The Retirement Heist

[ChrisC]

I seem to be hearing this from the 'occupy' crowd - 'pay my student debt'. Why? 'Because I think everyone should be able to go to the school of their choice, study the field of their choice, and the external realities of job markets don't apply'. Just 'because'.
-ERD50

You lost me when you went there. I don't hear that from that "occupy" crowd but I do hear it from the farm subsidy crowd, the banker crowd, and the keep-my-mortgage-interest-deduction crowd which includes realtors, lenders, and residential builders -- all because the government is supposed to serve their interests since that crowd makes alot of political contributions!

I agree that pension surplus for defined benefit plans belongs to the employer making the contributions (and all nine Justices of the U.S. Supreme Court likewise agree with you), but you do appear to have a tin ear when it comes to over the top corporate actions.

 

[ERD50]

There are plenty of places to buy bread. Where is the 50 year old worker suppose to go to find an employer whose benefits include a pension plan? At 50 good luck getting hired anywhere.

The pension plan extinction has morphed into the 401k down grade. When 401k plans started out they often had a pretty generous matching component. Over time, the matching component has been down graded or eliminated at many places. In addition, a lot employer sponsored plans have been replaced with high expense ratio/employee sponsored plans, which in some cases makes them useless.

I have this book on reserve at my local library. I am looking forward to reading it.

I agree that things are not what they used to be. But is that a 'heist', or just a changing world? As I've said before, the idea of handcuffing a 50 YO to a job because of the pension is a dark side of pensions. I think we are better off w/o them in many ways.

Bread and jobs are both products of supply/demand. We can't just 'wish' for the market we want. If there are plenty of places selling bread, yet few places offering jobs, there are reasons for it.

You lost me when you went there. I don't hear that from that "occupy" crowd but I do hear it from the farm subsidy crowd, the banker crowd, and the keep-my-mortgage-interest-deduction crowd which includes realtors, lenders, and residential builders -- all because the government is supposed to serve their interests since that crowd makes alot of political contributions!

I agree that pension surplus for defined benefit plans belongs to the employer making the contributions (and all nine Justices of the U.S. Supreme Court likewise agree with you), but you do appear to have a tin ear when it comes to over the top corporate actions.

google: occupy wall student debt

I'm fine with eliminating all those subsidies/deductions. What 'over-the-top' corp actions do I have a tin-ear to? I always join in any thread that bemoans the tie in between BOD and CEO, I see it as a big problem, but I don't know what to do about it.

-ERD50

 

[Helen]

I agree that things are not what they used to be. But is that a 'heist', or just a changing world?

You seem to be dwelling on the title of the book.

As I've said before, the idea of handcuffing a 50 YO to a job because of the pension is a dark side of pensions. I think we are better off w/o them in many ways.

I'd rather be "handcuffed" to a job that I can choose to walk away from as opposed to working until I'm 65+ because meaningful retirement benefits have vanished.

If there are plenty of places selling bread, yet few places offering jobs, there are reasons for it.

It was your analogy.

 

[clifp]

False compassion

If CEOs "need to balance these factors", sometimes the first factor will outweigh the second, and sometimes the second will outweigh the first. Doesn't that follow? And one of the factors is the loss of good employees when you treat them like crap. So when the scales tip a certain way, that's what the good CEO will do: treat his employees like crap in the interest of enhancing shareholder value. It's right there in what you wrote.

CEO need to treat employees badly at times in order to ensure the long term viability of firm, anything else is false compassion. It is bit of semantic argument if, cutting wages, eliminating pensions, cutting 401K matches, raising health care premiums, and most importantly laying them off include 50 years olds with bad job prospects, is treating them crappy or acting responsibly. A personal anecdote.

My first job out of college, was working for chip company AMD. In the early 80s they were a hot company (equivalent to Google now) not as hot as my first choice Apple. But they had great growth, and reputation of being a good place to work. They threw awesome Christmas parties feature top name bands like Police, and gave away cars, and 1,000/month for life at the parties. The offices were nice, the headquarters pretty fancy, and the pay and benefits good. The CEO was flamboyant guy by the name of Jerry Sanders, who dressed well, drove fast cars, and had plenty of hot babes around. Jerry was especially proud of his no layoff policy which for very cyclical semiconductor business was unheard off.

A few years, after being laid off from my second company, I arrive at Intel. Intel was the opposite of AMD. Everybody worked in a cubicle, no fancy parties, no give aways, the whole place was beige. No gym and for years they even prohibited showers at work (not great for me who wanted to ride my bike to work.) Unlike most every other place in Silicon Valley, engineers were expected to be at their desk at 8 AM, and if you were late you had to sign a list. People yelled at each other a lot. Andy Grove didn't have a no lay off policy, and while the company tried to avoid them they weren't uncommon. During downturn, pay was cuts and hours were increased. The companies 401K contribution, and bonuses were primarily dependent on a single factor, profit.

Now AMD no lay off policy lasted until the mid 80s and since then the company has score off layoffs over the years. In the last 25 of years, thousand of other companies of sprung up in Silicon Valley, include several dozen medium size chips company. I bet the vast majority of them had more maternal benefits than Intel, but ultimately if you don't make money it doesn't matter. Apple is another good example, it is never been picnic to work there especially with Jobs as boss. He cut Apple sabbatical program after coming back as CEO in 97 and AFAIK they never had pension plan. Google perks are way nicer than Apples.

Shortly before leaving Intel, I attend a talk from a well known Harvard business professor. In this talk he compared the total employment from tough bosses, like GE"s "Neutron" Jack Welch, Jobs, Andy Grove, Bill Gates, and several other guys who were notorious for slashing jobs and benefits, vs the more paternalist companies like HP 10 years after they took over. Now while there plenty of exception the overall results were pretty clear employees were better off working for the SOBs, cause the CEO who were too nice to their employees went out of business. Or to put it more simply nice guys finish last.

It might be nice to live in world where that isn't true, and you certainly don't have marry one, but you probably want to work for pretty ruthless CEO.

 

[Chuckanut]

But the law was never designed to lock into place a plan...

Agreed. If a company wants to revise its pension plan let it do so - for new employees. The pension is earned over a long period of time. Employees cannot go back into time and make new choices based upon what is happening today.

I simply argue for keeping promises, honoring agreements and doing the right thing. As an employee I would not destroy work done for the company just because it suited me to do so. The company has paid for the work and deserves to get it and keep its results. The same goes for a pension. The employee has worked to earn it and should be allowed to keep it.


Remember that we trade our time and skills for our pay package. We cannot go into the past and recover our time.

 

[Chuckanut]

Honestly, when one looks at how some companies treat their employees in regards to pensions, they are doing more to advance the cause of Socialism than all the radicals who want to occupy Wall Street, etc.

 

[clifp]

Agreed. If a company wants to revise its pension plan let it do so - for new employees. The pension is earned over a long period of time. Employees cannot go back into time and make new choices based upon what is happening today.

I simply argue for keeping promises, honoring agreements and doing the right thing. As an employee I would not destroy work done for the company just because it suited me to do so. The company has paid for the work and deserves to get it and keep its results. The same goes for a pension. The employee has worked to earn it and should be allowed to keep it.


Remember that we trade our time and skills for our pay package. We cannot go into the past and recover our time.

I don't disagree that companies should not go back and say we promised you $X but now we are going to only give 1/2 as much. But in general what companies did when the switched from defined benefit plans. Was to say you've earned so much money toward your retirement, we are going to give you that money and place it it an 401K and going forward no more pension for both new and current workers. Now there were legitimate beefs about the calculations companies made but...

There is no legal right and I don't even think a moral obligation for employers to provide the same benefits to employes as when they show up for work the first day. Employment is at will, which means that if you get a better offer to from another company (often using skills you developed at the company) you are free to take it. Likewise if the company promised you X$ a year they are free to raise or lower it at any time, and your free to find employment somewhere else.

 

[Chuckanut]

What is so hard to understand about keeping promises and honoring contracts? Is money the only way we measure what is right or wrong?

I guess I am old fashioned.
I think people should put a real effort into their job to earn their pay.
I think people should pay their mortgage even if the house has lost value.
I think companies and governments should properly fund their pensions on a yearly basis and not tamper with the funding.

Why is this so hard for so many people, including those in business who claim to favor capitalism, to understand?

 

[Chuckanut]

I

There is no legal right and I don't even think a moral obligation for employers to provide the same benefits to employes as when they show up for work the first day.

I would agree with you for compensation that is earned and paid out on a regular basis. For example, I worked this month and my company pays me a month's wages and provides a month's worth of health insurance and credits me with as month's worth of vacation pay. But, I also earned a month's more pension credit, but that is not paid to me for many, many more years. A pension is different in respect that it is DELAYED COMPENSATION. Thus, it must be treated differently and should not be subject to changes like pay and other benefits.

Why is it so hard to understand that the pension is part of what we earn today and should not be taken away? How can one justify retroactively changing the rules to take away what has already been earned?

 

[clifp]

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?

I am curious if the author points at the time, that IRS was putting pressure on companies to not over fund their pension. GE in particular was notorious for managing its earning during this time, so that each quarter GE earning would rise by a particular amount. In quarters/year where they had excess earnings they lower the expected returns in the pension plans so they stash cash in the pension plan (and also minimize taxes!). In quarters where their profits where a little bit light, they'd raise earning
so they could lower, eliminate or in some case pull money out of the pension plan. This made the pension a very nice buffer for managing earnings. The IRS tightened up on this abuse. (Although it still goes on today at most state, and local pension fund). So I imagine this made pensions less attractive vehicle for manipulating earnings.

 

[clifp]

I would agree with you for compensation that is earned and paid out on a regular basis. For example, I worked this month and my company pays me a month's wages and provides a month's worth of health insurance and credits me with as month's worth of vacation pay. But, I also earned a month's more pension credit, but that is not paid to me for many, many more years. A pension is different in respect that it is DELAYED COMPENSATION. Thus, it must be treated differently and should not be subject to changes like pay and other benefits.

Why is it so hard to understand that the pension is part of what we earn today and should not be taken away? How can one justify retroactively changing the rules to take away what has already been earned?

Imagine I borrow a $1,000 from you and and we agree that in 30 years I'll start paying you back $50/month for 10 year so in total you'll get $6,000 at the end of 40 years. (This is roughly 5% interest).

Not quite two years later, I come to you say this is really silly for me to make a payment this far advance a lot can change, either one of us could get hit by a bus. Here is your $1,000 back and $100 in interest. This is precisely what companies did when the ended their pension plans.

They gave the money the employees earned in delayed (deferred) Compensation. The only difference was instead of giving them compensation in the form that some wanted namely pension checks when the retired, they gave them the money in a 401K accounts today. And then said you invest for your retirement. It is worth noting for the many employees who had no intention of working for megacorp for the rest of their career, the 401k money was much better than a pension they would never see.

So please explain how they were taking away what was earned?

 

[Helen]

There is no legal right and I don't even think a moral obligation for employers to provide the same benefits to employes as when they show up for work the first day. Employment is at will, which means that if you get a better offer to from another company (often using skills you developed at the company) you are free to take it. Likewise if the company promised you X$ a year they are free to raise or lower it at any time, and your free to find employment somewhere else.

Nope. The pension was part of the up front agreement. Most people look at the total benefits plan and not just the salary (I took a pay cut to take a job with a pension.)

 

[MichaelB]

Not quite two years later, I come to you say this is really silly for me to make a payment this far advance a lot can change, either one of us could get hit by a bus. Here is your $1,000 back and $100 in interest. This is precisely what companies did when the ended their pension plans.

No. There was a difference between the vesting and the funding which most people do not understand. The future liability depended on reaching a full term of employment (30 years) and most of that value was lost if the employment ended prematurely. The funding, however, was based on different accounting rules and assumed the pension costs grew in a more linear manner. In other words, an employee with 20 years had very little vested and accrued pension benefit but the company had contributed much more to the plan.

This difference is what drove companies to end pension plans or fire older workers. They paid out only the vested value to the employees and kept the difference. This was clearly against the intention of pension laws, which considered a pension plan to be a legal entity separate and independent of the business and all contributions to be final. These went to court, some won and others lost. For the most part, companies found ways to legally exploit the pensions.

In other words, the pension promise technically had value only at the end of 30 years and not during that 30 year period, while the plans had been funded evenly during the 30 years. By revoking the promise before the 30th year or by not letting the employee get to the 30th year, business found a new source of income by exploiting that difference. The fact that pension money was technically not returnable to the company did not stop them from doing it. Creative lawyers and accounts found the way.

All that money was taken off the balance sheets and brought back into the income statements. Profits increased, the business execs applauded themselves and humbly accepted (billions) bonuses and stock options for a job well done. Warren Buffet points this out more than once in his shareholder letters and it is easily seen in the balance sheets of most S&P companies.

 

[donheff]

No. There was a difference between the vesting and the funding which most people do not understand. The future liability depended on reaching a full term of employment (30 years) and most of that value was lost if the employment ended prematurely. The funding, however, was based on different accounting rules and assumed the pension costs grew in a more linear manner. In other words, an employee with 20 years had very little vested and accrued pension benefit but the company had contributed much more to the plan.

This difference is what drove companies to end pension plans or fire older workers. They paid out only the vested value to the employees and kept the difference. This was clearly against the intention of pension laws, which considered a pension plan to be a legal entity separate and independent of the business and all contributions to be final. These went to court, some won and others lost. For the most part, companies found ways to legally exploit the pensions.

In other words, the pension promise technically had value only at the end of 30 years and not during that 30 year period, while the plans had been funded evenly during the 30 years. By revoking the promise before the 30th year or by not letting the employee get to the 30th year, business found a new source of income by exploiting that difference. The fact that pension money was technically not returnable to the company did not stop them from doing it. Creative lawyers and accounts found the way.

All that money was taken off the balance sheets and brought back into the income statements. Profits increased, the business execs applauded themselves and humbly accepted (billions) bonuses and stock options for a job well done. Warren Buffet points this out more than once in his shareholder letters and it is easily seen in the balance sheets of most S&P companies.

+1. Well described.

Several posters are offended by use of the terms "heist" and "plunder" to describe this behavior and describe the book as a lie for doing so. As I said before I just don't get you guys.

 

[ziggy29]

Nope. The pension was part of the up front agreement. Most people look at the total benefits plan and not just the salary (I took a pay cut to take a job with a pension.)

What do you mean by "upfront agreement"? Was there some contractual language that said your pension could not be taken away? I mean, my first job out of college included a pension too, and I sure as hell had mine taken away.

 

[Chuckanut]

Imagine I borrow a $1,000 from you and and we agree that in 30 years I'll start paying you back $50/month for 10 year so in total you'll get $6,000 at the end of 40 years. (This is roughly 5% interest).

Not quite two years later, I come to you say this is really silly for me to make a payment this far advance a lot can change, either one of us could get hit by a bus. Here is your $1,000 back and $100 in interest. This is precisely what companies did when the ended their pension plans.

OK. Now imagine if I said to you, "Sorry, that may suit your purposes in life but it does not suit mine. I would not have loaned you the money on the new terms your propose. I want you to honor the contract you made with me when I loaned you the money." What would you say to that? Would you honor the agreement you made or would you try to force your new payment system onto me?

 

[Chuckanut]

What do you mean by "upfront agreement"? Was there some contractual language that said your pension could not be taken away? I mean, my first job out of college included a pension too, and I sure as hell had mine taken away.

Where is the contract that says your salary can't be taken away? You work for $25 an hour and at the end of the week the boss says 'Sorry, we had a bad week, so I am only paying you $21 an hour'.

 

[Chuckanut]

What do you mean by "upfront agreement"? Was there some contractual language that said your pension could not be taken away? I mean, my first job out of college included a pension too, and I sure as hell had mine taken away.

Ziggy, just because you had your pension taken away does not mean it was right then and right now.

Have got to the point in this country where the worker must get everything in writing, anticipate every way he/she might be cheated out of salary and it covered in detail. The pension was agreed to and earned. It should be funded and paid. What is wrong with that?

The Employee makes decisions based upon that agreement. They usually cannot be undone. There is no time machine that allows us to go back and say "Gosh, they changed my pension for the worse, so I think I will get into my time machined and accept that offer from the start-up company that I turned down 15 years ago." Why is this so hard to understand?

 

[ziggy29]

Where is the contract that says your salary can't be taken away? You work for $25 an hour and at the end of the week the boss says 'Sorry, we had a bad week, so I am only paying you $21 an hour'.

Yes, that is my point. NO agreement is carved in stone that I'm aware of that can never be changed during the course of employment. Sure, some collective bargaining agreements can't change absent employer bankruptcy during the term of the contract... but that still can change at the expiration of the contract.

I know of *no* open-ended employment contract/agreement which guarantees that total compensation can never, ever be reduced. No, not even in the public sector, despite the common attitude that their deals are somehow more sacrosanct and inviolable than they should be for the rest of us stiffs who have endured years of frozen pay, frozen pensions, watered down health insurance, longer hours and eliminated retiree health insurance.

 

[ziggy29]

Ziggy, just because you had your pension taken away does not mean it was right then and right now.

Never said otherwise or implied otherwise. I'm just saying there is usually no RIGHT under the law that guarantees total compensation for future work can't be unilaterally changed by the employer.

It's not a matter of "it happened to me so it should happen to you" (which is the usual overly defensive response). It's a matter of "yes, it CAN happen to you, and unless we stop the erosion of the ability of "the rest of us" to fund your deal, it *will* have to happen. I hope it doesn't get that far. I just don't care for the belief that "I deserve to keep my deal more than you do because I chose to work for the government." I don't believe in "second-class" employee citizenship in that regard -- either way. (I have no use for the belligerent "I pay taxes so you work for ME" excuse, either. It does go both ways.) The "us versus them" is making it easier to screw us all.

 

[ERD50]

The future liability depended on reaching a full term of employment (30 years) and most of that value was lost if the employment ended prematurely. ... In other words, an employee with 20 years had very little vested and accrued pension benefit ...

+1. Well described.

Really? I obviously don't know the details of every pension plan out there, but I'd bet my MegaCorp was pretty representative of those that offered pensions, and it worked nothing like that.

I'd have to look it up, but you were vested after 5 (10?) years. Then you earned based on years and salary. There wasn't any magic inflection point. I retired with 28 years, and hanging on for 30 would have just been an incremental increase.

If companies were firing people right before vesting, that is something that would get me worked up. But I still feel getting rid of this kind of system is best overall. There will always be abuses where there is opportunity, let's remove the opportunity - give me my money as I earn it!

You seem to be dwelling on the title of the book.

Well, it is the word the book uses, what's the problem?

I'd rather be "handcuffed" to a job that I can choose to walk away from as opposed to working until I'm 65+ because meaningful retirement benefits have vanished.

You are ignoring the fact that for most people, this choice no longer exists. Again, some people seem to be 'wishing' for a certain situation. There is global competition for many of these jobs, companies don't need to offer a pension, or offer 'meaningful retirement benefits'. I tell young people today that they should plan as if they are on their own.

It was your analogy.

And a fine one at that (bread/benefits; customers/employees)!

Several posters are offended by use of the terms "heist" and "plunder" to describe this behavior and describe the book as a lie for doing so. As I said before I just don't get you guys.

I think clifp's story in post #279 tells it like it is.

I'll provide a made-up story, not to 'prove' anything, but just to illustrate how different people view things differently:


Joe worked for MidSizeCorp for 45 years. He started at 20, and is ready to retire at 65. Joe was a competent employee, not particularly motivated, didn't volunteer or seek out extra work or opportunities, but took his job seriously, never abused company policy, and rarely gave his boss a hard time (nobody's perfect).

At his retirement, they have cake/coffee, say a few nice words and Joe is on his way.

Now, some people will say: This is terrible. After all, Joe gave the company 45 years of his life, the best years! And this is all he gets! MidSizeCorp made a profit off his labor for 45 years! The CEO is rich! That company owes Joe far more than this!

Some other people might say: Joe sure was lucky. He didn't have any particular skills/education at 20, and this company provided him with a starting position, decent salary, benefits and good job security. Joe could leave work on most days at 5:00, and not think about his job until the next morning. Joe put two kids through college, paid for his home, and managed to save enough for a comfortable retirement with his SS. He did a lot better than his parents, who struggled on a dirt farm, died penniless and worked till the day they died. MidSizeCorp sure was good to old Joe!

Someone like me might say - It was a symbiotic relationship. Joe got something, MidSizeCorp got something, and life goes on. They both got what they bargained for, and it's all OK.​

I don't think we can say that one view is more correct than another, they are just different ways that different people will look at the same thing. And hence, sometimes we feel like saying: ' I just don't get you guys.'

-ERD50

 

[Chuckanut]

This discussion is certainly a good one. I draw four conclusions from it:

1. We must all, at times, agree to disagree, agreeably.


2. Better economic times will solve many of these problems or keep them from becoming problems in the first place. That should be our great goal.

3. None of us sees the point in a race to the bottom for any of us.


4. Over coffee, I suspect we all have more in common than what we see on a web based forum. This medium does tend to depersonalize us.

 

[ziggy29]

3. None of us sees the point in a race to the bottom for any of us.

Agreed, at least for me. I guess the point I was trying to make is that unless the majority of private sector worker-taxpayers who largely fund the traditional public sector employment deal with retirement benefits stop racing each other to the bottom, there's no way we can avoid the fact that you'll have to eventually come along for the ride, regardless of whether it's what we want.

That might be a better way to put it. It's not that we want to take you down. It's just that we'll have no choice if we keep getting pulled down.

 

[ERD50]

Nope. The pension was part of the up front agreement.

You work for $25 an hour and at the end of the week the boss says 'Sorry, we had a bad week, so I am only paying you $21 an hour'.

The pension was agreed to and earned. It should be funded and paid. What is wrong with that?

We are close to 300 posts, and some people still can't understand (or choose not to) the difference between paying/funding what was promised/earned up to that point in time, and the idea that those same benefits must be guaranteed into the future? Cutting pay from $25 to $21 after the fact is NOT what is being discussed here. More like, 'Yes, we were paying $25 last week, you got your $25/hr, and this next week we are offering $21 - deal or no deal? '

In the cases provided, the pension was funded and paid. Isn't that a fact?

It's as if you feel you walked into HR (heh- they called it 'Personnel' in the day) on your first day of work, and they handed you an overview of your benefits, and they said " Now, we are going to sign right here (call in the Public Notary), that these benefits will be as good or better, every single year you work for us, for as long as you choose to work for us ". I've NEVER heard of such a thing, yet you act as if it is the norm. If you think that is how the world should work, I suggest you open a business and run it that way. No one is stopping you.

Why is this so hard to understand?

Indeed.


-ERD50

 

[ERD50]

This discussion is certainly a good one. I draw four conclusions from it:

1. We must all, at times, agree to disagree, agreeably.


2. Better economic times will solve many of these problems or keep them from becoming problems in the first place. That should be our great goal.

3. None of us sees the point in a race to the bottom for any of us.


4. Over coffee, I suspect we all have more in common than what we see on a web based forum. This medium does tend to depersonalize us.

That's all fine, and well said. I'll just add that I don't think the 'race to the bottom' viewpoint is a terribly useful one.

The way I see it, we have global competition. It is a force to be reckoned with. We can't ignore it. It is going to have an effect. Unless we can somehow further increase our competitive advantage, it is going to tend to flatten our expectations. Maybe we can do OK in a 'rising tide lifts all boats' scenario, but I don't know that we can count on that.

As always, those most observant and flexible and willing to adapt will do the best. Things will be different for our kids, in some ways worse, in some ways better. Right now, mine seem to be doing pretty well, and I don't think their future is bleak. I expect they will enjoy life as much/more than I have.

-ERD50