The Retirement Heist

[Hamlet]

They don't have no value, but I would much prefer that they just put their contribution into my portable 401k/403b plan.

It's better for the taxpayers/shareholders as well since currently there is a pretty strong incentive for politicians (or company executives) to make longterm promises that will be hard to keep. The person making the promise will be long gone before the bill comes due.

Pensions made sense for a brief window when it was common for people to work for the same company for most of their career.

They are a ridiculous anachronism in the current world.

Who's sure? But reducing pensions for already retired employees would require more than politicians' expedience, since there is an issue of contract law involved, as well as in several states a constitutional requirement that the pensions must be paid. You can imagine the states' defaults happening, nonetheless, but does the possibility really justify saying that state DB pensions have no value when the system is not fully funded? And don't forget that our politicians are still elected, and pensioners vote.

 

[MichaelB]

Aside from insolvency, there really is no reason to fear losing vested interests (nominal) and I do not think there has been any systemic loss of vested interests in the US. Most of the pension loss has come from companies changing plans and cashing out the PV of vested interest while it is still a low number.

What has been done and could continue is for vested interests to be frozen at nominal levels and inflation adjustments taken away. That is why it is difficult to value a DB plan.

 

[52andout]

anyone hear about RI pension reform proposals? Losing cola for many years would add up and be an unanticipated problem for many pensioners who thought it was in the bag. I don't have a RI pension, but changes like this could devastate a retirement plan. One of the articles about this said that it could take 19 years for cola to start up.

RI proposal would mix pensions with 401(k) plans - Yahoo! News

"COLA increases would be halted until the retirement system becomes more stable, a suspension that could last for several years. Then, annual increases would be tied to gains in pension investments.
Estimates put Rhode Island's unfunded liability for public workers' pensions at $7 billion, nearly as much as the entire state budget for one year.
If nothing is done, the annual taxpayer contribution to the retirement plans of state workers and teachers is projected to grow from $319 million per year in 2011 to $765 million in 2015.
Several states including Ohio, Illinois and California face even larger unfunded pension costs, but when Rhode Island's cost is divided among its 1 million residents, it becomes clear that it has one of the weakest pension systems in the nation."

 

[ChrisC]

Who's sure? But reducing pensions for already retired employees would require more than politicians' expedience, since there is an issue of contract law involved, as well as in several states a constitutional requirement that the pensions must be paid. You can imagine the states' defaults happening, nonetheless, but does the possibility really justify saying that state DB pensions have no value when the system is not fully funded? And don't forget that our politicians are still elected, and pensioners vote.

Rules, laws, and state constitutions can always be changed. But I agree with you that Federal or State defaults on pension obligations or changing the rules, laws, and constitutions to retroactively take away something that had been previously promised -- are all very remote possibilities. Defaults or changes to the pension game by local government is altogether another story. Muncipalities can file bankruptcy which could alter prior pension commitments.

I think one values the strength of the pension (and I assume we're only talking about defined benefit plans) on the basis of the strength of the ultimate backstop or guarantor of the pension plan. For Federal or State pensions, it's the Federal or State taxpayer ultimately that must make good on these pension promises if they are true iron-clad liabilities that the Federal or State Government has contractually bound itself to honor. And taxes must be raised to satisfy these obligations or else we would have a constitutional crisis and perhaps anarchy. For private pensions, it's the company sponsoring the plan alongside the limited backstop provided by PBGC.

I'm actually surprised by the notion that people would treat the defined contribution plan as superior to the defined benefit plan. Maybe that's true for private employers, but I'd take a defined benefit plan from a Federal or State Government employer any day over its defined contribution counterpart. And virtually every Federal employee I know would rather have the old CSRS- defined benefit plan rather than the "new" FERS-hybrid defined benefit/contribution plan even when social security is added to that plan.

The idea that "politicians," who are also the beneficiaries of Government pension plans, would shoot themselves in the foot by changing the rules on their own retirement plans is quite laughable to me. Do we know of a case where Congress or State legislators have voted to take actual cuts in pay for themselves? Foregoing increases or freezing pay is one thing, but asking them to cut their own retirement benefits (and those of their former colleagues) is a qualitatively different thing.

 

[GregLee]

This may have been posted already... This is Jon Stewart's interveiw of Ellan Schuilz ...

I'm still hoping to get to the part of this with the interview -- my video connection seems to be clogged. However, before I forget, I want to thank you for the interesting discussion of doctrinal differences between Mormon and other sects, which voters should be aware of.

 

[donheff]

And virtually every Federal employee I know would rather have the old CSRS- defined benefit plan rather than the "new" FERS-hybrid defined benefit/contribution plan even when social security is added to that plan.

I think that is true of long term or retiring Feds since they now know that they would be better off under CSRS. But I suspect that the majority of new employees, if given a choice, would opt for FERS. A fair number of Feds who were given such a choice at the inception of FERS made the switch. With CSRS you had vanishingly little to take away if you left Federal service before retiring (your 7% contribution with no interest). With FERS you take away SS and your 401K with the agency contribution. You can also take your little FERS contribution or leave it for a small deferred annuity years later as you could with CSRS.

How many people starting with any employer today, private or public sector, expect to stay put until they retire?

 

[Trex]

I think that is true of long term or retiring Feds since they now know that they would be better off under CSRS. But I suspect that the majority of new employees, if given a choice, would opt for FERS. A fair number of Feds who were given such a choice at the inception of FERS made the switch. With CSRS you had vanishingly little to take away if you left Federal service before retiring (your 7% contribution with no interest). With FERS you take away SS and your 401K with the agency contribution. You can also take your little FERS contribution or leave it for a small deferred annuity years later as you could with CSRS.

How many people starting with any employer today, private or public sector, expect to stay put until they retire?

I was able to retire through CSRS at age 50...me like old system!

 

[ChrisC]

I think that is true of long term or retiring Feds since they now know that they would be better off under CSRS. But I suspect that the majority of new employees, if given a choice, would opt for FERS. A fair number of Feds who were given such a choice at the inception of FERS made the switch. With CSRS you had vanishingly little to take away if you left Federal service before retiring (your 7% contribution with no interest). With FERS you take away SS and your 401K with the agency contribution. You can also take your little FERS contribution or leave it for a small deferred annuity years later as you could with CSRS.

How many people starting with any employer today, private or public sector, expect to stay put until they retire?

I suspect otherwise. I think "new employees," which includes employees starting out their careers in the Federal Government and employees moving into the Government from lateral positions in the private sector, would want the security and comfort of CSRS. Of course, this is a highly personal decision dependent on whether you believe you're going to stay in the Government for the long haul. I think people coming into the Government laterally would overwhelming choose CSRS because they are likely to stay for the long haul; typically, these are folks that had enough of the private sector and want the Government job with secured retirement and health benefits. With employees starting out their careers in Government, I think it's a mixed bag; depends alot on occupational series, agency mission and morale, and marketability outside of the Government. For instance, I think the attrition rate for newbie CIA intelligence analysts, FBI agents, Bank examiners, and personnel specialists anywhere in the Government would be low; whereas, the attrition rates for newbie postal service mailhandlers and clerks, SEC lawyers, teachers in overseas dependent schools, and nurses in VA hospital would be high.

BTW, I think only a very, very small percentage made the switch from CSRS to FERS in the late 1980's, when it was offerred to Federal employees. And let's not forget, the switch was a great deal for anyone thinking about leaving the Government back then: you got to keep the annuity features of CSRS up to the date of the swtich and became enrolled in the gold-plated FERS program afterwards with portability for the matching TSP and social security. But most of those who switched and stayed in Government have regrets about their switching over.

 

[Trex]

I suspect otherwise. I think "new employees," which includes employees starting out their careers in the Federal Government and employees moving into the Government from lateral positions in the private sector, would want the security and comfort of CSRS. Of course, this is a highly personal decision dependent on whether you believe you're going to stay in the Government for the long haul. I think people coming into the Government laterally would overwhelming choose CSRS because they are likely to stay for the long haul; typically, these are folks that had enough of the private sector and want the Government job with secured retirement and health benefits. With employees starting out their careers in Government, I think it's a mixed bag; depends alot on occupational series, agency mission and morale, and marketability outside of the Government. For instance, I think the attrition rate for newbie CIA intelligence analysts, FBI agents, Bank examiners, and personnel specialists anywhere in the Government would be low; whereas, the attrition rates for newbie postal service mailhandlers and clerks, SEC lawyers, teachers in overseas dependent schools, and nurses in VA hospital would be high.

BTW, I think only a very, very small percentage made the switch from CSRS to FERS in the late 1980's, when it was offerred to Federal employees. And let's not forget, the switch was a great deal for anyone thinking about leaving the Government back then: you got to keep the annuity features of CSRS up to the date of the swtich and became enrolled in the gold-plated FERS program afterwards with portability for the matching TSP and social security. But most of those who switched and stayed in Government have regrets about their switching over.

Mr. C.....

I agree with most of your points.... But what I observed during a 30 year period with the feds was... younger firefighters were working "only" for the training programs that they can get during their first 5 years of service, and than they would move on to a much higher paying fire job with local government...like LA county, Santa Barbara county, or Kern county, etc.

The big counties let the Feds do all the "Baseline training", and than hire the best of the best. Plus, they let the Feds maintain their "muti-million-dollar" training center in Sacramento, than offer the young employee a "signing bonus" so they can pay back the Feds for the training...

Plus, after 5 years of full time service, an employee can walk with there medical insurance for life. So, if you're an Engineer, or a lawyer...you work your first 5 years for the Feds and than go into private practice.

Now your making the "Big" money in private practice, and have the same medical insurance as your local US Senator, for life...That seems like one of the major advanages of becoming "Vested" in the FERS retirement system....

On the other hand, CSRS employees can't keep their medical insurance, if they leave government service early, for better paying job. But, if you stay for 30 years under the CSRS retirement system, it's a great way to "take the money and run" and get that "Early retirement" we're all taking about....and that's what I'm taking about!

 

[Hamlet]

The defined benefit plan is only better if you manage to make it to the finish line. The Federal government employees 500,000 fewer people now than it did at the beginning of 2009.

I suspect a fair number of those people wish they had been in a defined contribution plan.

I can't imagine starting any job today expecting to be working for the same employer 20-30 years down the road.

I suspect otherwise. I think "new employees," which includes employees starting out their careers in the Federal Government and employees moving into the Government from lateral positions in the private sector, would want the security and comfort of CSRS.

 

[Alan]

The defined benefit plan is only better if you manage to make it to the finish line. The Federal government employees 500,000 fewer people now than it did at the beginning of 2009.

I suspect a fair number of those people wish they had been in a defined contribution plan.

I can't imagine starting any job today expecting to be working for the same employer 20-30 years down the road.

Although I've started my retirement with most of it funded by DB pensions, I would have preferred to have had much more portable DC plans or cash balance plans.

In my 20's I cashed out my contributions to my first employer's DB plan, with a 10% penalty, to put towards a deposit on our first house.

As I moved jobs the DB pensions were not transferrable and I've had to keep the old employers informed of my new addresses for over 25 years. I now have non-COLA pensions from 4 companies, 2 of them in England.

I've been very fortunate that during the buy-outs and mergers that the pension funds have survived. None of my ex-companies offer DB plans anymore, and DW's last company converted their employees below a certain level of years service to cash balance in the 90's.

 

[eytonxav]

Here is another review of the book that provides more detail than the original book review I posted. This one really gets the blood boiling:

Retirement Heist: How Firms Plunder Workers' Nest Eggs - Forbes

 

[FinanceDude]

I have known entering education vaguely thought of the contribution as an immediate tax on them that may give them some money when they are old and wrinkled, but that is two lifetimes from now

 

[FinanceDude]

Who's sure? But reducing pensions for already retired employees would require more than politicians' expedience, since there is an issue of contract law involved, as well as in several states a constitutional requirement that the pensions must be paid. You can imagine the states' defaults happening, nonetheless, but does the possibility really justify saying that state DB pensions have no value when the system is not fully funded? And don't forget that our politicians are still elected, and pensioners vote.

While that is true, if the state doesn't have the money to pay the pensions, they will turn to the Federal govt, who will promptly put those plans in PBGC, and the pensioners will see their benefit slashed to 60% of what they were getting..........stranger things have happened......

Representative govt is an endangered species........

 

[Texas Proud]

Here is another review of the book that provides more detail than the original book review I posted. This one really gets the blood boiling:

Retirement Heist: How Firms Plunder Workers' Nest Eggs - Forbes

"The masterminds of this heist should take a bow: They managed to take hundreds of billions of dollars in retirement benefits that were intended for millions of workers and divert them to corporate coffers, shareholders, and their own pockets."

Quote from the article... but a lie on its face... when there is a lie I tend to not believe the parts that might be true...

Why is it a lie Because the people who were in the plans received (ore will receive) everything they had earned to that day.... period... end of story...

Any excess money in any plan does not belong to the participants... it is not there to pay them anything extra... but to cover any kind of shortfall that the plan might have in the future....


Now, if they had said that the companies lied in that the cost of these pensions were not nearly as much as they say... or that they took away the plans under false pretenses... then it would be more believable... or even they took away FUTURE benefits that the workers were planning to get IF they kept working... but saying they took money intended for the workers is just not true...

 

[FinanceDude]

"The masterminds of this heist should take a bow: They managed to take hundreds of billions of dollars in retirement benefits that were intended for millions of workers and divert them to corporate coffers, shareholders, and their own pockets."

Quote from the article... but a lie on its face... when there is a lie I tend to not believe the parts that might be true...

Why is it a lie Because the people who were in the plans received (ore will receive) everything they had earned to that day.... period... end of story...

Any excess money in any plan does not belong to the participants... it is not there to pay them anything extra... but to cover any kind of shortfall that the plan might have in the future....


Now, if they had said that the companies lied in that the cost of these pensions were not nearly as much as they say... or that they took away the plans under false pretenses... then it would be more believable... or even they took away FUTURE benefits that the workers were planning to get IF they kept working... but saying they took money intended for the workers is just not true...

That is true. Pensions were very overfunded in the 70's and 80's, so some companies bought annuity policies to guarantee the payments of pensioners, and then took the remaining money and did other things with it. How is that illegal, if the payments paid into the system and the future contributions were guaranteed? I would feel better that MetLife is backing my pension plan than my company's own balance sheet..........

 

[M Paquette]

Why is it a lie Because the people who were in the plans received (ore will receive) everything they had earned to that day.... period... end of story...

Any excess money in any plan does not belong to the participants... it is not there to pay them anything extra... but to cover any kind of shortfall that the plan might have in the future....

True. And really quite simple.

We can create excess money, or a state of overfunding, trivially within a corporate pension fund. All we need do is recognize that because of our outstanding investment management skills, we can project a much higher rate of return than the pension was funded for. The plan is thus overfunded, and the corporation's obligation for future contributions is consequentially reduced. The reduction in contribution expenses flows directly to reported earnings, spiking our stock price, and so spiking the valuation of the pension fund which is largely invested in a special class of our stock.

The future participants in the pension plan are at no risk, as the plan is fully funded at current contribution levels and stock valuation. Besides, if something does go wrong, the Pension Benefit Guaranty Corporation will pick up the tab (up to $54,000/year) backed by the full faith and credit of the US Government, i.e., taxpayers.

What could possibly go wrong?

 

[donheff]

"The masterminds of this heist should take a bow: They managed to take hundreds of billions of dollars in retirement benefits that were intended for millions of workers and divert them to corporate coffers, shareholders, and their own pockets."

Quote from the article... but a lie on its face... when there is a lie I tend to not believe the parts that might be true...

Why is it a lie Because the people who were in the plans received (ore will receive) everything they had earned to that day.... period... end of story...

That is true. Pensions were very overfunded in the 70's and 80's, so some companies bought annuity policies to guarantee the payments of pensioners, and then took the remaining money and did other things with it. How is that illegal, if the payments paid into the system and the future contributions were guaranteed?

You two sound like you would thank a burglar for breaking into your house. The money was diverted from pension funds. Pension funds are required to be managed to the benefit of their participants. Did you read and understand what GE did? They failed to pay a dime in for more than a decade (relying on a temporary excess to justify that). Then they closed the fund so they could capture the liabilities as earnings. They lied about what they were doing. Some of the companies actually violated the law and were prosecuted. The others slipped through loopholes and violated the spirit of the law. The whole thing was a travesty.

Do you guys want us all to trust in free markets if you call this simple fair and square free market activity?

 

[eytonxav]

"

Now, if they had said that the companies lied in that the cost of these pensions were not nearly as much as they say... or that they took away the plans under false pretenses... then it would be more believable... or even they took away FUTURE benefits that the workers were planning to get IF they kept working... but saying they took money intended for the workers is just not true...

Tex, Unless you read the book, it appears your taking snipets of what was said or quoted in the review and drawing your own conclusions. Lying vs covering up is a very fine line.

Nevetheless, I would certainly say that many folks that were working for years with the understanding that certain retirement benefits would be there for them and paid out, did see that understanding change when such benefits were cut or eliminated altogether, as well as their healthcare benefits while employed. Further, I have no doubt that executives have benefited handsomely themselves based on freeing up such $s from employee pension plans and healthcare.

 

[ERD50]

...

The future participants in the pension plan are at no risk, as the plan is fully funded at current contribution levels and stock valuation. Besides, if something does go wrong, the Pension Benefit Guaranty Corporation will pick up the tab (up to $54,000/year) backed by the full faith and credit of the US Government, i.e., taxpayers.

What could possibly go wrong?

There wasn't much detail in that story, but AFAIK, everyone received their pensions (up to the PBGC limits) from the 'insurance' payments from the pension funds to the PBGC fund. No taxpayer $ were involved (though they could be if the PBGC finds itself underfunded).

You two sound like you would thank a burglar for breaking into your house. ....

Do you guys want us all to trust in free markets if you call this simple fair and square free market activity?

I don't trust anyone - that's why I want the money in my own account.

From the responses and from what I know, this all seems like future, unearned benefits were cut, and this 'travesty' had nothing to do with taking anything away from anyone who had earned it (up to that date). Terms like 'raiding' and comparisons to 'burglars' seem a bit over the top to me.

For comparison, if the Feds change the tax laws to eliminate the mortgage deduction (I'd be OK with that), can we claim they are thieves because we always had it in the past, and we were counting on it in the future? Is it a 'travesty', or is it just a forwards-looking change?

-ERD50

 

[GregLee]

For comparison, if the Feds change the tax laws to eliminate the mortgage deduction (I'd be OK with that), can we claim they are thieves because we always had it in the past, and we were counting on it in the future? Is it a 'travesty', or is it just a forwards-looking change?

Travesty. We expect private concerns to mislead us and cheat us if they can -- it's part of our free market system; it's all in the game. But the government is our agent, and so we expect from it fair representation and honesty.

 

[ERD50]

Tex, Unless you read the book, it appears your taking snipets of what was said or quoted in the review and drawing your own conclusions. Lying vs covering up is a very fine line.

Nevetheless, I would certainly say that many folks that were working for years with the understanding that certain retirement benefits would be there for them and paid out, did see that understanding change when such benefits were cut or eliminated altogether, as well as their healthcare benefits while employed. Further, I have no doubt that executives have benefited handsomely themselves based on freeing up such $s from employee pension plans and healthcare.

I'm also not seeing where the "heist" is. That blog review had an interesting comment:

Susan Bishop, Director, Corporate Communications GE:

Steve –

I work in communications at GE and read your blog post yesterday about Ellen Schultz’s book “Retirement Heist.” Ms. Schultz has many of her facts wrong about GE that, unfortunately, you repeat in your blog.

... We are still trying to understand what “heist” occurred at GE since every penny promised to retirees has been paid over the history of our pension plan.

Sorry, but this just seems like another 'stir up people with pitchforks' trip to me. I guess a title like "GE's Benefits Are Not As Good As They Used To Be" would not be a real grabber?

edit/add - and the following comment is a real winner - the guy claims that since GE stock is up, they must have 'looted' the money from somewhere! I'm guessing that guy has never created any value before, so cannot relate



RE: hypothetical end of the mortgage deduction:

Travesty. We expect private concerns to mislead us and cheat us if they can -- it's part of our free market system; it's all in the game. But the government is our agent, and so we expect from it fair representation and honesty.

But I wouldn't see anything 'unfair' or 'dishonest' about that change. It's not in the Constitution or anything. If it changes it changes, and we adapt. Actually, I only expect to be cheated when there is a lack of a free market (cell phone carriers, cable providers, and to some degree - our govt). In a free market, if a company routinely cheats people, word gets out and people vote with their wallet.


-ERD50

 

[eytonxav]

I don't trust anyone - that's why I want the money in my own account.

From the responses and from what I know, this all seems like future, unearned benefits were cut, and this 'travesty' had nothing to do with taking anything away from anyone who had earned it (up to that date). Terms like 'raiding' and comparisons to 'burglars' seem a bit over the top to me.

I can agree with your comment about "I don't trust anyone - that's why I want my money in my own account". When I left my mega corp back in 2003, I had the option of a lump sum, annuity or a combination. I took the lump sum.

As far as not taking away anything, I beg to differ. Most of these private plans where back end loaded, so the bigger payouts only came in the later stages of ones career. The promise of those plans probably kept many in their jobs longer than they would have liked, but when the plans were cut or eliminated, folks were left with very little having been accrued, yet they may have invested 10-15 years with that company, maybe more. In my mind that is indeed a traversity or a heist. If that happened to you, I think your perception would be a bit different.

 

[donheff]

It is all a matter of perspective. Yeah, everybody got what they were legally entitled to. No argument there. The entire Derivatives fiasco was also a legal exercise of a poorly regulated the free market that will, of course, eventually correct itself until the next time. In the meantime, the entire world is upended, lives are ruined. It's all good.

 

[ERD50]

As far as not taking away anything, I beg to differ. Most of these private plans where back end loaded, so the bigger payouts only came in the later stages of ones career.

The promise of those plans ....

But that is not a promise. You are talking about expectations that the future will remain like it was in the past. Things change.

probably kept many in their jobs longer than they would have liked, but when the plans were cut or eliminated, folks were left with very little having been accrued, yet they may have invested 10-15 years with that company, maybe more. In my mind that is indeed a traversity or a heist. If that happened to you, I think your perception would be a bit different.

It DID happen to me, twice at the same MegaCorp. The pension plan formula changed for benefits earned going forward. I had a choice, if I didn't like it I could look elsewhere, like everyone else. It wasn't a 'heist', it wasn't a broken promise. Would I have liked it better if it stayed the same? Yes. There are lotsa things I'd like.


-ERD50