Corporate Retirements and Healthcare

[HsiaoChu]

You sure had me fooled. Is it still yesterday?

You see what you wanna see. I'm only interested in people's stories.

 

[MichaelB]

Thanks everyone for the answers. It was as I suspected, but I wasn't totally sure.

I have to admit, I missed something and am not exactly sure what this thread was about or what you suspected.

 

[HsiaoChu]

I have to admit, I missed something and am not exactly sure what this thread was about or what you suspected.

OK..... let me try again.

1. I prefer to listen to people's stories rather than look for dry facts on the internet(which I am really good at doing).

2. I've spent my career listening to people describe their lives and I prefer stories to dry facts.

3. While I have always known that I had a super pension, it was only recently that I have heard(because I never looked at it because I have other things that are not of a financial nature occupying my life) the pension that my FIL got and that my SIL will get, and that my cousins will get from their Mega-corp is not what is being currently offered in most places.

4. I was looking for stories herein to affirm or deny what I've been hearing elsewhere.

5. I have always looked for stories. I cannot help it if I am usually clueless about financial matters and that many people here have spent their lives dealing with every little penny. I didn't have to. I had an unusual and state law secure pension plan. It was just never part of my existence; though I know that my FIL never understood how it couldn't be. I don't know much about RMD, IRA's, 401K's or any of that other financial planning jargon; it was never necessary for me to know about those things.

6. Just because people here don't understand how could not not think like they do, doesn't mean that I don't think like they do. I do not think in any kind of financial way because I never needed to beyond rudimentary stuff of making a living. Sorry if you financially oriented people are not like me. My SIL and FIL never understood either.

7. I enjoyed the response about this issue showing that indeed, the people I know in megacorp also have exceptional pensions and health care, and that this IS NOT THE CURRENT NORM. I DID NOT ENJOY THOSE PEOPLE WHO attacked me for not knowing about the state of current pension plans int he mega corp world until just now.

'Nuff Said.

Z

 

[travelover]

When you are in the bottom of a hole, quit digging..............

 

[HsiaoChu]

I guess I should stay out of this forum. People here just won't believe my motives.

 

[ERD50]

Zarathu, if you don't want some of the responses you got here, I'd suggest that you just ask the straight question without coloring it with comments like:

... who dutifully educated their youngins and in the early years made very little money to do it ...

A comment like that strikes me as self-serving and 'holier-than-thou'. So it doesn't get the thread off to a neutral start. You should not be surprised that it makes people want to throw a little color into their responses.

What makes educators any more 'special' than anyone else? Sure, the work they do is important, but is it any more important than the doctor who operates on a child, or the receptionist that coordinated the OR schedule, or the entrepreneur who started a business providing the medical tools that the doctor used in the operation, or the engineers that designed the electronic medical monitors, or the gal that fixed the brakes on the school bus, or the guy on the assembly line that made the bus, etc, etc?

It is the line of work that they chose with the compensation package that was offered. So don't 'complain' about the supposed low pay. We all make choices. And don't try to inflate your importance. We all have a job to do.

Now, if you volunteered and did it for free, OK, I'll salute you. But when I see what went on in our school district, with teachers (or at least their Union), unwilling to give even a fraction of an inch to help the kids, I'm not accepting the broad-brush that it is such an angelic profession (though there are many angels, and devils too).

There are good/bad apples in every bunch. Google "new york teachers union rubber room" to take a little polish off that apple. But please don't comment in this thread, we are already too far off topic.

So, back on topic - no public sector employees reporting cuts to their pensions?

-ERD50

 

[MichaelB]

I guess I should stay out of this forum. People here just won't believe my motives.

It's not the motives. Your clarification didn't clarify.

I know you believe you understand what you think I said,
but I'm not sure you realize that what you heard is not what I meant.
S.I.Hiyakawa

I didn't say that I didn't say it.
I said that I didn't say that I said it.
I want to make that very clear.
George Romney

 

[ERD50]

Z, I missed the flurry of posts before I hit submit. Allow me to turn it around to a positive example, rather than a negative. If you had worded your post something like this:

--------------------------------------------------------------------------------
I have a question about retirement benefits in the private sector. I have been in the public sector for 40 years, and most of the people I associate with are in the public sector, so I am pretty unaware of what the typical benefits package in the private sector looks like. I understand that in general, the public sector benefits are considered to be very good. Can you share your stories for comparison? Both current retirees, and new hires?

-hypothetically yours, Z
--------------------------------------------------------------------------------

I think you would have got straight responses, and would have been justified in calling out any judgmental/attitude responses. But you didn't. And we are left to wonder why.

-ERD50

 

[chemist]

My Megacorp eliminated the DB plan for all new hires after December 2004.

Current employees had a one time chance to stay in the old DB plan or move to a plan which offered an enhanced 401(k) company contribution.

They eliminated retiree health care at the same time for all employees who were not at least 40 years old on that date.

They capped the retiree health care contribution at $7000 per employee - when retirees as a class exceed that the excess gets added on to everyone's premiums.

I would not be able to retire this year without retiree health care and the DB plan. I feel sorry for younger workers, they are going to have to save 20%+ of their incomes annually and even then probably work to 60 or later.

 

[HsiaoChu]

ERD 50 says what I was trying to say:

"I have a question about retirement benefits in the private sector. I have been in the public sector for 40 years, and most of the people I associate with are in the public sector, so I am pretty unaware of what the typical benefits package in the private sector looks like. I understand that in general, the public sector benefits are considered to be very good. Can you share your stories for comparison? Both current retirees, and new hires?"

Sometimes I don't say what I want to say. I won't go into all the other stuff which is not related to the question. I simply don't understand why my motives are being questioned over and over again. I do know that the business of education is extremely different than business and industry. People who come from those areas and have gone into education always say that they couldn't believe how unprepared they were for the differences. Maybe this is the heart of my not being able to communicate, but its not related directly to the question, which is what ERD50 formulated above.

ERD50 has written the essential kernal of my question. Maybe people could respond to that and not to stuff that I just don't see in my posts that everyone else is reading in.

Z

 

[donheff]

I say give Zarathu the benefit of the doubt and assume the intended question is as ERD phrases it. But Z - be careful how you respond to comments responding to the ERD wording or you will catapult us back into rancor

 

[MichaelB]

"I have a question about retirement benefits in the private sector. I have been in the public sector for 40 years, and most of the people I associate with are in the public sector, so I am pretty unaware of what the typical benefits package in the private sector looks like. I understand that in general, the public sector benefits are considered to be very good. Can you share your stories for comparison? Both current retirees, and new hires?" Z

Z, your post is much clearer.

The corporate sector has moved quite strongly into limiting future liabilities and containing current labor costs. Future pension liabilities have been reduced by moving from defined benefit to defined contribution. Current labor costs are contained by introducing less comprehensive health care plans, increasing copays and deductibles, and limiting the employer contribution. So new arrivals to the corporate world can expect self financed and directed pension with corporate contributions but no liability along with health care which is less comprehensive and growing in employee contribution.

I would be surprised if the public sector did not move strongly in this direction soon.

Now, do you have any specific questions?

 

[check6]

I retired two years ago from a mega corp with a non cola DB that was frozen five years before retiring. At the time it was based on 60% of your final average earnings for the previous five years. Unfortunately we took a 40% pay cut for four years prior to retiring to prevent the company from going BK. It went BK anyway but is now out and merged with another company. My DB now is $2K/mth less than planned. We pay 50% of the medical.

Company has switched to a partial DB and DC plan. Any new hires will be under a DC plan.

 

[unclemick]

I went 12 years without health insurance and an up to date American passport. But I was layed off(jan 93) at age 49 and had a seriously bad attitude. Too cheap and too mean to get sick.

Interestingly by age 62 after moving to Missouri I could afford BC/BS - all praise to Bogle's 'policy portfolio' and Mr Market in the 90's.

? Dumb Luck ? Don't know but it I made it - paying COBRA would have caused me to sin - by getting a job.

heh heh heh - not recommended for anyone else - plus she(SO) had medical under her UAW union pension.

 

[Midpack]

My story - after 17 years of service, all of our Fortune 500 MegaCorp employee pensions were frozen in 1994. ALL retiree health care was eliminated in 2001. However, it was a blessing in disguise, as it made me provide for myself - and I'm much better off as a result. YMMV

Traditional pensions that pay out guaranteed benefits for life aren't easy to come by these days, as most employers have long since abandoned their traditional pension plans in favor of 401(k)'s.


Public service. Local, state, and federal government positions are the most likely to come with top-notch retirement benefits. Approximately 80 percent of state and local government workers had access to a traditional pension as of September 2007, according to the Bureau of Labor Statistics.

Large, private companies. Pensions are much more difficult—but not impossible—to find in the private sector. Although only 21 percent of all private-sector workers were offered traditional pensions in 2007, employees at large, financially sound companies may still get guaranteed retirement payouts for the rest of their lives. Some 34 percent of companies with 100 workers or more offered a traditional pension in 2007, while only 9 percent of firms with fewer than 100 workers did, according to the Bureau of Labor Statistics.

The number of employers providing pensions continues to decline every year.

In the past, retirees could often count on their employers to provide health insurance until Medicare kicked in, or sometimes even after they were eligible for Medicare. But in 2007, only a third of large employers offered retiree health insurance, down from 66% in 1988, according to a survey by the Kaiser Family Foundation and the Health Research & Education Trust. Only 5% of employers with fewer than 200 employees offered retiree health insurance last year.

Those companies that continue to provide retiree health insurance are reducing benefits or requiring retirees to pay more for their coverage.

The millions who will retire early without company-provided health insurance may need to buy a health care policy to last them until Medicare kicks in at age 65. Unfortunately, individual policies for people in their 60s can be hugely expensive, with premiums topping $900 a month for family coverage. And those in poor health might be unable to find a policy at any price.

Jobs That Still Offer Traditional Pensions - US News and World Report
Early retirees try to fill gap in health coverage - USATODAY.com

 

[chinaco]

My MegaCorp has a pretty good DB pension. They also offer healthcare benefits to retirees. But the Premium cost for health benefits is fairly expensive and the benefits offered are getting more restrictive. Still, it is better than going it alone. DW's MegaCorp has better healthcare benefits at a much lower cost.

 

[clifp]

My Megacorp had a DB, but it was pretty minimal. It did have a rather generous profit sharing which went into a 401K-like pension plan, employees were eligible for the higher of the DB plan or profit sharing plan. Most years I was there the contribution was 12.5% but there were years it was 0%. Health care for retiree was offered but not subsidized and not a great deal. I maxed out my 401K the whole time I was there. Although in truth what let me retire early was the lucrative stock options.

 

[mb]

My current Megacorp:

Current 60+ retirees with 30+ years of service: Pretty generous (non-cola) defined benefit pension plan and retiree health care until 65

New hires: No defined benefit pension plan, no retiree health care

DWs old Megacorp: same as above

I don't think that any of the new generation of Megacorps (e.g. Microsofts, etc.) have a defined benefit retirement plan.

I don't think that it is an exaggeration to say the the corporate defined benefit retirement plan is going the the way of the buggy whip.

 

[ziggy29]

I don't think that it is an exaggeration to say the the corporate defined benefit retirement plan is going the the way of the buggy whip.

Which makes sense if you think about it, because private corporations have to worry about competition. And if the competition can cut costs and pass that on to their customers, they will get a huge advantage over you. So you have no choice but to also eliminate pensions and retiree health insurance otherwise your products and services will be priced out of the market.

Government work doesn't usually have that dynamic. There is usually no "competition" that you have to worry about undercutting your cost structure. You just continue to use the power to tax and hope the people don't eventually go into "tax revolt" mode.

 

[samclem]

I don't think that it is an exaggeration to say the the corporate defined benefit retirement plan is going the the way of the buggy whip.

As globalization and competition continues, a lot of retires in the coming decades will probably be happy they've got DC rather than DB plans. If I've got a pile of 401K money, I can choose a solid insurance company and convert it into an annuity. Or I can trust in my own ability to invest the money for my benefit. If instead I only have a promise from a shaky company to pay monthly benefits for decades to come, I'm in a worse position and have little control over my fate.

 

[clifp]

OK..... let me try again.

1. I prefer to listen to people's stories rather than look for dry facts on the internet(which I am really good at doing).

2. I've spent my career listening to people describe their lives and I prefer stories to dry facts.



Z

Ok you and I are opposite ends of the spectrum. I'm a data guy and often remind people that plural of anecdote is not data. I gave my Megacorp story above.

But to me the interesting story about retirement is what happens to the average Joe. So let me tell my pretty well researched but greatly abbreviated history of retirement in the US.

The first thing I should say is that this story never applied to rich people, and starting in early years in the 20th century didn't apply to government workers, thanks to in large part to pension plans put in place by Bismarck in Germany for civil servants and widely copied.

1776-1935: You work until you died or got too sick to work. If you were sick your kids, spouse, or rarely your neighbors took care of you.
1935-1955. Social security entered the picture. It was cleverly designed to kick at 65 a couple years past the life expectancy of the average male. Meaning many people never collected anything. SSN provide a safety net but that was it, family took care of most retires for the few remaining years.
1955-1985: The golden age of pensions. Most large corporations (but by no means all) started defined benefits.

The truth was the golden age of pension that people remember wasn't all that golden. Initially most pension plans were designed as golden handcuffs to retain employees.Meaning you had to work for 20-25 years to qualify for them leaving early meant you got nothing. In general for the up until the 70s pension pretty much were limited to 65 or some cases 62. Then as now some prominent companies went broke leaving their retire employees with nothing. The PBGC came along in 1975 to provide some pension coverage for retirees of bankrupt companies.

The most important thing to understand about the American worker force, is most people don't work for the government, or a large corporation. Most American work for small and medium companies or themselves. Very few medium and virtually no small corporations offered pension plans. I estimate that at the peak no more than 1/3 of private employees were every covered by a pension plan, probably no more than 1/4 were vested in them.

1985 to present: The rise of the 401k. Although many people complain about 401K and defined contribution plans especially compared to a DB plan, the reality is prior to the 401K and IRAs most American had no retirement plan at all. Starting in the mid 80s many companies froze their pension (much like the stories that have been posted) and phased out the plan for new employees. In some cases, employers forced employees to convert to a defined contribution plans (which generally were unfavorable to the employee)

As we have seen in countless stories about 1/2 of American don't have any retirement savings. Now there lots of reasons behind this, but one which gets over looked a lot is this; plenty of workplaces have no retirement plan period. People do have the options for various types of IRAs, but it takes a level of financially sophistication/planning which sadly a lot of people don't posses to proactively open one of these accounts.

It seems to me Zarthas the more important stories are the ones you are NOT hearing, cause the thought of early retirement isn't even a dream for many of folks. I wager for every well do retiree from a megacorps like myself, who complains about the overly generous pension of state, local employee, there are at least 10 folks who have no clue how they will retire. They are understandably upset when public employees fight every attempt to reign in the pension costs cause they know it will be their taxes funding somebody else pension and they are getting no help.

 

[MichaelB]

From this morning's FT

More than 3,000 Cadbury employees face a three-year pay freeze unless they opt out of the confectioner's final salary pension scheme.
New owners Kraft Foods, the US food group, has told 3,600 staff that they must accept a pay cap after it discovered an obscure clause in Cadbury's pension trust deed that makes it almost impossible to close the scheme.
Kraft did not know about the clause, which is at least 30 years old, until after it acquired Cadbury for £11.6bn ($17.6bn) .
A person with knowledge of the Cadbury pension fund said he did not know why such an unusual clause existed, but it could be linked to Cadbury's Quaker heritage and its doctrine of giving a fair deal to staff and suppliers.
Kraft is forcing Cadbury employees to accept a pay freeze because it believes that this is the only way it will be able to get its future retirement costs under control.
"The scheme is unaffordable going forward," said one person involved.
The trust deed clause prevents Kraft from changing benefits to members in any way that is "unfair or materially detrimental" in the opinion of the scheme actuary.

I don't believe the part that Kraft didn't know - they are far too experienced in buyouts to not see unfunded pension cost, especially in the UK.

 

[ziggy29]

I don't believe the part that Kraft didn't know - they are far too experienced in buyouts to not see unfunded pension cost, especially in the UK.

If they didn't know this, then their executives that led the acquisition and the legal team that worked on it should all be fired.

 

[utrecht]

"A person with knowledge of the Cadbury pension fund said he did not know why such an unusual clause existed, but it could be linked to Cadbury's Quaker heritage and its doctrine of giving a fair deal to staff and suppliers."

Cadbury had a history of giving a fair deal to staff and suppliers? BLASPHEMY!!!!!

 

[IndependentlyPoor]

From this morning's FT

I don't believe the part that Kraft didn't know - they are far too experienced in buyouts to not see unfunded pension cost, especially in the UK.

I don't believe it either, but also don't forget that Volkswagon purchased Rolls Royce only to discover that the brand name was not part of the deal. Those crafty Brits then sold the Rolls brand name to BMW.