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Re: The pension system destruction continues
Old 01-12-2006, 12:27 PM   #161
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Re: The pension system destruction continues

Quote:
Originally Posted by BearlyWorking
Another aspect of dropping DBP's I did not see discussed is the relationship between employee and employer. With a DBP there was a paternalistic incentive to remain loyal to a single company. With DCP's it is just the opposite. Employees are now better off job-hopping than staying in one place. In fact, jobs can now be considered to be active investments. If your present investment does not match the market, then you change it. When you get a new job you go into it with an exit strategy.
Unless companies have a vesting period before you get your employer matching contribution. I think ERISA allows a maximum of 5 years to vest 100%, or phased vesting between years 3 to 6. So you have 5 or 6 years of incentives to not job-hop.

My current employer has an ESOP that has phased vesting over years 3 to 6. A big reason not to switch jobs! Of course the amount at stake has to be big enough to make the employees think twice about jumping ship.
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Re: The pension system destruction continues
Old 01-12-2006, 12:41 PM   #162
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Re: The pension system destruction continues

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Originally Posted by justin
Unless companies have a vesting period before you get your employer matching contribution. I think ERISA allows a maximum of 5 years to vest 100%, or phased vesting between years 3 to 6. So you have 5 or 6 years of incentives to not job-hop.

My current employer has an ESOP that has phased vesting over years 3 to 6. A big reason not to switch jobs! Of course the amount at stake has to be big enough to make the employees think twice about jumping ship.
Yep, but just part of the exit strategy. During vesting you can also plan to hop within the company. The important difference, in my mind, is that when I started working I never thought about the next job move. When my kids start working it will be one of their first lessons.
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Re: The pension system destruction continues
Old 01-12-2006, 12:45 PM   #163
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Re: The pension system destruction continues

True. But then you have another 5-6 year vesting period at your new company, and there's the initial lost time at start-up - months of ineligibility for health insurance, 401k, vacation, etc.

I'm more of the "stay in one place" kind of person, although my company makes it worth my while to be that way.
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Re: The pension system destruction continues
Old 01-12-2006, 01:09 PM   #164
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Re: The pension system destruction continues

Quote:
Originally Posted by justin
Unless companies have a vesting period before you get your employer matching contribution.* I think ERISA allows a maximum of 5 years to vest 100%, or phased vesting between years 3 to 6.* So you have 5 or 6 years of incentives to not job-hop.*

My current employer has an ESOP that has phased vesting over years 3 to 6.* A big reason not to switch jobs!* Of course the amount at stake has to be big enough to make the employees think twice about jumping ship.
I think one would need to evaluate the potential gain from a higher paying job now vs the employer match vesting in the future to see what makes more sense. My guess would be to take the cash in a higher wage since it might also include more cash in a sign on bonus and maybe stock options that would more than offset the employer matching on the DCP.
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Re: The pension system destruction continues
Old 01-12-2006, 01:21 PM   #165
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Re: The pension system destruction continues

In my case, the ESOP has a very large value that is still unvested (25% of my gross salary). I also have a 7 minute commute with a flexible work schedule. I like the people I work with too.

In general, I agree one must weigh all of the options on the table - signing bonus vs. potential for vesting employer contributions, etc.

I'm not really in a field where hopping from company to company pays off - it's a professional job in a particular field of engineering where pay is usually similar everywhere given the experience I have. One day it may make sense if I'm interested in higher managerial roles (and more hours). Of course, I may be FIREd by then
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Re: The pension system destruction continues
Old 01-12-2006, 02:11 PM   #166
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Re: The pension system destruction continues

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Originally Posted by newguy88
However again I will say like a broken record, pensions that have been promised by companies, and governments should be honored. If you must raise taxes to do it so be it.
I think this quote from the article sums it up:

"That's the problem with pension plans that promise a specific benefit in the future -- they amount, pension consultant Keith Ambachtsheer says, to a contract between current and future generations, and those future generations aren't represented at the bargaining table. As a result, they get stuck guaranteeing the retirement income of their elders while receiving nothing in return."

Now, IMHO this is not true for corporate run PDBs. The corporation and the share holders promised the benfits and should fund promised benefits. If stockholers do not like the obligations, they should not have brought the stock (Now, I stillbelieve companies have the right to freeze plans at current benefit levels).

However, the quote is perfectly true for government run ponzi schemes retirement plans, as the people paying the bills had no place at the table. This includes SS.
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Re: The pension system destruction continues
Old 01-12-2006, 02:19 PM   #167
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Re: The pension system destruction continues

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Originally Posted by bbuzzard
. . .However, the quote is perfectly true for government run ponzi schemes retirement plans, as the people paying the bills had no place at the table. This includes SS.
This is true for massive budget deficits, laws that effect the environment, building permits, road construction, . . .
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Re: The pension system destruction continues
Old 01-12-2006, 02:32 PM   #168
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Re: The pension system destruction continues

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This is true for massive budget deficits, laws that effect the environment, building permits, road construction, . . .* *
The problem is that nobody really cares.* Politicians need to make promises to stay in office, and since those who are going to have to pay for the promise aren't old enough (or even born) to vote them out of office, it's better to bribe provide a safety net for those who can.
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Re: The pension system destruction continues
Old 01-12-2006, 02:59 PM   #169
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Re: The pension system destruction continues

New Guy,

I agree with you 100% that what was promised should be paid by a corporation or government.. to a point..

In your case, yes, you had money set aside and it was to grow into your defined payment. But, like I had mentioned, what happened in Houston was that the mayor decided to 'raise' the amount for payout without any increase in contribution.. they then had to reduce this increase as there was no money for it... the people are still getting what was 'promised' before the change, but some are saying they had their pension reduced...

SS is completely different.. it is a pay as you go and as such has to be adjusted to what can come in during a given time period for the payouts... it is NOT a retirement system even though a lot of people say it is.
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Re: The pension system destruction continues
Old 01-12-2006, 04:29 PM   #170
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Re: The pension system destruction continues

This is all a very interesting discussion.* I've been with my company for 13 years now, age 36, and one thing that I've noticed is that they are going against pretty much everthing that is going on in the rest of the economy.* Since I started max DBP benefits have risen from $36k to $80k, with a serious discussion of raising the max to $100k or so.* They've also been plowing in over $100 million a year the past few years in order to fully fund the pension plan.* Of course they were vastly underfunded at one point, but anyways....

Of course some pessimits argue that once they fully fund the pension, they'll freeze it, so who knows.

Also, a lot of the discussion has been with regard to either a DBP or a 401(k).* I wasn't aware that there were companies with DB plans that didn't also have 401(k)'s, so I don't see what the problem is.

I imagine, companies without DBPs have more generous 401(k) matching.* My company only matches 3%.* My wife's company has a less generous pension but matches 5%.* The current value of my pension is double the value of my matching funds in my 401(k), so maybe they'd have to kick in 9% matching for me to break even if they do freeze the DBP.* *Not gonna happen.
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Re: The pension system destruction continues
Old 01-12-2006, 04:47 PM   #171
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Re: The pension system destruction continues

Theo...

The usually change inside a company is between DBP and DCP.. most of the big companies also have a 401(k)...

What does this mean to a company.. they KNOW how much a pension will cost them because it is funded in today's dollars. If they have a DBP, they do not really know their liability until you retire. If there is a lot of wage inflation, then your pension payments will go up... if you get a promotion and a lot higher wage, your pension goes up.. So, let's say you are a wage slave for 25 years at an average of $20,000 and then you hit it big and make $100,000 the last 3 or 5 years (according to your plan)... your pension is based on the $100,000 EVEN THOUGH YOU DID NOT EARN THAT MUCH FOR 25 YEARS... Yes, it is what was promised you, but it now means they have to make up for those 25 years of low contributions..

If they had a DCP, they just put in the percentage they say you earn each year and be done with it... you do have a pension, but not near as much as with the DBP above.. but, if you stayed a wage slave for the last 5 years, you should be close either way if the company is paying the correct percentage into your DCP... now, let's vote on if we think this is happening!!!
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Re: The pension system destruction continues
Old 01-12-2006, 08:29 PM   #172
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Re: The pension system destruction continues

An additional point that is sad is that many women will head into poverty. DB plans protected women through joint and survivor annuities, which were required to be signed off on if they were turned down..Women live longer than men, marry older men, and have less personal savings than men..Many of you love your SWR strategy, but many of the women left behind when you die won't be able to handle this after a few bumps in the market at age 83.

DB plans provided guaranteed retirement income for many who couldn't generate it themselves..Now they will have to hire professional help at a cost (to their income) or flub it up themselves.

I, for one, will miss DB plans as very few appreciate longevity risk and the value of risk-pooling.
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Re: The pension system destruction continues
Old 01-12-2006, 09:40 PM   #173
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Re: The pension system destruction continues

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Originally Posted by Theo
I imagine, companies without DBPs have more generous 401(k) matching.*
I wish! No pension here and best (and only-) 401k match I ever had was 1.5%. But at my last software startup the stock options turned out to be worth quite a bit--but at my level (individual contributor) not enough shares to be worth as much as most pensions, if you assume a 3-4% SWR. On the other hand, at the smallish companies where I worked, there was little bureaucracy and lots of creativity (hmmm, and frequent long hours!).

Say, if I'm gonna be taxed to shore up someone else's pension, howsabout they get taxed to make up for my stock options that died on the vine?*
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Re: The pension system destruction continues
Old 01-13-2006, 07:25 AM   #174
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Re: The pension system destruction continues

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Say, if I'm gonna be taxed to shore up someone else's pension, howsabout they get taxed to make up for my stock options that died on the vine?
Too bad you can't take a capital loss write-off!
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Re: The pension system destruction continues
Old 01-13-2006, 09:27 AM   #175
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Re: The pension system destruction continues

It really is all about the bottom line.

With long term rates the way they are now big corp can take a windfall on paper by getting rid of a later commitment.

Dump the pension freeze the pension call it what you want it is a means to prop up the stockholders shares in a company.

I really wonder when this comes back to bite these companies in the arse.

I mean if I was a young guy I would have VERY LITTLE ALLEGENCE TO MY COMPANY!

I would be the whore and find the best paying place year after year!

I am good at what I do.
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Re: The pension system destruction continues
Old 01-13-2006, 10:05 AM   #176
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Re: The pension system destruction continues

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Originally Posted by newguy88
It really is all about the bottom line.



I mean if I was a young guy I would have VERY LITTLE ALLEGENCE TO MY COMPANY!

I would be the whore and find the best paying place year after year!

I am good at what I do.
And that is where we are now or at least where we are headed. I prefered the era when workers were loyal to the company and the company looked after them. I do not celebrate the changes, like some, but I do acknowledge them. There are really tradeoffs that will cost something. What will be interesting is to see what develops over several business cycles when the various benifits of loyality VS flexibility plays out. It may be an issue of optimum VS maximum. AFAIK as the population levels off/declines employee retention will become more important. Maybe we will see the return of employer provided fringe benifits.
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Re: The pension system destruction continues
Old 01-13-2006, 10:14 AM   #177
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Re: The pension system destruction continues

Ther are some who believe there'll be an employment crunch toward the end of the decade, and maybe then employees will have the upper hand. Corps will then be dangling bennies out there to attract talent...

Hope by then I'm an innocent bystander!!
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Re: The pension system destruction continues
Old 01-13-2006, 04:20 PM   #178
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Re: The pension system destruction continues

Quote:
Originally Posted by New Thinking
Many of you love your SWR strategy, but many of the women left behind when you die won't be able to handle this after a few bumps in the market at age 83.
Off topic, but I have to call you on this. Are you suggesting that women are not capable of making reasonable investment decisions Becuase that is what it sounds like. Alternatively, you may be suggesting that most off the people on the board are male, and their spouses may not be as interested in/knowledgable about investing as they are. For all I know, this may be true.

Maybe your comment is reasonable after all.
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Re: The pension system destruction continues
Old 01-13-2006, 05:14 PM   #179
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Re: The pension system destruction continues

I left a firm back in 1990 when they announced their DBP was being discontinued. I went in immediately, and stated I would not work for a firm that didn't have a 'retirement plan' in place. At the time, I worked at the law firm for 11 years. I acknowledge all the ladies who contribute to this board are extremely financially savvy - take it from me - a woman - who has always been interested in financial matters.
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Re: The pension system destruction continues
Old 01-13-2006, 09:10 PM   #180
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Re: The pension system destruction continues

The pity with default by large organizations (US Govt, US corporations, Chinese govt, etc.) on generational obligations is that the efficient solution is permanently lost. 401k plans are not as good as pensions because they force every player to fend weakly for himself losing the benefits of the law of large numbers. With a 401k each worker has to plan for the financial worst-case of a long life and the risk of running out of money. The large organization providing an annuity/pension need only plan for the average case, lowering the cost to everyone and relieving the participants of the worry of outliving their money. Too bad you can't trust them not to steal your money.

It for problems of just this scale that governments can provide a solution that individuals cannot possibly achieve on their own.

NewGuy, very sorry to hear about your case.
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