Corporate Retirements and Healthcare

[MichaelB]

As part of the Cadbury acquisition they already promised to keep open a plant in Bristol only to renege after the agreement. Then, a couple of days ago,

Irene Rosenfeld, Kraft Foods chief executive, was given a 41 per cent pay rise last year to $26.3m for services that included “exceptional” leadership in the takeover of Cadbury, the UK chocolate maker, Kraft said in a filing on Tuesday.

.
All this in the FT - I've not seen much in US financial press. I'd comment further but I can't think of anything that's not excessively cynical.

 

[ziggy29]

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

If they hung a help wanted sign out which offered a 25% pay cut and no retirement benefits and still got way more qualified applicants than available positions, I'd say the reduced compensation was still a "fair deal" based on the labor market. Supply and demand determine what the "fair deal" is -- what employers are willing to pay and what prospective employees are willing to accept. And there wouldn't be huge attrition problems down the road as long as they monitored the labor market to make sure their overall compensation package was competitive; there wouldn't be too many "greener pastures" to jump to.

Like it or not, global competition in the private sector is here to stay, and the winners will be the ones (with relatively stable governments) that can produce acceptable quality at the lowest price. That will inevitably produce downward pressure on wage growth. And the more we see our wages squeezed and not keeping up with inflation, the more we'll have to seek out the low-cost providers. Lather, rinse, repeat. I don't like it either, but I can't change it. Global economics are here to stay.

And it's not a good deal for labor in the "developed world," I agree -- but economic reality nevertheless. After all, if the "fair deal" quoted in the article meant pricing your product too high for the market to accept, all those workers would get a "fair deal" -- and a ticket to the unemployment line when lower-cost competition killed them in the marketplace.

 

[ERD50]

Zarathu
1. I prefer to listen to people's stories rather than look for dry facts...

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. ...

Great post clifp. I'll see Zarathu's point just a bit though, and I'll agree that stories are great... but only to illustrate the 'dry data' that was presented.

IOW, if we determine through 'dry data', that 10% of people fall into category A, 20% into category B, and 70% into C, it can really help to get a couple stories from each group to illustrate what it is like to be an A, B or C person. But if you get six stories, it tells you nothing about the distribution of those groups. Especially self-selected stories.

So, Z's request is really only about getting stories about various people's pension experience, and no conclusion or even inference can be drawn from that whatsoever. So, 'dry date' first and foremost, then stories to add some 'color' and connections.

Drifting a bit here, but I feel this is a big problem with our political system and the media - they trot out a poignant 'story', and then want to create legislation (and/or influence public opinion, much the same thing) based on stories rather than 'dry facts'. That has a high probability to end badly - in fact, people are being killed by these bad decisions. But often, a single 'story' of anguish connects with people much more than the statistics that show that the proposed action will result in more deaths than inaction, because you can't put a weeping 'statistic' (dry facts) on the evening news, or have them present to Congress. But the resultant deaths are just as real. Read one of the Freakonomics books for examples.

Now I hate stories


edit/add re: Cadbury - it's not like 3 year pay freezes (or even cuts) ar uncommon today. Not sure that is really such a big story, all things considered. What if they did it for other than pension reasons. Same result, no big deal?
-ERD50

 

[utrecht]

My point was that the statement made it sound like giving people a fair deal was a bad thing. They said it was an unusual clause that may be related to a history of giving a fair deal. "Fair deal" is relative. A fair deal today may be different than a fair deal tomorrow, but a "fair deal" is always a good thing and should not be unusual.

 

[ERD50]

... but a "fair deal" is always a good thing and should not be unusual.

Depends who it is fair to. I bet the UAW workers felt they were getting a 'fair deal' with their benefits package - after all, assembly line work is hard and tedious and boring. But do the taxpayers bailing them out, or paying higher prices for cars feel they are getting a 'fair deal'?

I think the best arbitrator of what is 'fair' is - whatever the market will bear.

-ERD50

 

[utrecht]

Using the word "fair" means that all parties got a good deal. We all know that the UAW is overpaid for what they do. That's not fair, even though I'm sure the UAW is happy.

You're correct, "fair" is whatever the market will bear which is why I said a fair deal today be be different than a fair deal tomorrow. The article didn't say that Cadbury had a history of overpaying its workers. It said they had a history of giving them a fair deal. Im not sure why we are debating this. The world would be a great place if everyone got a fair deal and it should not be unusual to be fair to everyone.

 

[ERD50]

I'm not sure why we are debating this.

Because (emphasis mine)....

We all know that the UAW is overpaid for what they do.

I think some (many, most?) UAW members would disagree with that. I don't see them lining up to give back anything, just to be 'fair'. So it gets debated.

-ERD50

 

[Emeritus]

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.

With all due respect, your first comment is incorrect and your second is misleading.
1) Corporations would cut costs and eliminate pensions even if all the money flowed directly into the owner's pockets. Corporations maximize profits. Some have a short term some have a long term focus. However, they do need people. Corporations don't make product, people do.

2) Government work varies all over the lot. In my own area, academia , Professors run their operations as a business. Some have as many as 10 or 15 employees, and pay ratable shares of even more. Tax dollars pay only a fraction of the costs. No customers or no research grants, no jobs. Our pricing model is directly related to the competition.

There are always inefficiencies, in both areas. And in both areas there are practices which are indefensible

 

[Emeritus]

Using the word "fair" means that all parties got a good deal. We all know that the UAW is overpaid for what they do. That's not fair, even though I'm sure the UAW is happy.

You're correct, "fair" is whatever the market will bear which is why I said a fair deal today be be different than a fair deal tomorrow. The article didn't say that Cadbury had a history of overpaying its workers. It said they had a history of giving them a fair deal. Im not sure why we are debating this. The world would be a great place if everyone got a fair deal and it should not be unusual to be fair to everyone.

I beg to differ, at least on terminology. Market mechanisms are designed to provide "efficiency". Fairness is something else. Fairness is a sociopolitical judgment about what kind of society we want to live in. . "Fairness" is everyone in the USA paying the same postage, whatever it actually costs to handle the mail. Fairness is handicapped parking spaces, prohibition of discrimination, and veterans preferences. Fairness is saying that the sickest, not the richest get organs for transplant.
Some scholars use the word "equity" to describe the process of adjusting rights to make them more fair. The trade off of efficiency and equity is always complex and often messy. But they are not the same

 

[Lazarus]

I beg to differ, at least on terminology. Market mechanisms are designed to provide "efficiency". Fairness is something else. Fairness is a sociopolitical judgment about what kind of society we want to live in. . "Fairness" is everyone in the USA paying the same postage, whatever it actually costs to handle the mail. Fairness is handicapped parking spaces, prohibition of discrimination, and veterans preferences. Fairness is saying that the sickest, not the richest get organs for transplant.
Some scholars use the word "equity" to describe the process of adjusting rights to make them more fair. The trade off of efficiency and equity is always complex and often messy. But they are not the same

Great comment! Sums up the Conservative Liberal argument quite well. Never simple black and white.

 

[ERD50]

I beg to differ, at least on terminology. Market mechanisms are designed to provide "efficiency". Fairness is something else. Fairness is a sociopolitical judgment about what kind of society we want to live in.

Interesting, but the problem I see is that 'fairness' of that sort is in the eye of the beholder. People are unlikely to agree on what 'fair' is.

OTOH, in a free market, the two people making the deal both decide that it is 'fair', or they walk away. Even if one or the other doesn't like the price, they really can't claim it isn't fair.

"Fairness" is everyone in the USA paying the same postage, whatever it actually costs to handle the mail.

So there's an example. I'm not sure it is fair. Maybe at one time it was considered essential to populate the territories (that we stole from the Natives - talk about fair!), and maybe there was no easy way to charge different rates and still handle the volume. But I could reasonably claim that if you choose to live in the middle of nowhere, you can carry the extra weight for a mail truck making an out-of-the way delivery.

I don't think UPS or FedEx is 'unfair' to charge by distance - why should I pay the cost of coast-to-coast packages for a local delivery? And if any of those prices seem 'unfair', I can deliver it myself - ooops, they suddenly seem 'fair'!

-ERD50

 

[FIREd]

DW and I are 35. We have never worked for an employer who offered any type of retirement benefit beyond a 401K match (and we did work for some fairly large companies). Except for BIL who is in the USAF, I don't know of anyone under the age of 45 who will receive a pension and/or retirement healthcare.

 

[MichaelB]

Looks like AT&T is back in the news

AT&T Inc. is seeking to dismiss a long-running pension case alleging age discrimination that seeks $2.3 billion in damages, according to documents filed this week in a federal court.
[FONT=&quot]The suit alleges a 1998 pension change effectively froze the pensions of 40,000 older management employees at AT&T, in some cases for years, but not those of younger employees. AT&T said the pension didn't discriminate against older workers. [/FONT]
[FONT=&quot]AT&T, now led by CEO Randall Stephenson, says it has no added liabilities from 1998 pension-plan changes.[/FONT]
[FONT=&quot]"We believe the conversion to our cash balance plan was appropriate and in accordance with all legal obligations," said AT&T spokesman Mark Siegel. "We believe our filing speaks for itself in explaining why we have no additional liabilities to these retirees." [/FONT]
[FONT=&quot]The suit, filed in 1998, has received little attention despite the number of plaintiffs—24,000 current and former employees—and the size of the potential damages, one of the largest ever in pension litigation. Legal papers filed Monday in federal court in Newark, N.J., include the first publicly disclosed estimate for potential damages. [/FONT]
[FONT=&quot]The $2.3 billion potential claim dwarfs the well-publicized $1 billion noncash charge the company will take to reflect the recent loss of its deductions for health-care subsidies it receives from the government. AT&T Asks to Dismiss Pension Suit - WSJ.com [/FONT]

 

[huusom]

I plan to retire in 2014 from a small company I worked for the last 9 nine years. Prior to that, I worked 20 years a medium size companies. Neither one offered 401K matching, early retirement healthcare insurance or any pensions. My brother in-law and some of my friends work for local school systems and they all get pensions and good health care and they both make more money than I do for doing the same kind of work (IT).

The reason I'm able to retire early because I saved every dime I can for the last 35 years and I'm just sicked and tired of my job.

So don't get me started about how little public employees are getting.

 

[Emeritus]

I plan to retire in 2014 from a small company I worked for the last 9 nine years. Prior to that, I worked 20 years a medium size companies. Neither one offered 401K matching, early retirement healthcare insurance or any pensions. My brother in-law and some of my friends work for local school systems and they all get pensions and good health care and they both make more money than I do for doing the same kind of work (IT).

The reason I'm able to retire early because I saved every dime I can for the last 35 years and I'm just sicked and tired of my job.

So don't get me started about how little public employees are getting.

Ok so you did exactly the same work for less pay for employers who gave you no incentive to stay . Why?

 

[Emeritus]

Interesting, but the problem I see is that 'fairness' of that sort is in the eye of the beholder. People are unlikely to agree on what 'fair' is.


-ERD50

Sure. We don't have to agree on what is fair. We have to agree on a political system that makes decisions about what is fair. Fairness is part of a political process, not a rule people necessarily agree on . As another example
We charge all the in-state undergraduates the same tuition regardless of Major.

Social Security has many features that were introduced to promote an idea of fairness. So do many other government programs.

 

[huusom]

Ok so you did exactly the same work for less pay for employers who gave you no incentive to stay . Why?

Because for years I beleived in the all the BS about how little government workers are getting until I started thinking about retirement about five years ago. It's funny that you asked about why I did not quit and go work for the government? At my age, I'm lucky that I still have a job.

 

[Emeritus]

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.

.

This is a common mistake often promoted by anti social security websites .
They are confusing the life expectancy at birth with the life expectancy of a retiring worker. Infant moratlity has been the big killer over the last 120 years
As just one example, in my extended Irish American family I only have a single relative born after 1880 who survived to age 18 who died of natural causes before age 75. (influenza epidemic) My grandparents who were in the first social security era died in their 80s and 90s. My wife's grandparents all lived to be at least 72
There are lots of studies of military pensioners from the civil war onward with similar results
A 65 year old male had a life expectancy of about 10 years in 1935, and about 14 years today
Since Social security provided spousal pensions and wives were typically younger the percent collecting was expected to be high.

 

[DeborahB]

This is a common mistake often promoted by anti social security websites .
They are confusing the life expectancy at birth with the life expectancy of a retiring worker. Infant moratlity has been the big killer over the last 120 years
As just one example, in my extended Irish American family I only have a single relative born after 1880 who survived to age 18 who died of natural causes before age 75. (influenza epidemic) My grandparents who were in the first social security era died in their 80s and 90s. My wife's grandparents all lived to be at least 72
There are lots of studies of military pensioners from the civil war onward with similar results
A 65 year old male had a life expectancy of about 10 years in 1935, and about 14 years today
Since Social security provided spousal pensions and wives were typically younger the percent collecting was expected to be high.

That is VERY interesting info! I believed the hype that SS was started and the average life expectancy was 66 or 67 (thus the 65 retirement age). I too had grandparents born in the 1890s who lived to be anywhere from late 60s to age 99 in one case. Their siblings seemed to have similar life expectancies. And these were mostly immigrant kids who came to the US as young children.

My parents born in the early 1920s - my mother died at 85, my father is still alive and well at 89.

Thanks!

 

[youbet]

This is a common mistake often promoted by anti social security websites .
They are confusing the life expectancy at birth with the life expectancy of a retiring worker. Infant moratlity has been the big killer over the last 120 years
As just one example, in my extended Irish American family I only have a single relative born after 1880 who survived to age 18 who died of natural causes before age 75. (influenza epidemic) My grandparents who were in the first social security era died in their 80s and 90s. My wife's grandparents all lived to be at least 72
There are lots of studies of military pensioners from the civil war onward with similar results
A 65 year old male had a life expectancy of about 10 years in 1935, and about 14 years today
Since Social security provided spousal pensions and wives were typically younger the percent collecting was expected to be high.

I think you're wrong. Despite your anecdotal examples, our gov't says that, on average, people are collecting SS for longer periods today than ever before. And that this is one of the reasons the system is financially strained today.

 

[samclem]

This is a common mistake often promoted by anti social security websites .
They are confusing the life expectancy at birth with the life expectancy of a retiring worker. Infant moratlity has been the big killer over the last 120 years

All, true, but also not the whole story. In the early years, many more people paid into the system but still died short of collecting a penny from SS.
Among the cohort of males who would have reached their 65th birthday in 1940, 46% had died between the ages of 21 and 65. For women, the percentage was 39%. By 1990, the percentage of males who died between their 21st birthday and age 65 had declined to just 28%, and for women it was only 17%. So, it wasn't just that people who reached 65 years old were living longer (and they are), but there truly were a lot more people who actually got to collect on Social Security rather than paying in and getting nothing.
Source: SS Administration

Another reason it is going broke is that disability payments and other payouts were added to the system after it was established. Why not--they had plenty of money pouring in! Gotta spend it!

 

[Emeritus]

Widows and orphans also got Social Security. That is part of the insurance component. I buy 20 year term insurance if I survive the term does that mean I paid in and got nothing? or did I have insurance for 20 years??

 

[samclem]

I buy 20 year term insurance if I survive the term does that mean I paid in and got nothing?

In this case you and an insurance company entered into a voluntary agreement you believed was mutually beneficial, so we can only assume that you believed you got what you paid for.

Since SS is not a voluntary agreement, there's truly no way for an external observer to ascertain whether you got anything you believed was worthwhile.

That's the difference between a market and a mandate.

 

[Emeritus]

In this case you and an insurance company entered into a voluntary agreement you believed was mutually beneficial, so we can only assume that you believed you got what you paid for.

Since SS is not a voluntary agreement, there's truly no way for an external observer to ascertain whether you got anything you believed was worthwhile.

That's the difference between a market and a mandate.

Ok so compulsory auto or workers compensation insurance is worthless? Free public schools are worthless? Fire and police departments are worthless?
How about inheritances ? They were not bargained for. Are they worthless?

You are confusing the ease with which we establish a value with the existence of a value. They are not the same thing.

 

[samclem]

Where are those free public schools?