Pandemic of pension woes is plaguing the nation (CNBC)

[NW-Bound]

I should not have gotten drawn in, nor tried to "analogize" a pension to my own situation by reading this. I should have known better.

How long are we going have to listen to this excuse? Unless they panicked and bailed, shouldn't they be ahead by now? I know I am.

Quote:
...Most of the rest have been scrambling to make up investment losses inflicted by the 2008 market collapse...

Yes, perhaps we should all go find something else better to do. That aside, I have learned a thing or two from this exchange.

By the way, CalPERS has been criticized for assuming a real return of 4.75% in their projection. They used to have an even higher assumption.

Additionally, I have found and read this article, which tells the history behind all this, for people who follow this thread so far: The Pension Fund That Ate California by Steven Malanga, City Journal Winter 2013.

With that, I am bowing out of this thread.

 

[modhatter]

I just started reading a financial book. Don't ask me the name. I think it was free on Amazon. It is talking about Pensions and the real reason companies are freezing them. They say most are just "electing" to eliminate them, because of the current long life expectancy, and wanting to be out of the risk game and leave that to the employees. It goes on to say that "most" of these companies are financially sound and are making big profits. It's just that by eliminating a "promised" pension takes the burden of success off of them and puts it on the employee's back, and gives them more money to be competitive in business.

They do site certain companies (GM) and states who are underfunded, but say this is the exception, not the rule. Can't say I know it's correct, but it sounds right.

 

[Texas Proud]

I just started reading a financial book. Don't ask me the name. I think it was free on Amazon. It is talking about Pensions and the real reason companies are freezing them. They say most are just "electing" to eliminate them, because of the current long life expectancy, and wanting to be out of the risk game and leave that to the employees. It goes on to say that "most" of these companies are financially sound and are making big profits. It's just that by eliminating a "promised" pension takes the burden of success off of them and puts it on the employee's back, and gives them more money to be competitive in business.

They do site certain companies (GM) and states who are underfunded, but say this is the exception, not the rule. Can't say I know it's correct, but it sounds right.

It is probably right.... but what is wrong with that

IOW, the company wants to know their costs.... having a pension with an unknown cost associated with it is not good business.... that is why most of the big firms have gone to the cash balance account... put a fixed amount aside for the employee and let it grow.... sure, the employee has the risk, but shouldn't they

 

[steelyman]

sure, the employee has the risk, but shouldn't they

Perhaps. If that's what they were told up front.

 

[Chuckanut]

Perhaps. If that's what they were told up front.

Or if they have a time machine and can get back a few decades of life.

 

[haha]

Perhaps. If that's what they were told up front.

Your bride tells you up front that she will stay with you in sickness and in health, for richer, for poorer- but those of us over 6 know that things change, and usually there is very little that you can do about it.

Though government pensions may be an exception to this. Over time, we shall see.

Ha

 

[steelyman]

Sometimes it's best to say "let it go".

 

[Texas Proud]

Perhaps. If that's what they were told up front.

Or if they have a time machine and can get back a few decades of life.

The problem with that is things do change... the employee has not made a 40 year commitment to the company.... they can 'change' the employment dynamic by just quitting... as long as the company pays what it has promised to pay up until they changed, I see nothing wrong with that...

Business is cruel.... I remember some people who accepted a job out of college... back in the early 80s... they were let go before they even started!!! I think they got two weeks pay, but that does not help if they had passed up other opportunities when they accepted that job...

Another one that I heard or read about.... HP cut everybody's pay by 10% when this latest crisis started... they changed things that were promised..... and to me something that is more important to most people... their paycheck...

Is it 'fair'? Well, I do not think that is the right question.... but no, it is not...



Edit to add: I do not think that the pensioners of Detroit will be treated fairly... they were promised something and had earned it... but now will have to pay a price... I do think that the cut they receive should be the same as the other debt... not more....

 

[Katsmeow]

It is probably right.... but what is wrong with that

IOW, the company wants to know their costs.... having a pension with an unknown cost associated with it is not good business.... that is why most of the big firms have gone to the cash balance account... put a fixed amount aside for the employee and let it grow.... sure, the employee has the risk, but shouldn't they

Because many people may have worked an entire career on the basis of receiving a pension and planned financially accordingly. To pull the rug out form under people at the end of the career is fundamentally unfair. It is one thing to change it going forward for new employees. It would be something else entirely to change it for those who perhaps worked in a field with a lower salary in part because of the pension plan.

 

[Mulligan]

Because many people may have worked an entire career on the basis of receiving a pension and planned financially accordingly. To pull the rug out form under people at the end of the career is fundamentally unfair. It is one thing to change it going forward for new employees. It would be something else entirely to change it for those who perhaps worked in a field with a lower salary in part because of the pension plan.

I agree with you Kat, and I am currently drawing a pension, so I have a bias toward that viewpoint. In referring to Texas's post he is correct, also. Just a generalization, but I think people who work (ed) in private industry are a little more savvy to the expectation of possibly being "screwed over" sometime. Government workers tend to be more trusting of what is promised, thus more likely to get caught with their financial pants down. I know if my pension went "poof" today, I would have to go back to work full time again until God knows when.

 

[ziggy29]

Just a generalization, but I think people who work (ed) in private industry are a little more savvy to the expectation of possibly being "screwed over" sometime. Government workers tend to be more trusting of what is promised, thus more likely to get caught with their financial pants down. I know if my pension went "poof" today, I would have to go back to work full time again until God knows when.

I think this is probably right. A lot of people who chose government work specifically chose to sacrifice *some* earning potential for benefits and security, too. So pensions and retiree health insurance, among other things, may have been among the primary factors in choosing where to work.

 

[Texas Proud]

Because many people may have worked an entire career on the basis of receiving a pension and planned financially accordingly. To pull the rug out form under people at the end of the career is fundamentally unfair. It is one thing to change it going forward for new employees. It would be something else entirely to change it for those who perhaps worked in a field with a lower salary in part because of the pension plan.

I am not suggesting that the pension be pulled out from under them at the end of their career.... if they are there... then the pension they have earned to date should be honored... all of it...

But, say that I started to work at a job on Sept 30th... and on Oct 1st they changed the pension plan.... should I not have my pension plan changed just because I was 'promised' something better Sure, this is the extreme case... but I STARTED on the old pension plan and they should not pull the rug out from under me!!!! So, back it up one year.... can we change that person 5 years? 10 years? Where do we stop

That is why you make a change for everybody going forward.... again.. it changes NOTHING on what the person has already earned.... in the end, the long time employee should still be OK since he/she has a good number of years under the old pension....

I agree with you Kat, and I am currently drawing a pension, so I have a bias toward that viewpoint. In referring to Texas's post he is correct, also. Just a generalization, but I think people who work (ed) in private industry are a little more savvy to the expectation of possibly being "screwed over" sometime. Government workers tend to be more trusting of what is promised, thus more likely to get caught with their financial pants down. I know if my pension went "poof" today, I would have to go back to work full time again until God knows when.

As my post above says, I am not for making people who currently receive a pension take it on the chin.... heck, even someone with many years under a current system might not get hit that hard with any change... I think that when someone puts a post down like I did they just jump to the opinion that we should just stop paying out pensions at all.... NO, that is not what I said or would want...


The other thing that some people don't seem to get is that if you can control the money, you have a decent chance of actually having MORE money than the pension (that is, unless the pension is SO good that it should not be there anyhow).... why just jump to the conclusion that the employee would be destitute

 

[Katsmeow]

As my post above says, I am not for making people who currently receive a pension take it on the chin.... heck, even someone with many years under a current system might not get hit that hard with any change... I think that when someone puts a post down like I did they just jump to the opinion that we should just stop paying out pensions at all.... NO, that is not what I said or would want...


The other thing that some people don't seem to get is that if you can control the money, you have a decent chance of actually having MORE money than the pension (that is, unless the pension is SO good that it should not be there anyhow).... why just jump to the conclusion that the employee would be destitute

I don't really disagree much with what you say in this post. I think there are a variety of things companies can do. One option is to continue with the pension plan for people who were employed before X date and then do something difference people employed after that date (that is basically what DH's megacorp did - he was well within the group that continued on with the pension plan). Some places will additionally freeze pensions and not accrue any more after a certain date. In DH's case, his pension wasn't frozen. I think that freezing is more appropriate for people who have been there awhile but not those late in the career.

I do also agree that some people can do better investing the money themselves. However, I also think that the reality is that most people don't do better when given the choice to contribute to retirement plans versus receiving a traditional pension. Many people are just not going to contribute to the plan at all, or won't contribute enough, or are going to make bad investment choices. The thing about a traditional pension plan is that it is pretty painless. You don't have to do anything. You could paid $X and you get the pension if you stay a certain amount of time. It isn't like you would get paid a higher salary if you said you didn't want a pension. Essentially people are saved from themselves. It might be better for you personally to be paid more money and invest your money for retirement. But, for employees as a group I think they they as a group will end up with more retirement income with a traditional pension.

 

[Mulligan]

I am not suggesting that the pension be pulled out from under them at the end of their career.... if they are there... then the pension they have earned to date should be honored... all of it...

But, say that I started to work at a job on Sept 30th... and on Oct 1st they changed the pension plan.... should I not have my pension plan changed just because I was 'promised' something better Sure, this is the extreme case... but I STARTED on the old pension plan and they should not pull the rug out from under me!!!! So, back it up one year.... can we change that person 5 years? 10 years? Where do we stop

That is why you make a change for everybody going forward.... again.. it changes NOTHING on what the person has already earned.... in the end, the long time employee should still be OK since he/she has a good number of years under the old pension....

As my post above says, I am not for making people who currently receive a pension take it on the chin.... heck, even someone with many years under a current system might not get hit that hard with any change... I think that when someone puts a post down like I did they just jump to the opinion that we should just stop paying out pensions at all.... NO, that is not what I said or would want...

The other thing that some people don't seem to get is that if you can control the money, you have a decent chance of actually having MORE money than the pension (that is, unless the pension is SO good that it should not be there anyhow).... why just jump to the conclusion that the employee would be destitute

I can only go with my experiences and who I know. But I don't know anyone who is retired or about to who have worked in our system that wouldn't be destitute shortly without their pension. All through our working lives in our system they clearly told you, that if you worked your 30 years, your take home retirement pay would equal your working check. 11 to now 14.5% was taken out and matched by employer over the career. Most people never really saved as that was what your pension contribution was for. Plus with no SS, and WEP even if you did, the pension was/is the retirement for most. Just to clarify, Texas, I am in agreement with you and never thought you were implying pensions should be cut. Being on this forum and reading about recent events concerning pension troubles have definitely opened my eyes, but I am past the point of doing anything about it except save a few extra bones and hope the system doesn't fail!

 

[Chuckanut]

Ideally, we would find a way to make pensions portable and protect what is earned from problems and decisions beyond the control of the worker. Until that time comes, the best thing is for the worker to get the cash and make one's own pension.

 

[Fermion]

On the other side of the argument, the money to replace what was not saved by the pensioner and entity they work for has to come from someone else. We don't know their situation either. Some bonds might have been held in a account that someone is relying on for retirement. A person with a small 401K or just SS might not be able to handle an increase in real estate taxes so that pensioners can be made completely whole. Fairness has to work both ways.

 

[steelyman]

Hmmm. The "entity they worked for" may have not saved, while the pensioners did (no choice).

 

[Fermion]

Hmmm. The "entity they worked for" may have not saved, while the pensioners did (no choice).

Certainly in some cases, although I question if enough was actually saved by either party. I think a common amount for a 401K match is 6% by the employee and a 3% or 6% match by the employer. This will not buy you a decent annuity at the end of 30 years of service for the company assuming a real return of 5% on your investments.

If the pension only required a similar amount from the pensioner, then it could be the plan was flawed from the start.

What did a typical pension take out of pay on the pensioner side? Was it something around 6% or closer to a realistic number, like 15%?

Ok I see a previous post that said 11% to 14.5% was the contribution amount, so this is getting more reasonable. It still doesn't compare to a person who saves 15% in a 401K and a further 6.4% in SS, ie 21.4%, which is almost double the lower end of the amount taken out of the pensioner paycheck.

 

[steelyman]

More than 6%.

Edit: there may be a confusion between "pension" and retirement account (like 401K). There was no match on the retirement account but contributions to be made on the pension plan. That's the issue.

 

[Fermion]

More than 6%. No match.

No match? The only money that has gone into the pension system is by the pensioners? Well there is your problem. Seems like there should have been a strike 20 or 30 years ago to fix this.

 

[steelyman]

I was incorrect/inexact in my prior post and have edited it.

 

[steelyman]

Here's my "takeaway" for the Young Dreamers out there: do fund your 401(k)s to the max and listen to the advice you find at places like here. I saved a stupid amount (like 50%) the last few years I was working and that's the reason I am annoyed (and not freaking out) over things like pensions. That money is yours and under your control.

Start saving now if you possibly can.

 

[samclem]

Ideally, we would find a way to make pensions portable and protect what is earned from problems and decisions beyond the control of the worker. Until that time comes, the best thing is for the worker to get the cash and make one's own pension.

Yep. Fully fund your 401K, take it with you as you move around, be sure to factor in the generosity of any employer match when selecting an employer, and if you want a monthly check, buy an annuity when you stop working. Make your own pension.

 

[pb4uski]

Ideally, we would find a way to make pensions portable and protect what is earned from problems and decisions beyond the control of the worker. ....

Yes, it is called a defined contribution plan. It is portable (you can roll it into your IRA after you terminate). It is protected from problems and decisions beyond the control of the worker because the worker controls it.

Now if we could just get people to make contributions to it and not treat it as a kitty for cars, boats, vacations, etc.......

 

[Walt34]

Now if we could just get people to make contributions to it and not treat it as a kitty for cars, boats, vacations, etc.......

That is a huge issue for a lot of people. Every time some "crisis" comes up the only source of money they have is the 401(k) or whatever other funds they can get their hands on. My older sister used to manage a 457 account for a DC area county and that was a frequent occurrence that she spent a lot of time trying to talk people out of doing.

One young guy she worked with she had to almost literally drag him by the scruff of the neck down to the HR office to get him signed up for the company's 401(k). His prior retirement plan? "Win the lottery."

I suspect it will take an entire generation of people retiring with nothing but SS, or not even that, to get the generation behind them on board with planning for their own retirement.