I'm watching Frontline now and am already POed!!

[astromeria]

Guess I was lucky not to have a pension to disappoint me and barely any 401k match (0 at my last job and 1.5% of salary at my best)--so I knew I was on my own.

I saw the show and agree the picture was incomplete and focused too much on big employers--don't at least half of Americans work for smaller companies that never had pensions or canceled them decades ago? Anyhow, the canceling of worker pensions while maintaining executive deferred compensation is accurate and important and makes me spitting mad (hmm, but not angry enough to want to tax my savings to make up for someone else's loss of pension when I don't even have one myself--we should heavily tax executive deferred compansation plans to shore up PBGC!).

The difference in outcomes between workers with and without investment knowledge was a great point. They should also have mentioned the huge disparities in uality of plans, too. And the conclusion that the average Joe/Jane needs help to invest properly is correct (yes yes, we are all above average here-). IMO, they should also have discussed small business owners, not all of whom save well for retirement either. They did make the critical piont about the importance of taking responsibility, but not forcefully enough or with any details. They could use a Part Two.

 

[Martha]

I don't blame the CEOs for acting in the financial interest of their shareholders by expunging their obligations to pay pensions.  Corporations work for shareholders, and CEOs work for corporations.  This is due to the legal construct of the Corporation, as defined by US law.

Blaming a corporation for being greedy is like blaming a fish for swimming.  That's just what they do.

It's up to us as a society to create and enforce regulations that keep the corporations in line.  I blame congress for failing to enact laws to prevent the CEOs from discharging pensions. 

I didn't watch the Frontline program.  Pulled dandelions instead.  

I have not followed the United Airlines case but I do know how Chapter 11 bankruptcy works.  For most contracts, a debtor in bankruptcy  can freely assume or reject the contract.  Collective bargaining agreements get special protections under the bankruptcy code.  Before a collective bargaining agreement can be rejected, the debtor must make a proposal for what would constitute modifications in employee benefits and protections  necessary to enable the reorganization of the debtor and which assures everyone is treated fairly and equitably.  The debtor must then negotiate in good faith with the union.  The court can only allow rejection of the collective bargaining agreement  if the debtor does these thing, the union refuses to accept the debtor's proposal without good cause, and the balance of equities clearly favors rejection of the contract.

So it isn't easy to reject the contract.

Without getting too muddy here, it is very difficult to get a plan of reorganization approved for a debtor unless the equity holders (the stockholders) end up getting nothing.  Inotherwords, the owners of the company won't be owners anymore.  There will be new owners--often former creditors.  Basically, unless creditors like the employees accept the plan, the creditor employees can be assured that equity holders will get nothing if the employees are not paid their claims in full.  


Also, if the company ended up being liquidated and assets sold, most often unsecured creditors get little or nothing.  Lenders which finance the business almost always have the company's assets pledged as collateral for the loans.  The collateral is sold and if the lenders are lucky they come out whole.  After all the expenses, there is rarely left anything for unsecured creditors like employees.   So no matter what, the employees lose.

I have been involved in Chapter 11 bankruptcies for a number of large companies and the end result isn't pretty for anyone.  What I do think needs more attention is  reviewing activities of managment before bankruptcy for possible claims against management.

 

[LOL!]

Although my math says, given 20 years of max contributions, you haven't done exceptionally well on ...

You're on the right track LOL.  Keep up the good work knowing you're on the road to FI.

Thanks for the comment youbet.  Let me help your math a little bit though.  20 years ago when I earned $20K a year and the max contribution of the plan was 10% of salary, you see how one could be limited in contributions.  This point was made obliquely in the FL report:  lower income folks have less in their 401(k)s.  This is because until the last couple of years, plan limits were often 15% of salary and not 90% to 100% like they can be today.  Thus, low income folks could never reach the federal max limits, but high income folks could.

BTW, I am already FI ... well past the first $1MM due to investments outside retirement plans.

 

[youbet]

So, is the loss of a dbp pension the cause of lack of retirement funds for almost all boomers?  Or are those that had a dbp pension reneged on actually a small percentage?

 

[setab]

I don't blame the CEOs for acting in the financial interest of their shareholders by expunging their obligations to pay pensions.  Corporations work for shareholders, and CEOs work for corporations.  This is due to the legal construct of the Corporation, as defined by US law.

I guess it bothers me that profit and the bottom line is worth more than people.  Cut a $40,000 pension but retain a $4.5 million bonus.  Please tell me where the fairness is there.  And I am sick of hearing about the CEO's obligation to the shareholder.  Why is that obligation more sacrosanct than the obligation to the employees?  Why is it okay to screw the employee if it results in the survival of the corporation?  Why is it okay to balance the corporate books on the backs of those who have the fewest resources?  Give the $4.5 million bonus back and then come talk to me.

setab

 

[saluki9]

I found the Frontline episode to be totally one sided and more than a little misguided.

1. It should have been called the United chap 11 show
2. They criticize JP morgan for getting special treatment (by getting repaid first after Ch11) If they don't do that, who do they think is going to lend working capital to bankrupt companies?

3. Glen Tilton left a very secure and lucrative job at Texaco. The 4.5M was a benefit that had been replaced because he lost it from leaving his old job. Sorry, but in this world you have to pay for talent.

4. In one hour they spent about 20 seconds on THE REAL retirement problem which is most people don't save enough.

 

[ats5g]

I thought the findings of the State of Nebraska [I think] study on its DB plan vs. its DC plan were very interesting. In case you missed it, the conclusion was basically that the DB participants faired better that the DC participants in saving for retirement, with the same employer and employee contributions.

There is at least one defined contribution retirement system that has done well for its participants [or at least the participants I know]. TIAA-CREF for non-profits [universities, etc]. Until the 1950's, TIAA only offered a fixed annuity account, and from 1950's to the late 1980's or early 1990's, they only offered TIAA fixed annuity account and 1 stock account. My dad has only been saving in his 403(b) since he started in the 1970's, has seven figures, and only in the past 5 years started making "the big bucks" for academia."

I just don't think people have any idea how much of their income they have to save for retirement. The DB pension system was forced savings for employees, b/c the employers were saving for them. Only saving 10-12% of you salary might be enough if you've also got a DB pension, in which case your actually saving more. But, for those with only 401(k)'s, saving 15-20% of income is probably a necessity.

- Alec

 

[SolidA]

I'm with Larry - they didn't need to spend fully half the program dealing with United's bankruptcy. Although I did like the woman from Boston College (NOT University - my oldest son is graduating (please, God) from BC next week!!) who was, I thought, pretty knowledgable and thoughtful. My dear husband (who is a minister and keeps telling me he isn't ever going to retire, so isn't interested in our investments/savings) was so bored that he got up 20 minutes into the program and went and did something else. I thought it was interesting, but the bottom line is, people need to begin to GET interested in their investments/savings and understand (at least at some level) the different choices (ie bond funds vs. stock funds) and also that they need to save more than $10 per paycheck.

 

[youbet]

 Please tell me where the fairness is there.

There is definitely no fairness there.  But, are we being hoodwinked into focusing on a small percentage of boomers who lost their dbp pension?  In fact, almost all of them will receive a large percentage of their lost pension from a government agency.  Yet, there is still a huge boomer retirement problem.

Reneged private pensions enrage me too.  But are we allowing our emotions to blind us from the real problem for most people?
Or are we focusing on a small percentage who got screwed and now will have to be bailed out by the government program, and at taxpayer expense?

I was disappointed in the FL coverage.  They seemed to focus on the sensational rather than the mundane and boring issues that are the real cause of low/no retirement savings for boomers.

 

[setab]

3. Glen Tilton left a very secure and lucrative job at Texaco.  The 4.5M was a benefit that had been replaced because he lost it from leaving his old job.  Sorry, but in this world you have to pay for talent.

4. In one hour they spent about 20 seconds on THE REAL retirement problem which is most people don't save enough. 

First, the statement that you have to pay for talent suggests that this person's "talent" is worth more than the lives of the people he helped screw.  I have a lot of trouble with that.  Second, $4.5 is an obscene number to pay for "talent" when we all know you can live quite nicely on much, much less.  And finally, I think you are being too hard on the show and maybe even missing one of its points:  Substitution of the 401k for corporate pension plans has not been as good for the employee as it has for big business.

Youbet, I think you make some good points, but I am concerned that the small percentage will become a larger and larger percentage if corporations keep getting away with this kind of practice.  And I am not just concerned about dbp plans.  What will keep any type of plan from being changed to benefit those manipulating the strings in the future?

setab

 

[Coach]

I was interested to hear that 401(k)s started out as supplemental retirement plans for higher compensated employees, and how they have evolved into what they are today.

There is at least one defined contribution retirement system that has done well for its participants [or at least the participants I know]. TIAA-CREF for non-profits [universities, etc]. Until the 1950's, TIAA only offered a fixed annuity account, and from 1950's to the late 1980's or early 1990's, they only offered TIAA fixed annuity account and 1 stock account. My dad has only been saving in his 403(b) since he started in the 1970's, has seven figures, and only in the past 5 years started making "the big bucks" for academia."

TIAA-CREF and academia really did some things right. When I started working here in 1981, participation was (and still is) mandatory with a 5% employee contribution and an average employer contribution of 7.5% Our employer contribution is now 9%. Employees are 100% vested immediately. Many of our senior faculty are well into 7 digits saved.

Coach

 

[MasterBlaster]

Here's a link to the PBS/Frontline/"can you afford to retire" website...
some additional info there if you are interested.

http://www.pbs.org/wgbh/pages/frontline/retirement/

here's my take on it all.

Frontline did a great job of showing the effects on retirees. However they left the big picture out of it and that's the effects of brutal worldwide competition. My take on the pension/retirement devolution is that it's just one more effect of globalization on working people in the US.

Per the Big company (eg. United) reniging on their pension promises. Those promises, if kept, would have forced United out of business. How would that serve the employees/retirees ? One could make the argument that cutting pensions and benefits was in the best interests for most of Uniteds employees. The management and their proxies at those big companies will always get their big cut. It's only a prosperous company that can deliver good things to employees and retirees.

The crime here is that our government allowed United and other companies to underfund pensions during good times. Where was the watchdog ?

 

[ronin]

They seemed to focus on the sensational rather than the mundane and boring issues that are the real cause of low/no retirement savings for boomers.

The main purpose of the media is to deliver viewers to the advertisers, not to provide accurate, unbiased, in-depth analysis of the issues, whatever they may be.  Since boomers are now nearing retirement, the screaming teasers are naturally: boomers can't retire!, you've been screwed!, look at this travesty!, etc.

 

[Texas Proud]

Thanks for the comment youbet.  Let me help your math a little bit though.  20 years ago when I earned $20K a year and the max contribution of the plan was 10% of salary, you see how one could be limited in contributions.  This point was made obliquely in the FL report:  lower income folks have less in their 401(k)s.  This is because until the last couple of years, plan limits were often 15% of salary and not 90% to 100% like they can be today.  Thus, low income folks could never reach the federal max limits, but high income folks could.

BTW, I am already FI ... well past the first $1MM due to investments outside retirement plans.

There still is a limit on the contributions... from memory (and I could be VERY WRONG) it is 25% combined (maybe 20%)

Also, this number has not changed a lot over the years... if you could only put 10% in your plan, it more than likely was a limit your company put on you, not the law. Twenty years ago I worked for a company that allowed a 15% contribution and matched 8%...

 

[MasterBlaster]

Per the limits. That is set by the company rules governing your plan.

The government rules stipulate that employee and  employer contibutions can be up to 50 percent of income but no greater than $44000 for 2006.

also only $15k of the employee contributions can be income tax deferred ($20k if you are 50 years old or older). Employer contributions are always deferred.

 

[Andre1969]

cool; I didn't know that you could actually invest more than the limit, and just not have the overage deferred.

If it's not being deferred though, is there really any advantage into putting it into your 401k, versus just putting it directly into mutual funds?

 

[youbet]

The main purpose of the media is to deliver viewers to the advertisers, not to provide accurate, unbiased, in-depth analysis of the issues

Sadly, it seems that you're dead on with that comment.

 

[JohnP]

I watched the Frontline presentation - what left me simply amazed was the deliberate-ness (if that is a word) of the United management (I'll refer to them as leaches from now on) over a period of 3-4 years to serially extract wage concessions, other benefit reductions (including health care), and work rules while threatening bankruptcy... and then still stealing the pension fund with the intention of retaining a few desperate employees to actually run the airline.  Any company loyalty must be completely gone now.  The leaches could then extract their bonuses from the formerly-pension funds to make sure there was nothing left.

I remain POed with C-T

JohnP

 

[MasterBlaster]

Per delivering viewers to the advertisers as their mission...

hopefully PBS is somewhat above that. They do have some commercials between programs however it is not as blatant or as annoying as it is with commercial stations.

John P:

United did not and cannot by law steal the pension fund. Their pension fund is independent of Uniteds management. What United did was to underfund the pension using the arcane but allowable pension funding rules. Bankruptcy then allowed them to stop altogether any additional pension funding.

There is quite a difference between what was done and what you posted.

 

[Nords]

We need systems that are designed to work for the average Joe.

I think we've tried that, we've seen how it works, and the PBGC would have to double premiums to keep it working.

For now, Average Joe better achieve 40 quarters of employment for Social Security eligibility.

I don't want to spend my twilight years surrounded by tired, defeated 80' something workers griping about how their companies/country failed them.

No problem-- they'll be at work. There won't be anyone in the lineup but us ER geezers and a few teenagers.

There is quite a difference between what was done and what you posted.

While there may be quibbling over the methods, I don't think anyone is arguing over the results.

Companies treated their pension systems exactly as they were legally required to, no more and no less. Negotiators handed away a staggering burden of pension/healthcare costs to their future executives-- look at what happened/what's happening to the steel & auto industries. Then those companies treated the Chapter 11 process exactly as they were required to. No more, no less. The lawyers were paid what seems to be a handsome amount, too, but I'll met Martha can attest that windfalls like this don't happen often enough to fund a lawyer's ER either.

Here's a classic-rock story: When Aerosmith was hitting it in the early '70s their agent was negotiating a record contract. It wasn't going well and at the end, to satisfy honor on both sides, the agent said "Why not give us rights to the master recordings after 25 years? C'mon, neither one of us will be here by then, the company won't care, and the master's'll probably be worthless anyway." 25 years later, guess what became Aerosmith's biggest & most-profitable possession. They're touring for fun, not money.

A NLRB negotiator used to explain that he brought both management & labor into the conference room, made them work for 12-18 hours, and spent all his time/effort on maneuvering them into a state of advanced sleep deprivation. Negotiating progress was secondary to wearing them out. After two or three days of this he'd be refreshed & relaxed (HE didn't stay there for 18 hours/day, THEY did) and they'd sign anything. Exhausted as they were, I doubt that anyone was worrying over the financial burdens of the pension/healthcare plans 25 years in the future while they were signing the package.

 

[LOL!]

cool; I didn't know that you could actually invest more than the limit, and just not have the overage deferred.

If it's not being deferred though, is there really any advantage into putting it into your 401k, versus just putting it directly into mutual funds?

No, there is no advantage IMHO. The disadvantages are that (1) penalty for early withdrawal; (2) withdrawals will be taxed at marginal income tax rate and not currently lower capital gains tax rate; (3) less choices among possible investments, especially low-cost ones.

 

[bbuzzard]

I watched the FL show, and one thing was not dicussed. My understanding is that nothing was "taken" from the current employees pension funds. All the money that was currently in the pension plan prior to bankrupcy is still there. However, United has no obligation to add more monies in the future, so retirement benefits will be smaller. Is this correct? Maybe I misunderstand.

Also, why is everyone so concerned about the people who have pension that are being reduced? What about the 50% of workers (roughly) who have no pension and never had one? Why doesn't the govenment just give them one? I mean, I have no pension and I am having to bail out other people pensions (PBGC), so it seems fair enought to ask them to fund one for me!

BTW, I have no problem with the PBGC as long as it was self funded via contributions from pensions it insures. The minute it starts (started?) taking tax payer money is the minute it becomes welfare, just like flood insurance.

 

[MasterBlaster]

People feel cheated because the implied contract/safety net is being yanked out from under them. Theoretically these people have foregone some of their wages so that their companies could fund their pensions. The breakdown of the promise leads to disillusion.

If you or others have no pension consider yourself somwhat fortunate. You can fund your own pension and won't have to rely on a dying company to keep its promise.

 

[SolidA]

I agree with MasterBlaster - why on earth were the companies allowed to so far underfund their pensions!!!  My DB pension plan is fully funded - well, at least it was until our Legislature decided to perhaps fold in the Minneapolis Teacher's pension fund, which is basically on the verge of default.  SUPPOSEDLY, this will not impact our DB plan in a negative way and we'll be helping out our fellow teachers (which I would love to do) but somehow it doesn't compute in my mind.  We also have a 403B which, as I've stated elsewhere on this board, has awful choices.  I learned a long time ago that if I was ever going to be FI and retire, that I was going to have to do it myself.  I am glad I learned it when I did (late, but hopefully not too late!!).  Hope others don't have to learn this the hard way.

 

[SolidA]

oh, also, could someone please explain to me how the poor "deer in the headlight" guy from FI last night could decide to retire right after the market crash (lost more than 50% of the $100K that was in his account), THEN decide to take full distribution (YIKES!!!) and have to pay taxes - and end up with around $20K to retire with - and STILL DECIDE TO RETIRE, thinking he had enough money! I feel for the poor guy and his wife, but I cannot fathom the line of thinking that went on. Did I miss something??