Comments on: Occupy defined-benefit pension funds! A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: TFF Sun, 22 Apr 2012 15:50:07 +0000 dWj, if they were to do so, would you trust them with your money?

By: dWj Fri, 20 Apr 2012 20:49:12 +0000 Perhaps the GM pension fund should spin itself off and offer closed-end fund shares, both for purchase (in some fashion) by GM employees and for investors on the stock market in general.

By: MrRFox Fri, 20 Apr 2012 05:03:52 +0000 It’s “free lunch” time again, at OWS and right here.

Everybody loves DB plans and the guarantee of future investment returns implicit in them. That “tail risk” has been the ruin of more companies than one can count – think AMR, Delta, GM, the entire steel industry to name just a few. That’s why we need the PBGC – to clean up the wreckage when these plans fall to pieces. At the end of the day, it’s taxpayers who have to underwite too much of the promised benefits.

DC plans aren’t any better in concept, but at least they don’t imply promises they can’t keep.

By: -To- Thu, 19 Apr 2012 22:29:17 +0000 Expand social security ?

By: Danny_Black Thu, 19 Apr 2012 20:33:35 +0000 realist50, there also seems to be a difference between what some people write in books and what they write in their day jobs as newspaper journalists. McLean is a case in point, she co-wrote one of the best books, IMO, on the financial crisis and also on Enron but her newspaper articles are usually awful. I think it is a different competitive landscape and different approach to fact checking.

By: realist50 Thu, 19 Apr 2012 19:56:59 +0000 Expanding on Danny_Black’s point, I’ll also state, without having read any of this collection, that removing Spitzer’s contribution from it would be addition by subtraction. (Correction – unless it involves lessons learned on how to avoid law enforcement when hiring escorts. I’m willing to acknowledge that Spitzer should be an authority on that topic.)

Regarding Appadurai’s point, there may be more business news, but most of it is written by reporters who are woefully uneducated in business, economics, and accounting. WSJ, the Economist, and the FT are almost always high quality. There are other pockets of educated media – some NYT business coverage, especially Dealbook and certain feature writers such as Bethany McLean. I often don’t agree with Felix’s conclusions, but I’ll admit that he’s generally knowledgeable about business, finance, and economics topics. Most business journalists, never mind general or political journalists, aren’t very knowledgeable on business or economics topics, though. I’m amazed by the number of times that I see reporters write “balance sheet” when they mean “income statement”.

By: somecomputerguy Thu, 19 Apr 2012 19:20:34 +0000 It is not a choice. Employers do not want to be in the pension business, though they are happy to exploit the idea of pension plans to achieve various ends.

Please feel free to correct me, as I recall it;

20 or so years ago the great evil afflicting employers was the defined-contribution pension. It seemed that because that pensions were being well managed, they were accumulating stunning amounts of money. Seemingly, they were more profitable than the companies that were contributing to them.

The great crime then, was that if allowed to continue, defined-contribution pensions could end up paying beneficiaries far in excess of the pathetic amounts originally envisioned, when that money could be used for something much better right now.

See, those pathetic fixed payments were really all that employers morally owed, and the defined contributions were resulting in over funded pension plans, and that was just terrible. Well, that situation was remedied.

That was how we got to the criminally generous defined benefit pension of today.

By: TFF Thu, 19 Apr 2012 18:58:30 +0000 A nice alternative, DavidMerkel.

Much of my animosity to DB plans stems from my years in the public schools. It was funded primarily by an 11% employee contribution, and benefits were calculated on years, age, and final salary. Seems like a reasonable deal, no?

Except in my case, I started late (too many years of education) and knew that I wanted to take some years off to raise my family. Had I remained in the system, I would not have received credit for the investment returns from that decade. Nor could I have received Social Security benefits (paid on self-employment and outside income throughout the years).

Moreover, I would have been trapped in the job well into my 60s. Was that a commitment that I wanted to make at the age of 35? Instead I left the system, received my contributions back (with just a paltry 2% interest added), and invested them on my own.

Traditional pension plans are a trap for all involved. Your alternative sounds much more fair, much more flexible.

By: DavidMerkel Thu, 19 Apr 2012 18:03:57 +0000 g-defined-contributions/

Felix, I agree — replace DC plans with DB plans, but then get the actuarial profession to create better funding standards that pre-fund plans, and then get the IRS to call off the dogs when it reduces tax revenue.

By: realist50 Thu, 19 Apr 2012 17:42:14 +0000 Probably fair to say that most Fortune 500-sized employers still have at least a legacy defined benefit scheme, though, agreeing with msl46, that number approaches 0 for smaller businesses and large businesses founded in the past few decades. I’m sure someone will correct me if I’m wrong, but I’d be really surprised to find defined benefit plans at Dell, Cisco, or Google. We therefore could set this up for some workers, but far from all.

I think that employers using clout to negotiate lower fees on defined contribution plans is likely a better path to success than this defined benefit plan idea, which has a variety of structural and practical complications.

If I participate, am I allowed to withdraw my funds at any time? If so, as other commenters have noted, we’re then back to the problem of individuals hurting their returns by selling low and buying high. Also, many DB plans invest in part in illiquid assets – real estate, private equity, timber, etc. – so large withdrawals during a downturn would dramatically change asset allocation percentages. A large part of how DB plans operate is based on the fact that the payments they’ll be making are fairly predictable, at least over the near to medium term.

Also, as an individual I probably don’t want to keep the same asset allocation over my lifespan, which is implicitly what I’m doing if I put my money alongside a DB plan. When I’m young, I want an equities heavy allocation, and I then should transition gradually to a fixed income heavy allocation as I age.