training. Doesn't this begin to strike you as expensive and inefficient. You propose all of this to avoid corporate responsibility relative to pension planning.

Maybe I'm naive and I place too much faith in the ability of people to make informed decisions.

Obviously not. You recognize that it would take massive changes to existing infrastructure from government legislation, to corporate responsibility for training, to overwhelming required training for every employee in America. If there is naivity here, it is in estimating the cost of this vs the cost of cleaning up America's corporations. 

 

[justin]

Look to the sky, Justin. Do you see any flying pork?

Why is it that you expect corporations to be responsible with respect to DBP's and not w.r.t. 401k plans? How are the two fundamentally different?

Now you are proposing a prescription that involves new government laws and regulations, revision of existing 401(k) plans to match the new laws and regulations as well as massive training. Doesn't this begin to strike you as expensive and inefficient. You propose all of this to avoid corporate responsibility relative to pension planning.

I think you may be over exaggerating what would be required to implement what I propose. Expensive and inefficient? Not any more than pension plan regulations and accounting. It would be more efficient in the sense that employees have more flexibility in what their retirement money is invested in.

Obviously not. You recognize that it would take massive changes to existing infrastructure from government legislation, to corporate responsibility for training, to overwhelming required training for every employee in America. If there is naivity here, it is in estimating the cost of this vs the cost of cleaning up America's corporations.

Don't fix it if it ain't broken. The pension system as it has existed historically is broken. Do we fix it and patch it up so it'll eek out a few more years, or modernize and replace it with a new system? I don't know what it will cost to implement what I'm describing. However, it doesn't seem that complicated to me when compared to the pension regs and accounting required presently.

 

[SteveR]

..  It would require corporations to hire HR departments that knew their @ss from a hole in the ground which would require additional money.  It would require that all workers go through the training.  Compute the cost of every worker in every industry spending several hours per year learning about investments....
 

HR won't discuss investment specifics out of fear of being sued if somebody loses money by listening to them.  My previous and current employers both had reps. from the 401(K) holder come in and do a 45 minute "talk" on the evils of not investing every dime you can with them.  Most people just glazed over.  

You can lead a horse to water but you can't make him invest for FIRE.

 

[justin]

HR won't discuss investment specifics out of fear of being sued if somebody loses money by listening to them. My previous and current employers both had reps. from the 401(K) holder come in and do a 45 minute "talk" on the evils of not investing every dime you can with them. Most people just glazed over.

Pass liability shield laws with "safe harbor" advice that HR or 401k reps can give out.

How is "invest in this balanced mutual fund that is catered to your age and holds diversified assets picked by the mutual fund manager" any different than having the employee's money invested in a pension that "holds diversified assets picked by the mutual fund pension manager (or his adviser)" but the holdings are not catered to the employee's age? Plenty of pension funds are following the diversified passive index fund approach to investing. Not much different than a diversified passive index mutual fund.

 

[HFWR]

Seems un-American to excuse people from the responsibility of managing their money, whether it's balancing their checkbook, or deciding where to invest...

 

[Texas Proud]

I'm guessing this wasn't a recent event, since only a handful of Texas banks have been taken over by the FDIC in the past 10 years.  That compares to dozens that bit the dust in the early 90's.

Not recent... more than 13 years ago..

 

[Texas Proud]

The result -- many of them make HALF!!!!! as much as I do in salary.   At my level they traded upwards of $80K per year, cash-in-hand, for the safety of the pension plan.
as someone else put it, I have no dog in this fight.  But a lot of good people do, and it's a shame.

Caroline... now, if you are telling me that there is a company of people who are making half as much as the market rate... I will say there is a company of dumb people...

NOBODY that I know of will give away $80,000 per year in order to get a pension that will not pay anything close to that... you could put that $80 in a conservative investment and still have a lot more than what they were promissing... I do not believe that this could be true..

 

[dumpster56]

I see all the ending of pensions in places that should never happen.

People who put the 30+ years into the job, company government only to be told at 55 60 or 65 that what they were expecting is not gonna happen.

It is FLAT OUT WRONG!

How much is the government SPENDING PER DAY IN IRAQ?

Almost 1 BILLION DOLLARS!!!!!

Sorry this country stinks!

 

[sgeeeee]

I should clarify some points here.  While my DW and I do have a couple of very small pensions we are vested in, I would have preferred to be given the cash and allowed to invest it myself.  I do not trust the two companies that hold our pension funds at all.  I'm fairly confident I would be better off financially if I had been able to exercise such an option.  I would be willing to bet that most of the folks who frequent this board could have done better than most pension plans too.

1- But before I worked as an engineer and as an engineering director, I worked briefly as a coal miner, a worker in a boat factory, a gravel truck driver, a field laborer, . . .  While my co-workers in every job I've ever worked at have been as smart as the next person, the typical blue collar coal miner or factory worker came to work with absolutely no background in investing and no desire to learn about it.  Yes . . . there were exceptions, but d@mn few.   And I don't really think it makes sense to require every worker in America to develop good investing skills when we have a system that worked effectively and efficiently for over 60 years.  The only real reason for this pension crisis is that we loosened up the regulations on pension funds in the 90's and let companies rob the funds for short-term gains.   Fix the broken regulations and the problem eventually goes away.

2- Saying that I could have done better investing myself assumes that I would have been given the money that was being invested on my behalf so that I could invest it.  That's not what's happening.  Most of the workers losing their pension are merely being short changed.  They are not getting extra pay to invest in anything -- or at most they are being given less than they were getting before.  Even if 401(k)s were the answer to pension issues today, getting an effective cut in pay is not helping anyone save for retirement.

3- The argument that companies can't be competitive if they offer a pension only works if you assume that point 2 is true.  If the money is simply being transferred from a pension fund to an employee for self investment, the company isn't saving a dime -- in fact if might be losing.  The real savings is that they are paying less compensation to the employee.  If the solution to competitiveness is lower compensation, then lets talk about that.  Let's not pretend the pension system is bad.  

 

[Martha]

Seems un-American to excuse people from the responsibility of managing their money, whether it's balancing their checkbook, or deciding where to invest...

Why are we expected to be experts at everything? Managing our money. Health care plans. Babysitters. What brand of beans to buy. Too many choices. It tends to paralyze people.