Comments on: How should John Arnold approach pension reform? A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Missinginaction Tue, 18 Feb 2014 12:53:27 +0000 Something has to give, eventually. TFF make’s, IMO, a very salient point. Plan funding growth assumptions are a large part of this problem.

Rosy plan return assumptions wallpaper over outsized promised benefits. Which as you point out Felix, are often granted in lieu of current compensation.

I argue that again in this case the issue is that as a society we place very little emphasis on personal responsibility and even less on a delay of gratification. We want it all and we want it now for the most part. Don’t give it up now and you’ll pay dearly.

I’m fortunate to participate in a private pension plan (with COLA’s) that is fully funded and always has been. My previous employer drummed into the staff that retirement finances were a “three legged stool”. One leg pension, one leg social security and one leg…..are you ready? Personal savings. Wow, how radical.

Those of us who listened are doing quite well in spite of all the financial angst.

By: realist50 Mon, 17 Feb 2014 20:39:15 +0000 “So before we start talking about allowing governments to default on their pension obligations (which is the goal of the California ballot initiative being supported by Arnold”

Felix, your characterization of this ballot initiative is inaccurate to the point of being shameful. The plain text of it allows for the modification of benefits “for future work performed”, not a default on benefits that have been earned for past service. Both of your recent posts on pensions contain nuggets of reasonableness amidst a sea of points that read like the talking points of a spokesperson for a public employees’ union. It’s especially disappointing because you, unlike most journalists and columnists who write on this topic, understand the mathematics of financial returns well enough to know that offering someone a traditional defined benefit pension, with a COLA, is a promise with a very expensive NPV, especially when “30 and out” rules let people retire with a full pension in their early 50’s.

By: skeptonomist2 Sun, 16 Feb 2014 23:21:36 +0000 Here’s a facile solution: don’t even try to fund pensions. Or more realistically, expand Social Security to the point where is actually supports a decent living in retirement, paying for it with taxes on all income. What we have now is an incredible mishmash of municipalities promising things they can’t deliver, funds being turned over to managers whose main objective is looting, Congress passing ever more tax-break savings schemes that ultimately benefit Wall Street, failing companies and municipalities reneging, etc., etc. Then compensation negotiations might be carried out on a more realistic level. Facile solutions that won’t work are any that involve expanded roles for Wall Street.

Will people ever realize that 2050’s support for 2050’s retired must come out of 2050’s production, not today’s?

By: tonysam Sun, 16 Feb 2014 21:00:50 +0000 The fact is John Arnold and his ilk like those in ALEC don’t care one iota about a pension “crisis.” The whole scheme is to create propaganda about a “crisis” in order for Arnold and his Wall Street to LOOT it by privatizing it like they have done with the gutting of private pensions in favor of 401(k)s. Next on the agenda is the destruction of Social Security so these criminals, which is what they are, have more money to squander from the taxpayers. It’s as clear as a bell, and it is not worth writing a 10,000-word essay about something that is obvious. Arnold once worked for Enron. That should tell people all they need to know.

By: ciwood Sun, 16 Feb 2014 19:51:11 +0000 In my lifetime, I have worked 49 years. Prior to ERISA, I was in 5 pension plans but never worked the required ten years to be vested. For pension plans to work, we need a new set of rules as you suggested but these rules would also make a defined contribution plan work.

1. Portability
2. No early withdrawal(no loans)
3. Annuitize benefits(retirement should not be about building an inheritable estate)
4. Immediate vesting
5. Required minimum employee paycheck withholding.

It sounds very much like Social Security doesn’t it?

By: TFF Sun, 16 Feb 2014 13:05:13 +0000 When I started to look seriously at planning for retirement, I quickly realized that the outcome is particularly sensitive to real investment returns (during the second half of the accumulation phase and first half of retirement). I toyed with a variety of inputs, but have settled on a real return of 3% as being easily achieved even under adverse circumstances.

Pension plans are funded assuming a 6% real return (8%+ nominal return). Actuarial calculations are well understood, and quite reliable, but they are assuming an investment return that roughly matches the historical norm for their portfolio. This will work if investment returns are at least average going forward. This will fail if investment returns are below average.

Forcing pensions to be “fully funded” is pointless if you continue to allow them to assume an unrealistic rate of return. Force them to fund at no more than a 4% real return and allow rebates to the funding entity if the returns exceed that. Actuarial calculations allow this to be done with a high degree of certainty, yet that means nothing if you begin from unrealistic assumptions.

By: BryanWillman Sun, 16 Feb 2014 05:33:45 +0000 There is another problem in all of this.

It’s a repeat of the old “get paid in grain, or newspapers, or whatever” instead of money that persisted for a long time. And finally the advanced world changed to say “no, you have to pay people in money.” But somehow we have regressed to trying to pay people in other ways.

Pension benefits, healthcare benefits, surely others, all have the properties that they:
(a) inhibit job mobility
(b) hide the costs of something
(c) thwart individual management of resources
(d) lower real wages in the here and now in a not very visible way

And one way or another, the employee (via lower wages) or the public (through higher taxes) have to pay for this OR the employee gets screwed in one way or another.

[Similar issues in private industry as well.]

The real (very hard to reach) solution is to force all compensation to be in money, here and now, and say that everyone is eligible to join very large pools for healthcare, retirement, and so on. Those things need government backstops and insurance? Great. But stop pretending that people can be promised things beyond what society can possibly deliver and they should therefore serve the public now for below market rate wages.

Note that this explicitly frees a fire fighter (say) to invest their “pension” money in some fund, change jobs or even states, and when done being a fire fighter go work at some other job with no controversy at all.

By the way “government obligation to care for the elderly” rings hollow in a reality (ours) where government doesn’t consistently deliver on its educational obligations, transportation obligations, etc.