The pension system destruction continues

[dumpster56]

IBM will freeze it pension as of 2008 and start to phase out defined benefits.

I gotta say we americans have brought this mess on ourselves. we have allowed the companies we have worked for do what they want, hey I feel for all of the people who worked for companies like Bethlehem Steel, United Airlines , GM for 25 30+ years only to see the promise STOLEN by these companies.

Heck I have been teaching for almost 30 years in the public school systems in the state of New Jersey and was NOT at the time Given a chocie, I HAD TO JOIN THE PENSION SYSTEM!

Now I am told that it costs too much to fund after the funding by the state was NOT DONE when an old gov Christy Whitman underfunded the system and raided the funds for other things.

The state has raised copayments for healthcare and is talking about getting rid of the early retirement option sooner than later!

I am getting out and taking my early retirement pension in june, Buying a house for cash in a low tax area of the country and getting a better low stress job!

Hope the pension I do get holds over the long term.

It really is crappy when they change the rules during the game.

 

[Nords]

I'm not sure what point you're making about IBM, NG.

It sounds like IBM is going to start its new employees on a defined contribution system and let the DBP die with its retirees.

There's considerable sentiment among employees of the steel, airlines, & auto industries that management let the unions dictate the contracts so that the pension problems were only deferred until they were fatal, not dealt with when they were solvable. The result is that decisions made 10-20-30 years ago are killing the pensioners while management "solved" the company's contract problems and later got their own executive pensions. To me it seems that IBM is taking a more responsible, ethical, and perhaps even honest approach.

Govts are staring down the barrels of a new accounting rule which essentially requires them to fund their healthcare & retirement plans. Many govts are facing deficits in those plans that are larger than their annual tax revenues. Again it seems more ethical to get rid of promises that no one believes and start implementing defined benefits plans.

If your ER pension can be taken as a lump sum then you might want to consider that option. In a time of low interest rates, the required future-value calculations make lump sums a great deal. The lump sum has saved my FIL a lot of fretting over CBS' pension payments.

BTW, congratulations on your early semi-retirement!

 

[unclemick]

My memory blissfully doesn't remember the details - but our buddies the US Congress fixed the problem in the 1970's - also a period of some pension difficulty. Some sour grapes types trace the long decline of defined pensions back to that period.

heh heh heh

Bear Bryant: 'Agile, Mobile and Hostile.'

 

[SteveR]

Possible loss of my pension for 24 years of glorious service to my former company prompted me to begin my pension pay out at 50.  So far I have been justified in doing so since my late wife ER'd and her income dropped 60% along with my income dropping by 25% when we moved.  

The former company spun of a major division a couple of years ago and when they did, all pensions not taken were eliminated in the new company.  I missed that bullet by about 6 months.  I have several close friends who got glued, screwed and tatooed by this move.  Several were 30+ year employees who were counting on the DBP to live on and now it is gone and they needed to work longer to make up the difference; but the new company has been laying off the older workers over the past year and a half so they gave them a decent severance but no retirement.  

Morale of the story....don't trust your employer to keep their retirement plans intact.  

Oh, the parent company how has a class action suit by former employees who are suing for loss of benefits.  

 

[frayne]

Good-bye DB plans, hello DC plans. Wave of the future and businesses do it to help the bottom line.

 

[Jay_Gatsby]

Can you blame companies that look for the door vis-a-vis DBPs? There are a whole host of reasons that DBPs are getting more expensive to offer and maintain which I won't get into here. Companies are shifting the obligation for ensuring a comfortable retirement where it belongs -- to employees. I agree that older workers who have 20+ years at a company are getting screwed, since they started their employment (and continued working for the company) with the promise that the DBP would be available at retirement. A phase out period would be appropriate, along with a means to incentivize employees to shift from DBP to self-reliant retiremement planning.

 

[Nords]

Can you blame companies that look for the door vis-a-vis DBPs? 

Heck, no, the beginning of the end for DBPs was when people actually started expecting companies to live up to their promises for more than a couple years past age 65.

Or past the next round of federal government elections... today's TSP is just the beginning.

But it's hard to see how the federal govt can convert military healthcare into HSAs.

 

[Chris24]

Pensions are part of a compensation package. Defered income for future income. Workers ARE getting screwed. By managements inefficiencys, and goverments lack of goverenance. Managments make sure they do very well no matter what the outcome is from their decisions or companies. Politicians benifit from industries deep pockets. Don't blame the workers for the loss of pensions.

 

[Robert the Red]

The effect of more reliance on DC plans is to shift risk to the workers -- the risk that you will outlive your savings.  Of course, if you get enough in your DC plan, you can buy an annuity, but since IBM (and others) explicitly say they will be putting less into the DC plan than into the DB plan, it's very unclear that the average worker will get enough into their DC plan to be able replace the DB plan's benefits.  (Unless they read this forum, of course.)

One reason is that people who purchase annuities tend to be healthier and live longer, so the sellers have to factor that into their longevity analysis by paying out less than a plan that includes all sorts of people.  Since a youngish worker NOW doesn't know what her/his health will be like THEN, she/he has to "over-save" in case of being blessed with longevity.  (Those who save and die young will then get to pass on lots of wealth to their heirs, if any.  But that's not what the tax benefits of the DB plans are supposed to be for.)

 

[TargaDave]

I am with Jay on this one. I would say the same thing regarding health care as well. In my view corporations should not be in the retirement or health care business. I also don't blame "management" for this trend in a very competitive global environment.

If you want to really grip about company officers hit them with financial transparency, real performance based compensation and option expensing. Happy to see the perp walks and Sorbanes-Oxley pain continue.

 

[dumpster56]

Some here are missing my point.

I was givin NO CHOICE in 1978!

I was TOLD I must contibute to the state teachers annuity pension fund!

They have taken out 5% of my teaching salary for almost 30 years.

And NOPE I cannot take out the pension in one lump sum.

I never expected to get rich as a teacher however I expect to have the compensation that was promised and REQUIRED by the state of New Jersey.

Oops again politicians both republican and dems have stolen the money from our system to pay other DEBT!!!

 

[dumpster56]

Pensions are part of a compensation package. Defered income for future income. Workers ARE getting screwed. By managements inefficiencys, and goverments lack of goverenance. Managments make sure they do very well no matter what the outcome is from their decisions or companies. Politicians benifit from industries deep pockets. Don't blame the workers for the loss of pensions.

Correct.

Except the company wants you to work until ya drop dead so they have to pay ZIP!

 

[Nords]

This is not correct, according to my IBM friends.  The DB pension is to be stopped cold in two years.  Mid-career people will have vested rights in the old system, but no further participation.  They are to be started anew at that time in an "enhanced 401K."  Lots of mid-career IBM people will lose lots of money with this new deal.

You see I mentioned retirees?  They're going to keep getting pension checks until they're dead (or until IBM turns it over to PBGC), right?

I think IBM has done enough to let people know where the system is going, and given people enough time to vote with their feet.  I still think that puts them ahead of the steel, airline, & auto industries.

Some here are missing my point.
I was givin NO CHOICE in 1978!

I was TOLD I must contibute to the state teachers annuity pension fund!

They have taken out 5% of my teaching salary for almost 30 years.

And NOPE I cannot take out the pension in one lump sum.

Well, maybe I don't understand.  If you're just venting then of course I don't need to understand.  But if you're trying to explain a problem and aim for a solution then I don't get it.

I'm under the impression that you've put money into a pension fund.  And I'm also under the impression that, when you retire, you're going to get money out of the pension fund.  This is why I'm having a tough time understanding precisely what the problem is.  If the issue is that they're converting from a great deal to something less, well, yeah, but you also seem to be in a position to vote with your feet too.

There's a school of thought that ALL employees should be automatically signed up with their 401(k) plans the day they start work, and any decision to drop the 401(k) should require their personal effort.  That's a completely different approach from the way the system is usually implemented today.

 

[dumpster56]

Nords, Just venting a bit, a friend is getting hammered, by Delta, had his pension cut in half while being retired.

My situation is fine I THINK, with a new gov next week and a 5 BILLION dollar state budget hole and the press hammering away that teachers get a pension yadayadayada, and they have increased medical co pays, I cannot wait to get OUT!!!

But I truly believe as I mentioned before Bottom Line if we must work till say 90 before we can collect boy would the company save money!!

 

[Nords]

a 5 BILLION dollar state budget hole

Hey, NJ has to find some way to pay for all those solar-power subsidies...

 

[TargaDave]

Evidently, the really neat thing about this is that IBM upper-level executives still have a great DB pension plan. The change is just for the filthy masses . . .

As I understand it the change is affected by years of service. If you are saying that senior exec's typically have a lot of service time in and aren't affected the same could be said of a technician with the same length of service. I'll bet IBM senior exec's generate far more retirement money from bonuses and option grants than any DBP might provide. Believe me, discounted option grants are the real pot of gold for corp exec's and they vehemently oppose expensing options (and they work hard to hide bonuses in financial reporting).

Those dirty masses always had (and still have) the option to go out and start their own business.

 

[Texas Proud]

Possible loss of my pension for 24 years of glorious service to my former company prompted me to begin my pension pay out at 50.  So far I have been justified in doing so since my late wife ER'd and her income dropped 60% along with my income dropping by 25% when we moved.  

The former company spun of a major division a couple of years ago and when they did, all pensions not taken were eliminated in the new company.  I missed that bullet by about 6 months.  I have several close friends who got glued, screwed and tatooed by this move.  Several were 30+ year employees who were counting on the DBP to live on and now it is gone and they needed to work longer to make up the difference; but the new company has been laying off the older workers over the past year and a half so they gave them a decent severance but no retirement.  

Morale of the story....don't trust your employer to keep their retirement plans intact.  

Oh, the parent company how has a class action suit by former employees who are suing for loss of benefits.  

Steve...  I am saying this is a nice way, ie. I am not being personal...  but I call 'bullsh**' on this post..  now, I can be wrong, but the fact you gave do not add up..  YOUR pension payments will be coming from the save pool that would be available to the others... they could not have lost everything unless you had lost everything... and if the company was viable, they could not take away earned pension benefits anyhow... then can stop you earning anything new, but they can not take away what is already earned..

 

[Texas Proud]

This is not correct, according to my IBM friends.  The DB pension is to be stopped cold in two years.  Mid-career people will have vested rights in the old system, but no further participation.  They are to be started anew at that time in an "enhanced 401K."  Lots of mid-career IBM people will lose lots of money with this new deal.  May be OK for the young, and OK for the old, but will be the shaft for those in-between.  As another poster said, IBM will save billions.  It will come, of course, and as usual, out of the hides its people.

Whoda... No, they are not going to LOSE money.. they might not make any more for the remainder of their service, but what they have earned to date is there for them when they retire.. now, you might say that if they work X number of years more they should get Y... but that is why they are stopping the plan... They now will have a certain amount of money put aside that is LESS then they would have put aside under the old plan, but that is what IBM is trying to do, cut costs.

 

[Nords]

Nords -- it's too late for an employee who is, say, 45 years old to vote with his feet.

I'm not going to try to change your mind, WT. But I think that statement is too limiting.

I'm no shill for the megacorp, but IBM tried this pension switch a couple years back and got savaged by their engineers' class-action lawsuit. So I'm pretty sure that IBM verified that they did it "right" this time, with all the proper notifications & warnings. The handwriting's been on the wall for quite a while. Perhaps IBM broke an implicit employer-employee bargain that started back when Tom Sr was running the show, but that ethical issue apparently didn't stand in the way of corporate behavior.

Again I'm not trying to defend that decision, but I think IBM gave plenty of warning. "Starting over" at 45 is no fun, but millions have done it since their own employer-employee pacts were broken over the last few decades. My father voted with his feet at Westinghouse, came out ahead, and even ended up going back to the former company a few years later with his "old" DBP and his "new" 401(k) at a higher salary.

Compounding is compounding and the math works the same way whether it's a 401(k) or a DBP. The key is in how the switch takes place and on what terms. If the switch is unfair, hopefully some enlightened HR veteran will point out that litigation is far more costly than a fair switch. If the employees choose to abdicate the whole issue then they'd better be ready to accept the terms or to vote with their feet!

But again, if you're venting, I understand.

 

[bbuzzard]

But the thing about compounding is part of the problem. When a DB plan terminates, there is no more compounding. Say your benefit is worth $10,000 per year in the year the plan terminates. If you are 65 that year, you get the $10,000 per year. OK. If you are a younger person who is say 45 the year the the plan terminatres, and your benefit is $10K, you retire 20 years later at 65, but you still get $10,000 per year, with no adjustment for inflation. So the middle-age guy (BTW -- I'm past middle age on the downhill side) really gets the shaft. His 401K has grown only 20 years, and his DB is valued in 20-year-old currency. You have a runt pension, and a runt 401K.

This is why I am opposed to DB plans. I would never, ever work at a company with a DB plan. I knew this when I entered the workforce in 1983. Why would a trust some faceless corporation to give me my money back in 40 years, when I could control it myself? Any job that had a DB plan was an automatic deal breaker for me. I am more than happy with my DC plans I have had at my several jobs.

 

[Jay_Gatsby]

This is why I am opposed to DB plans. I would never, ever work at a company with a DB plan. I knew this when I entered the workforce in 1983. Why would a trust some faceless corporation to give me my money back in 40 years, when I could control it myself? Any job that had a DB plan was an automatic deal breaker for me. I am more than happy with my DC plans I have had at my several jobs.

True, but even DC plans have their problems in the form of crappy mutual funds. Many companies with whom I've dealt selected their 401(k) plan providers on the basis of cost to them, rather than the quality of funds offered through the plan. If you're going to pull a DB plan, at least replace it with something that offers a good ROI.

 

[bbuzzard]

I have this question for those of you that are angered by the end of DB plans. First, I agree 100% that no one should loose any accrued DB plan assets when a plan is terminated. Additionally, let me note that the emplyees who have these plans terminated are getting mush less relative to what they would have gotten if the plans had stayed intact until they retired.

However, just as no one assumes their salary is fixed for life, why would you assume your DB plan is fixed for life? Your employer is free to renegoitiate your compensation package at any time, just as you are. I would not have it any other way. Your DB plan is part of your compensation package.

Employers hire the cheapest help that can do the job at the required level of skill, just as employees find the highest paying empoyer for their skill set. Should employers get upset when an employee leaves for a higher paying job? Should we outlaw job mobility becuase it is not fair to employers? If your job skills justify a DB plan, it will be continued to be offered. If not, it won't be. My take is that few jobs are worthy enough to justify the cost of a DB plan. The one exception is government employees, because the bills will be paid by the unborn so society does not care about the cost

I do not mean this to sound harsh, I would be pissed if my DB plan was terminated, but I would also be pissed if I got a 30% paycut. I just do not want to make either illegal, or claim they are unethical.

 

[Texas Proud]

I have no dog in this fight! 

But the thing about compounding is part of the problem.  When  a DB plan terminates, there is no more compounding.  Say your benefit is worth $10,000 per year in the year the plan terminates.  If you are 65 that year, you get the $10,000 per year.  OK.  If you are a younger person who is say 45 the year the the plan terminatres, and your benefit is $10K, you retire 20 years later at 65, but you still get $10,000 per year, with no adjustment for inflation.  So the middle-age guy (BTW -- I'm past middle age on the downhill side) really gets the shaft.  His 401K has grown only 20 years, and his DB is valued in 20-year-old currency.  You have a runt pension, and a runt 401K.

I do not have a dog in this hunt either.. but it seems my dog is growling for some reason...


Here is where your thinking goes awry... your example is that the person has earned an annuity of $10,000 per year.. but that is WHEN HE REACHES 65... not in today dollars... the plan has an amount of funds that when compounded over the next X years it will be able to pay the annuity when you retire...  yes, your do not get any more than the amount calculated today, but that is a change in compensatiion.  You get to choose if you want to stay or go..  It could just as easily been that they say, we will keep your pension plan as is... but your salary will be dropped by $20,000 per year..   do you 'lose' money?  NO, you lose future earnings.  You make a decision if your salary is good enough for you or not..

 

[bbuzzard]

True, but even DC plans have their problems in the form of crappy mutual funds. Many companies with whom I've dealt selected their 401(k) plan providers on the basis of cost to them, rather than the quality of funds offered through the plan. If you're going to pull a DB plan, at least replace it with something that offers a good ROI.

Unfortuntely true. However, it could be worse. My wife is stuck with a Mutual of America 403(b). By the time we retire, they will have made almost as much off her investments as we have.

I ran the number assuming she worked from 26 to 67, contributing 20% of her pay to the 403(b) at 10% return and 2% fees (This is worst case, as she will not actually work this long, but others might). Over this period, she would make $3.2M in returns, while MoA would make $1.5M in fees. I asked my wife daily to find a new job so we can roll her money over to an IRA. Unfortunately (for this purpose) she like her job, company and coworkers. I think these people (MoA and ilk) are pond scum.

P.S. Note that the ratio of MoA take to the investors take does not vary with salary or savings rate, but only with RoR and their fees. In other words, they will always get 40%-50% of what you get under most conditions. Any they never area at a risk to lose principal like you are.

 

[justin]

I asked my wife daily to find a new job so we can roll her money over to an IRA. Unfortunately (for this purpose) she like her job, company and coworkers. I think these people (MoA and ilk) are pond scum.

Can she negotiate to quit and then get rehired after you roll over the 403b.