Yet another reason pensions (and other CBA's) don't work..........

[TruePaige]

If i get really motivated, I'll dig up the Roth 401K documents I've got at home. I don't remember the remember the matching policy being ridiculous or anything.

I can't remember really...thought I'd be able to just pull it up, but man I can't find it anymore.

It wasn't completely nuts, but it was generous enough to ensure a competent employee could have a nice retirement. Factoring in the other ways to get a bigger piece of the pie from GS it was really nice!

I'd love to work in their NoVa office someday, give it a shot and what not.

 

[Jhhnn]

First, you have several issues rolled into one post that need to be seperated out.

Yes, you can guarantee retirement income. Up until about the 80's that's how pensions/retirement plans worked.

These are Defined Benefit Plans. Notice that it's the "benefit" that's defined. I.e., workers who retired were guaranteed a set retirement benefit (usualy expressed as a percentage of their annual wage).

These are notoriously complicated/difficult to administer in part because of stock market fluctuations.

And that - stock market fluctuations - is precisely the problem here. The stock market has fallen from a high of just over 14,000 down to 10,000. That's why these companies now owe huge amounts to properly fund their DBP retirement plans.

But if you think this is bad, consider all those federal, state and local DBP retirement plans that are also now underfunded. This represents a HUGE liability.

Because of problems like this most companies have switched to Defined Contribution Plans. So, now they define the (annual) "contribution" to the plan and let the individual employee be responsible for how it's invested. I.e., if the stock market goes down it's no longer the employers' responsibility to 'make up for it'.

Fern

Part of the problems with defined benefit plans are deliberate over-promising to keep workers on the job when sales are good, as with GM, and managerial starving of pension funds when they have the chance. Any time the fund approaches what is theoretically 100% funding of liabilities, they want to cut funding, and often can, depending. When the stock market is 14000, they quit paying into the fund, or try to. When it dips to 8000, they whistle Dixie, disavow responsibility... demand benefit cuts to stabilize the plan... When the market goes back up, well, they have reason to reduce contributions, right? The plan is almost fully funded, right?

Defined contribution plans are loved by employers, because they're not responsible for anything that happens down the road. You're on your own in retirement, so when the market collapses, you have to reduce the principal, the working capital, to meet overhead, shortening the amount of time your money will last. The forces working in your favor when you're earning now work against you when you're retired, and you can end up in the worst nightmare of elderly people- outliving your money...

 

[Fern]

Part of the problems with defined benefit plans are deliberate over-promising to keep workers on the job when sales are good, as with GM, and managerial starving of pension funds when they have the chance. (1) Any time the fund approaches what is theoretically 100% funding of liabilities, they want to cut funding, and often can, depending. When the stock market is 14000, they quit paying into the fund, or try to. When it dips to 8000, they whistle Dixie, disavow responsibility... demand benefit cuts to stabilize the plan... When the market goes back up, well, they have reason to reduce contributions, right? The plan is almost fully funded, right?

(2) Defined contribution plans are loved by employers, because they're not responsible for anything that happens down the road. You're on your own in retirement, so when the market collapses, you have to reduce the principal, the working capital, to meet overhead, shortening the amount of time your money will last. The forces working in your favor when you're earning now work against you when you're retired, and you can end up in the worst nightmare of elderly people- outliving your money...

No Jhhnn.

(Re: #1)
By law, when the plan's funding is at 100% they are prohibited form making further contributions.

Worse, if the market rises considerably they can be forced to withdraw funds from the plan. Then they have to pay taxes on that withdrawn excess. Pension plans can NOT be over-funded under threat of financial (tax) penalty. I.e., you either takeout the excess or pay a big penalty for as long as it stays there. Excess contributions can NOT be made either, or there are penalties.

Kind of stupid if you ask me. Ideally in good years they should put in a bunch, and not so much in bad years.

(Re: #2)

No, they don't. They don't like them or else we'd still see a lot of them. Nothing in the law is stopping companies from establishing DBP.

They are complicated and very expensive to manage/administer (requires expensive actuarial professionals/work, other legal expenses and a bunch of regulations). And the employers ARE responsible for what happens, unlike in defined contribution plans like 401(k)'s or profit sharing. If the stock market falls they are required to make up that shortfall out of company funds (again, unlike 401(k)s and other DCP.

Remember, they are defined benefit plans. The former employee/retiree is guaranteed their benefit whatever happens in the market.

Fern

 

[Jhhnn]

I'm not at all sure that your assertions wrt #1 are correct, Fern- there have been times when my own quasi-govt pension plan was theoretically over funded in the past, so you'll need to cite chapter and verse...

WRT #2, I specifically stated "defined contribution plans" as being favored by employers over "defined benefit plans", also pointed out the major drawbacks for beneficiaries...

 

[Hacp]

Read about entry barriers.

The only companies with the right combination of expertise and capital to make those profitable investments are foreign auto companies.

If they purchased the assets most of the profits would go out of the country and the supplier chain would have already collapsed (not to mention the interest in cutting costs with a more streamlined chain using their current suppliers).

It would have killed the American economy to an equal if not worse degree than a financial sector collapse.

Game over. You killed the economy. Don't play again.

And propping up a failing industry with taxpayer money is not natural. You don't try to save a sinking ship. You build a newer, faster, and more modern ship.

 

[TruePaige]

And propping up a failing industry with taxpayer money is not natural. You don't try to save a sinking ship. You build a newer, faster, and more modern ship.

Really?

If I had a leak in my boat, I'd patch it.
Crack in my dam, I'd seal it.
Bad power cable, I'd replace it.

Even your analogy is shitty.

 

[nonlnear]

And propping up a failing industry with taxpayer money is not natural. You don't try to save a sinking ship. You build a newer, faster, and more modern ship.

Unfortunately it is natural, at least for humans. What is not natural (or rather what is historically disruptive) is the idea that failure is a long-run benefit. This is a disruptive innovation that requires so much selflessness to truly embrace that most people are blinded to the fact and instead call it the most selfish doctrine in the world. They do this to preserve the delusion that preserving institutions (like certain beloved corporations) that are dying is in fact for the good of something other than their own vanity and greed. Human history is along saga of rulers clinging to worn out legacies, throwing the blood and resources of empires down the drain to keep a waning dynasty gasping for breath one generation longer. In today's world we continue the charade of calling this insidiously selfish act "generous" and "sensible".

 

[Hacp]

Really?

If I had a leak in my boat, I'd patch it.
Crack in my dam, I'd seal it.
Bad power cable, I'd replace it.

Even your analogy is shitty.

And when your boat is hit by an iceberg, you abandon it.

 

[nonlnear]

Really?

If I had a leak in my boat, I'd patch it.
Crack in my dam, I'd seal it.
Bad power cable, I'd replace it.

Even your analogy is shitty.

Problem is this boat isn't being fixed by anyone who could have called it "my boat". If it could have been fixed by its owners, Hacp would have definitely been all for it. Don't get all uppity about a metaphor that you yourself fail to read correctly. The ship is the failing companies, not the country.

 

[Jhhnn]

And propping up a failing industry with taxpayer money is not natural. You don't try to save a sinking ship. You build a newer, faster, and more modern ship.

Yeh, except when you're *on* the sinking ship, or when that ship sinking will block the harbor...

The govt is doing with GM exactly what some private equity firms do- buy low, inject some capital, reorganize the company, sell at a profit...

Yeh, I know, you'd rather the whole thing go down the porcelain bowl, never to return, if it meant breaking the UAW- regardless of the effect on the rest of the linked economy...

 

[Hacp]

Yeh, except when you're *on* the sinking ship, or when that ship sinking will block the harbor...

The govt is doing with GM exactly what some private equity firms do- buy low, inject some capital, reorganize the company, sell at a profit...

Yeh, I know, you'd rather the whole thing go down the porcelain bowl, never to return, if it meant breaking the UAW- regardless of the effect on the rest of the linked economy...

Private equity firms would bust the unions first.

 

[halik]

I can't remember really...thought I'd be able to just pull it up, but man I can't find it anymore.

It wasn't completely nuts, but it was generous enough to ensure a competent employee could have a nice retirement. Factoring in the other ways to get a bigger piece of the pie from GS it was really nice!

I'd love to work in their NoVa office someday, give it a shot and what not.

Honestly the bonus made up a far bigger part of my comp than 401K matching or stock grants. I don't know a single person working at GS that took the job because of the retirement benefits

Most people end up bailing way before retirement anyway, there's no loyalty on wall street.

 

[Paul98]

this wouldn't be such a problem if the top didn't get so much more than the bottom. You want to talk about entitlement look at the top of many of these companies, it's sick.

 

[piasabird]

All retirement funds should be forced to be placed separately with an outside entity. You are lucky if you work some place where they give you a pension. In most places the only pension you get is what you save. Where I work we pay our own pension and after you are vested the company matches what you put in the fund at about 6%. However, this is not really enough to retire on.

 

[Jhhnn]

All retirement funds should be forced to be placed separately with an outside entity. You are lucky if you work some place where they give you a pension. In most places the only pension you get is what you save. Where I work we pay our own pension and after you are vested the company matches what you put in the fund at about 6%. However, this is not really enough to retire on.

True about not enough to retire on, kinda... People approaching retirement age do best when they reduce their overhead, like paying off their mortgage, downsizing from the house where they raised their children, things like that...

If you did a cashout refi at the market peak, blew the proceeds on paying off the credit cards, a boat, a truck, the vacation of a lifetime and a few other frivolities, well, you're screwed...

And, of course, there's always teh ebil soshulist social security to augment their pension... medicare... and the senior drug benefit...