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Old 10-16-2018, 10:59 AM
StraightTalk StraightTalk is offline
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Pensions - maybe I'm just ignorant

I'm not sure I understand how anyone thinks pensions make sense and are sustainable. As I understand it, pensions basically pay retired employees forever (until they die). Is this right?

How can this work? How does a company have enough money to do this? Pay current employees as well as retired employees.
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Old 10-16-2018, 11:08 AM
Wesley Clark Wesley Clark is offline
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Aren't pensions just like an annuity but from a company? You pay into it, they invest the money and then offer you a stipend in retirement.

Fwiw an annuity that offers around $1000 a month in retirement costs maybe 200k if you buy it at age 65, but maybe half that if you buy it at age 50.

So if assume pensions collect money from employees, invest it in stocks and then pay out to retired employees.
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Old 10-16-2018, 11:22 AM
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And there's nothing that says a pension has to be at a certain amount. If I invest my pension fund so that it averages 4% interest per year, but only pay out at a 3% rate, the money will last indefinitely.

The trick is balancing present contributions with future payouts.
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Old 10-16-2018, 11:30 AM
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A company has to decide what to offer their employees that still nets them a profit. Pensions are just another part of that package. If a company can't afford to pay pensions, then either they go out of business, or they offer their employees a compensation package that doesn't include a pension. And not offering a pension might result in them not being able to get the employees they need.

Now, they could instead eliminate the pensions, raise the salaries, and tell the employees to make their own investments for their retirement. But most companies hiring career workers have found that they can put together a benefits package that costs the company less but which the employees prefer, if it includes a pension. So they do.
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Old 10-16-2018, 11:31 AM
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Aren't pensions just like an annuity but from a company? You pay into it, they invest the money and then offer you a stipend in retirement.
In the more traditional pensions, you didn't need to pay into it. The employer paid all contributions. In others, both the employer and employee pay in. The money is invested, usually in very safe funds, to generate the money paid in retirement.

One of my retirement accounts is from TIAA-CREF (for education professionals). I never paid anything into it; all contributions were made by my employer. The funds were invested in an account which is now about four times larger than the money originally paid in. I now have the option of converting these funds into a lifetime annuity.

Paying pensions is, for many firms, a cost of doing business. Based on actuarial tables they will calculate how much they need to set aside or invest in order to pay out an average employee over their average lifetime after retirement.
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Old 10-16-2018, 11:56 AM
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Originally Posted by StraightTalk View Post
I'm not sure I understand how anyone thinks pensions make sense and are sustainable. As I understand it, pensions basically pay retired employees forever (until they die). Is this right?

How can this work? How does a company have enough money to do this? Pay current employees as well as retired employees.
By that reasoning, all retirement saving is impossible. You mean you have to accumulate a big pile of money and live on that until you die? How can that work? How do you have enough money to do this?

Of course, if an individual can do it, a pension fund can do it on an individual's behalf just as well. In fact they have a couple of advantages over the individual trying to do the same thing:
  • The can employ professional money managers at a scale that individuals can not.
  • Bigger ones can more effectively demand returns from the companies they invest in.
  • If one of their beneficiaries dies early, they can use the unclaimed funds for beneficiaries that die late. Individual savers all need to save extra money in case they live longer than expected. Pension funds can target for the average.
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Old 10-16-2018, 12:00 PM
leahcim leahcim is offline
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In the more traditional pensions, you didn't need to pay into it. The employer paid all contributions.
Of course, that just meant that the individual effectively paid into it by forgoing the additional pay they could get at a competing employer that doesn't offer a pension.

Most of the current pension-having jobs (e.g. teachers, public servants) are much more known for their benefits than their high pay.
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Old 10-16-2018, 12:01 PM
Dewey Finn Dewey Finn is offline
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Keep in mind that there are two types of retirement schemes; defined benefit and defined contribution. Most pension plans are the former, where the company promises a fixed amount each month in retirement and it's up to them to ensure there's enough money to meet the commitments. The latter is what most people see nowadays and is what a 401(k) or IRA is. You and/or your employer contribute money and you may have some choice in how it is invested. How much you have at retirement is dependent on how much you contribute, how well you invest and how slowly or quickly you choose to withdraw the money.

Some companies and public sector employers with traditional pension plans get into trouble if they have not set aside enough money over the years to meet their obligations. There are even companies, like Bethlehem Steel, that are a shadow of their former selves but still have massive pension obligations.
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Old 10-16-2018, 12:51 PM
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It's also true that negotiating pensions is something that unions like to take credit for (maybe with some justification, maybe not, prefer not to argue about it here). Pensions are a benefit that may cost a company noticeably less (due to the power of compound interest) than paying a higher salary to make up for the lack of a pension.

Where I worked, workers became vested in a pension after 7 years, and the amount of the pension was based on a formula that calculated years of service and an average of the worker's highest 3 years of income. I think there was a maximum number of years of service beyond which one's pension would not increase, I think it was 40 years.

Unfortunately, my pension does not have any cost of living increases built in, so inflation is a serious problem. Fortunately, I don't rely entirely on my pension and social security for my income. But I can't deny that having a pension is great.
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Old 10-16-2018, 01:16 PM
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I'm not sure I understand how anyone thinks pensions make sense and are sustainable.
Do you accept that it's possible for someone to save money during their working life in order to live in retirement? A pension scheme is simply a formalization of that process. Conceptually, it doesn't make a difference whether the company pays you all your compensation in cash and you save some of that money yourself independently, or if part of your total compensation goes directly into a pension scheme that is administered by the company on your behalf.

The reason for the formalization is that the government chooses to give tax breaks to incentivize people to save for retirement; and that the government makes those tax breaks contingent on you not raiding your retirement savings for hookers and blow before you retire.

The element of validity in your question relates not so much to private pensions, which must be actually funded with earmarked money, and public pensions that may not be. With public pensions, the government generally doesn't set aside specific amounts from your taxes to later specificually pay you in retirement, the funding for current pension expenditure just comes from current taxation. That creates a problem if the size of the current retired population increases relative to the size of the current working population. This a growing problem in most Western countries (Japan in particular), with declining birthrates and increased life expectancy. The obvious way to address it is simply to increase the retirement age for state pension benefits, but you can imagine how popular that is.

Last edited by Riemann; 10-16-2018 at 01:18 PM.
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Old 10-16-2018, 01:25 PM
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With public pensions, the government generally doesn't set aside specific amounts from your taxes to later specificually pay you in retirement, the funding for current pension expenditure just comes from current taxation.
You can see the impact of this by reading up on the Rhode Island Retirement Security Act (RIRSA) of 2011. The state cut back on benefits to the public employees (teachers, firefighters, police) including people already retired and on a fixed income. Basically the State didn't put aside the money there were supposed to and spent the money they had saved on other things, then blamed the workers for wanting to get what they were promised. Major cluster.
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Old 10-16-2018, 02:06 PM
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Now, they could instead eliminate the pensions, raise the salaries, and tell the employees to make their own investments for their retirement. But most companies hiring career workers have found that they can put together a benefits package that costs the company less but which the employees prefer, if it includes a pension. So they do.
In the US, most companies have eliminated pensions so they are no longer common for non-government employees. Instead, companies have found that it is cheaper to set up pre-tax nvestment/savings plans for employees. The company only contributes if the employer does. Employees love it because they are 'in control' of their own money - but seldom save enough or invest wisely.

My parents retired on a pension but only one in my generation (of thirty) has done so.
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Old 10-16-2018, 02:08 PM
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First off, remember there are two types: defined benefit and defined contribution.

With defined benefit, there's a formula based on your years of service and your salary, and that's used to calculate a figure you get for the rest of your life.

Underfunding of these is a very real concern - years back when I worked on a project for the Federal government dealing with retirement plans, it was fairly well known that the plans were underfunded. Many companies have gotten rid of them for this reason, and some existing ones have failed outright.

Defined contribution means the company puts aside x dollars a month, or x percent of your salary, and that's invested somehow, and when you retire you can convert it to an annuity, or take it as a lump sum, or some combination thereof. If the market underperforms those last few years - oh well, sucks to be you. These annuities typically have the option of reducing your payout so your spouse gets something once you croak.

A further variant on defined contribution is where it's invested in something much like a 401(k) - where YOU have to make the investment choices. The rules regarding withdrawal / rollover are different from a regular 401(k); as it's a pension vs a straight 401(k), you have to get spouse signoff before moving the money elsewhere (as I found when I was rolling over my 401(k) from my previous employer; I wound up leaving the pension portion in place).

The traditional defined benefit pension - you get x dollars a month forever - is essentially a thing of the past, at least in the private sector. Public sector still has them, though the benefits are not nearly as good as someone starting work decades ago.

Using the Federal example, CSRS (Civilan Service Retirement System) gave a better pension overall for someone who was a career employee. It was a full defined-benefit plan. In the 1980s, the government implemented the FERS (Federal Employees Retirement System) which is a hybrid program. It still has a defined benefit component, but also requires you to contribute to Social Security and offers the Thrift Savings Plan, which is essentially a 401(k). As with most private employers, this has the result of shifting some of the burden on you to see that you've saved enough and are invested correctly.

When a pension scheme is converted to an annuity at retirement, it gets crunched by actuaries who look at a lot of different factors when computing the benefit, including (I assume) average lifespan, marital status, and so on. Their assumption is that John might live til 90, but Mary might croak at 70, so they figure out a payout amount assuming people live on average to age 80 or whatever. So they lose money on John but win on Mary.

I think these are typically offered by insurers. As long as those insurers are sound, you should be OK under their rules - but if, say, Prudential were to fail, a lot of people would be screwed. I don't know if those plans are covered under the Pension Benefit Guaranty Corporation or not (most defined *benefit* plans are).

My own career's retirement coverage has gone from:
1) Defined benefit - if you stayed there 10+ years (I did not)
2) 401(k) only, with some employer matching
3) 401(k), with some matching (though you couldn't contribute until you'd been there a year or so, and it was a while before you were vested in their portion), as well as a defined benefit plan (I'll get 250 a month when I retire, woohoo!)
4) 401(k) with some matching, plus a defined contribution plan that was not market-based: they credited it with interest each year. You got that benefit even if you did not participate in the 401(k)
5) 401(k) with matching, plus a separate defined contribution plan that was 401(k)-like i.e. market-based. The company put a percentage of your salary into that.
6) Pure 401(k) where the employer's contribution goes directly into your 401(k) and is managed along with the rest of your money.

In this last scenario, the company money does not fall under the "pension" withdrawal rules. I could cash it all out on retirement without consulting with my spouse at all. It's a risky option; with the 401(k)-like plans, you can't get to that money as easily and are far more likely to leave it in place vs spending it.

So - all in all, the companies do in fact realize that pensions are economically unsustainable, and are getting away from them as fast as they legally can. The push to 401(k)-only plans is especially interesting. If your investments do well, you can wind up better off. But as noted: you could cash that out on leaving a job, and wind up with nothing (under schemes where the company money was separate, you couldn't touch it).

When my employer went to a 401(k) only scheme, their matching changed. You'd get x % free even if you didn't put your own money in, then they'd match 1-for-1 up to a certain percentage. If you saved enough of your own money, you'd get the same matching overall as before - but if you saved less, you'd get less matching. Used to be, you got 5% free, and they'd match half of up to 6% - so you'd get a total of 8%. Now, you get 2%. If you save 6%, you wind up with the same 8%. If you save 2% of your salary, the old plan would get you 6%; the new would get you 4%. If you save 4%, the old would get you 7% and the new would get you 6%.

AND, companies are now changing their plans so that you don't get the matching unless you stay there the full year. Get laid off or quit December 1? Too bad, so sad, thanks for the money, sez the employer.

401(k) plans have tax issues if you retire early - like before 59 1/2 years old. You can't just dip into them willy-nilly; there are rules about "substantial equal payments" or some such if you need to use them before that age, otherwise penalties apply. I don't know how other defined contribution plans would work; presumably they could be converted to an annuity, or withdrawn as a lump sum (despite the tax consequences), but I don't know if penaalties would be assesed. A defined benefit plan would, I think, just be taxed as normal income.... when my company that had one divested our division, I could have started collecting that pension right then. As I didn't need the 50 dollars a month, I opted to leave it be .
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Old 10-16-2018, 02:13 PM
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By that reasoning, all retirement saving is impossible. You mean you have to accumulate a big pile of money and live on that until you die? How can that work? How do you have enough money to do this?

Of course, if an individual can do it, a pension fund can do it on an individual's behalf just as well. In fact they have a couple of advantages over the individual trying to do the same thing:
  • The can employ professional money managers at a scale that individuals can not.
  • Bigger ones can more effectively demand returns from the companies they invest in.
  • If one of their beneficiaries dies early, they can use the unclaimed funds for beneficiaries that die late. Individual savers all need to save extra money in case they live longer than expected. Pension funds can target for the average.
Adding to that list of advantages: an institutionalized savings program is a lot easier to stick to that simply putting x dollars aside yourself each month. That money I have withheld each paycheck is money I never see and don't have any opportunity to spend. I might not put that same money aside otherwise, and if I did, it would be a lot easier to raid.

There is always the risk that a company will mismanage pension (or even 401(k)) funds. It has happened in the past. But by and large, they're a very, very good option.
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Old 10-16-2018, 02:17 PM
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You can see the impact of this by reading up on the Rhode Island Retirement Security Act (RIRSA) of 2011. The state cut back on benefits to the public employees (teachers, firefighters, police) including people already retired and on a fixed income. Basically the State didn't put aside the money there were supposed to and spent the money they had saved on other things, then blamed the workers for wanting to get what they were promised. Major cluster.
This is a big part of why the City of Chicago and the State of Illinois are facing budget nightmares. They spent decades skimping on putting enough into their pension funds, and now face huge pension obligations to retirees. A few years ago, the state attempted to cut pension payouts, but this was struck down by the state Supreme Court, which ruled that doing so was a violation of the state constitution.
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Old 10-16-2018, 02:25 PM
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I worked for many years as a computer programmer, computer lecturer and then teacher.
In each job both myself and my employer paid in a % of my salary each month to the company pension fund.
Now I'm retired, the pension funds (which have invested all those contributions) pay me a monthly pension.
I also paid taxes throughout, so I qualify for a State Pension.

Bear in mind that companies are constantly receiving such contributions from new employees and that as pensioners pass away, those pensions no longer have to be paid.
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Old 10-16-2018, 02:43 PM
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Instead, companies have found that it is cheaper to set up pre-tax nvestment/savings plans for employees.
It's not necessarily cheaper, but it is significantly more manageable from the company's standpoint. You pay today for today's labor, and pay nothing for yesterday's labor and nothing for tomorrow's labor. My books are clean, and my CEO isn't going to fund this year's bonus with a disaster 20 years from now.
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Old 10-16-2018, 03:44 PM
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Pensions also suffer from changing health demographics. People keep on living longer.

Looking at a quick Google check

1963 - life expectancy was 69.92
1970: 70.81
1980: 73.66
1990: 75.22
2000: 76.64
2010: 78.54
2015: 78.74

Adding years makes the math used when first offering the pension problematic. Over time, as companies radically change (or go under), you can see the pensions hit hard.

United changed the rules when they went through bankruptcy, leaving a lot of retirees hanging. https://www.nytimes.com/2005/05/11/b...ion-plans.html
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Old 10-16-2018, 03:55 PM
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Paying pensions is, for many firms, a cost of doing business. Based on actuarial tables they will calculate how much they need to set aside or invest in order to pay out an average employee over their average lifetime after retirement.
Back when companies first started offering pensions to all wage earners, people typically lived only a few years beyond retirement age. Some combination of poor life habits (smoking, drinking, poor diet), chronic illnesses that were not treatable by medicine of the day, and influenza and other periodic infections would kill a statistical number of people. As medicine as improved and people have in general adopted healier lifestyles (other than diet, which has arguably gotton worse), retires can typically expect to live two or three decades beyond retirement age, which was not accounted for in the original actuarial tables. In addition, many large companies have stagnated in growth so there are fewer people paying into retirement funds, which reduces the capital need for sustainable investment and growth. Pension funds also became a favorite for companies to borrow against, reduce contributions to increase apparent net profits, or just outright steal from, and pension funds can become defunct if a company goes bankrupt and leaves a fund without sufficient capital to maintain itself independent of new contributions. Because of this most of the public sector has moved away from defined benefit pensions and to defined contribution personal investment funds (the 401(k) and similar). Pretty much the only large scale retirement pension funds are in the public sector and by labor unions, both of which have come into significant difficulties.

Contract employees, on the other hand, get no pension or retirement benefits other than what they arrange personally, and many industries are moving over to having a significant number of contractors instead of salaried employees and full time hourly workers with benefits. Contractors and non-benefit hourly workers who do not have enough money or fiscal expertise to sensibly invest and manage a retirement instrument can either ‘depend’ on Social Security or volunteer for the Soylent Green factory. So...that solves that problem.

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Old 10-16-2018, 06:32 PM
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This is a big part of why the City of Chicago and the State of Illinois are facing budget nightmares. They spent decades skimping on putting enough into their pension funds, and now face huge pension obligations to retirees. A few years ago, the state attempted to cut pension payouts, but this was struck down by the state Supreme Court, which ruled that doing so was a violation of the state constitution.
It could be worse. They could have promised to cover retiree medical expenses and then not set up any retiree insurance accounts. That caused some excitement.
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Old 10-16-2018, 06:51 PM
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Pensions also suffer from changing health demographics. People keep on living longer.

Looking at a quick Google check

1963 - life expectancy was 69.92
1970: 70.81
1980: 73.66
1990: 75.22
2000: 76.64
2010: 78.54
2015: 78.74

Adding years makes the math used when first offering the pension problematic. Over time, as companies radically change (or go under), you can see the pensions hit hard.
Are those figures for life expectancy at birth or at age 65?
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Old 10-16-2018, 07:07 PM
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Perhaps it's most relevant to look at life expectancy at the start of your working life? I found this for U.S. white males / females, life expectancy at age 20:

1900: 62.2 / 63.8
1930: 66.0 / 68.5
1960: 70.3 / 76.3
1990: 74.0 / 80.3
2011: 77.2 / 81.8

Life expectancy at age 60 is in there too if you want to look at that. Since 1960 it has increased from +16 to +21 for men, from +20 to +25 for women.

https://www.infoplease.com/us/mortal...-age-1850-2011

Last edited by Riemann; 10-16-2018 at 07:11 PM.
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Old 10-16-2018, 07:10 PM
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My employer had a defined contribution plan. I retired on the last day of 1999 near the top of the market and my plan had nearly $1 million. Then it was converted to an annuity at a very favorable rate (which was going be reduced significantly on Jan. 1) which was the main reason I took early retirement (although, it was also clear that the change was announced six months in advance to encourage people like me to retire early--63 in my case). Since then, my employer has taken a bath on my annuity because interest is so low. And because I have probably lived longer than their old annuity tables would have predicted. But that is their problem. A couple years ago, they decided to get out of the annuity business. You take your money and do with it what you will. Incidentally, the funds were managed very well. I had the choice of 25/75, 50/50, 75/25 split between stocks and bonds. I chose 50/50, in part because that came with a minimum guaranteed pension, but a colleague who chose 25/75 did quite a bit better.
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Old 10-16-2018, 07:14 PM
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The life expectancy increases are a modest percentage of your total lifespan, but a significant percentage of your expected period of retirement.

Last edited by Riemann; 10-16-2018 at 07:15 PM.
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Old 10-16-2018, 07:16 PM
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In the more traditional pensions, you didn't need to pay into it. The employer paid all contributions. In others, both the employer and employee pay in. The money is invested, usually in very safe funds, to generate the money paid in retirement.
Safe hands, in the sense of professional money managers, but not necessarily as investments. As leahcim notes professional money managers are used, and you don't need them if you are just buying T-bills. State pension funds, especially for California, have a lot of influence. .
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Old 10-16-2018, 07:20 PM
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A big negative of pensions is that they discourage job-hopping. They were good for when people often worked for one company most of their lives, like the Bell System or IBM. But given long vesting times, people who moved wound up losing most of their pension years, and 401-Ks whiich vest immediately or very quickly are much better for them.
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Old 10-16-2018, 08:31 PM
Kimera757 Kimera757 is offline
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I'm not sure I understand how anyone thinks pensions make sense and are sustainable. As I understand it, pensions basically pay retired employees forever (until they die). Is this right?

How can this work? How does a company have enough money to do this? Pay current employees as well as retired employees.
Pensions aren't free. They are part of compensation. Where I work, about 8% of my gross pay goes toward pensions, and my employer contributes some extra as well. They budget for this.

Pensions create a lump or pot of money (in the UK, these are literally called "pension pots"). This money is invested, so it (usually) grows over time. At a certain point, the employee retires, at which point they get their own (invested) money back, plus whatever the employer put in. But they don't get it all. The usually get a low rate.

Pensions may be well-invested, but they don't have to pay out a huge amount. If I took that 8%, plus employer contribution, and invested it myself, I would probably end up with a larger "pension pot" (which, if distributed as an inflation-adjusted annuity, withdrawn at the "safe rate" of 4% per year, pay more than what I can expect from my pension) but note I said probably. My employer would use a less risky strategy, with (likely) lower gains but (likely) not losing money. There's also some benefit to pooling money from multiple employees that I don't "get", and my phantom pension plan obviously could not take advantage of this.

The money can continue to be invested even after the pensioner has retired, and hopefully grow at a faster rate than it is used. Even if it doesn't grow faster, the employer's insurance people can estimate how long the average employee lives, so they can ensure there's enough money in the pot to take that into account. Some retirees will die earlier, and some later, but if the average is accurate they shouldn't run out of money.

Pensions fall apart when they are "unfunded" (in other words, you don't pay pensioners their own money, but with money from current employees, who will live off money from future employees in the future). That's risky, and to make matters worse we have an aging population, so in the future there were be more retirees compared to employees than there are now.

Last edited by Kimera757; 10-16-2018 at 08:33 PM.
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Old 10-16-2018, 09:18 PM
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Is there any sort of guarantee with a traditional pension? Suppose it is poorly managed, and, come retirement, there is very little left to go around. Does the employer have any obligation to fulfill the terms?


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Old 10-16-2018, 09:27 PM
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Is there any sort of guarantee with a traditional pension? Suppose it is poorly managed, and, come retirement, there is very little left to go around. Does the employer have any obligation to fulfill the terms?
It's a complicated matter that depends on who the employer is. Generally, if the employer goes bankrupt, then there are a bunch of creditors who will not be paid all of the money that they are owed. Employees with guaranteed pensions are among the creditors. The bankrupt employer has some amount of net worth that is less than the total needed. The creditors squabble in court and all try to get as much of the remaining money as they can.
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Old 10-16-2018, 09:28 PM
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Is there any sort of guarantee with a traditional pension? Suppose it is poorly managed, and, come retirement, there is very little left to go around. Does the employer have any obligation to fulfill the terms?
If a pension plan in the US fails, there's apparently a good chance that the pensioners are covered by the Pension Benefit Guaranty Corporation, which is a federal agency created to cover just this sort of thing.

Last edited by kenobi 65; 10-16-2018 at 09:30 PM.
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Old 10-17-2018, 07:15 AM
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It's worth noting that public sector employee pensions are often instead of, not in addition to, social security.
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Old 10-17-2018, 11:20 AM
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A big negative of pensions is that they discourage job-hopping. They were good for when people often worked for one company most of their lives, like the Bell System or IBM. But given long vesting times, people who moved wound up losing most of their pension years, and 401-Ks whiich vest immediately or very quickly are much better for them.
That's totally dependent on your point of view. If you're a company looking to hire and retain workers for long periods, a pension is a positive thing- it provides another incentive to stay where they are.

One thing a lot of people aren't mentioning is that a lot of pensions are in lieu of Social Security. For example, the Texas teacher retirement system has the teachers pay into it instead of SS, so they don't get SS, but do get a better pension & medical insurance, etc... Same thing for a lot of municipal/state pension plans.

Clearly your best bet, if you can swing it, would be to work somewhere that you can both pay into your pension in lieu of SS, as well as pay into a 401k or something. That way, you sort of hedge your bets either way- economic downturns won't entirely wreck your retirement like it could for a 401k, and if the pension has trouble, you aren't entirely reliant on it either.
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Old 10-17-2018, 01:29 PM
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Traditional pensions are nearly gone from the private sector, though some big name financial institutions (JP Morgan Chase, Bank of America, Navy Federal Credit Union, etc.) with a lot of capital still tend to offer them.

That said, such pensions are also still available in the private sector if a person happens to work for a union shop. I personally am vested in one (which presently guarantees me about $110/month in retirement), but the rules for accruing more income are quite convoluted and the pension is only worth something substantial if somebody accrues 20-30 years worth of benefit credits. I'll admit that even what little I have earned makes me happy to have, but it comes at the cost of not being given a 401(k) match. So it's a trade-off.

Ideally, somebody would work for a business that offers a traditional pension, a 401(k) company match, and Social Security eligibility. That trifecta is exceedingly hard to come by nowadays.
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Old 10-17-2018, 02:25 PM
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Traditional pensions are nearly gone from the private sector
Even when I started working, in 1989, they were already becoming scarce in corporate America (probably save for union shops, as you note), in favor of 401(k)s and the like. In my career, I've now worked for eight different private companies (six of them in the Fortune 500), and none of them offered pensions to salaried employees.

I'm not sure that I know anyone who has a pension (or is working at a place that will be giving them a pension), except for people who've been working in the public sector, particularly teachers.
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Old 10-17-2018, 03:30 PM
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By that reasoning, all retirement saving is impossible. You mean you have to accumulate a big pile of money and live on that until you die? How can that work? How do you have enough money to do this?
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Do you accept that it's possible for someone to save money during their working life in order to live in retirement? A pension scheme is simply a formalization of that process.
It is possible but it's a drain on cash.

Direct response to the OP, sometimes they are not sustainable.

The USPS is in trouble because they underfunded their pension obligations. Even though they make an operating profit, they are taking a loss because of the pension burden.

General Motors has a similar problem.
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Old 10-17-2018, 04:06 PM
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The USPS is in trouble because they underfunded their pension obligations. Even though they make an operating profit, they are taking a loss because of the pension burden.
True, but apparently not the entire story.

As I understand it, the USPS pension situation is entirely the result of a change which Congress made to the rules regarding the USPS pension plan in 2006, obligating the USPS to "pre-fund" their retirees' medical liabilities going out to the year 2056. My understanding is that no other public or private organization which has a pension plan is forced to meet such a requirement.

Further complicating things is that the USPS can't make any changes to their pricing structures without Congressional approval.
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Old 10-17-2018, 04:22 PM
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Forgot to add to the post: a Bloomberg article explaining the USPS situation: https://www.bloomberg.com/view/artic...postal-service
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Old 10-17-2018, 08:46 PM
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True, but apparently not the entire story.

As I understand it, the USPS pension situation is entirely the result of a change which Congress made to the rules regarding the USPS pension plan in 2006, obligating the USPS to "pre-fund" their retirees' medical liabilities going out to the year 2056. My understanding is that no other public or private organization which has a pension plan is forced to meet such a requirement.

Further complicating things is that the USPS can't make any changes to their pricing structures without Congressional approval.
Yes, that's true, it's not because of mismanagement of the pension fund.
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Old 10-18-2018, 10:07 AM
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The USPS Pension problem is a problem of design not a ding on pensions. The GOP congress in the 90s forced the USPS to pre fund their pension for the next 70 years. That is completely unreasonable and was done to make the USPS lose money so they could then kill it. If they had a more reasonable and realistic burden they would be doing fine.

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It's worth noting that public sector employee pensions are often instead of, not in addition to, social security.
What? I have several friends and family members that work in the public sector and this isn't true for any of them or anyone I have ever heard of. Maybe their pension effects the amount of their benefit, don't know, but I never heard of anyone having to give up SS to get their pension.
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Old 10-18-2018, 12:21 PM
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Pensions also suffer from changing health demographics. People keep on living longer.

Looking at a quick Google check

1963 - life expectancy was 69.92
1970: 70.81
1980: 73.66
1990: 75.22
2000: 76.64
2010: 78.54
2015: 78.74

Adding years makes the math used when first offering the pension problematic. Over time, as companies radically change (or go under), you can see the pensions hit hard.

United changed the rules when they went through bankruptcy, leaving a lot of retirees hanging. https://www.nytimes.com/2005/05/11/b...ion-plans.html
Many company pension funds are under funded. The government does not monitor company funds that at 50% for more funded. Multi employer funds (union) have to stay above 90% funded, but can not be over 100% funded. United's fund was only around 50% funded and when United declared bankruptcy the unfunded amount was wiped off the books. This meant the fund had to cut the benefits.
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Old 10-18-2018, 12:25 PM
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A big negative of pensions is that they discourage job-hopping. They were good for when people often worked for one company most of their lives, like the Bell System or IBM. But given long vesting times, people who moved wound up losing most of their pension years, and 401-Ks whiich vest immediately or very quickly are much better for them.
I remembers when people were let go after 19 years. 20 year vesting was a normal. But now by federal law a pension fund has to fully vest in 5 years.
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Old 10-18-2018, 12:32 PM
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It's worth noting that public sector employee pensions are often instead of, not in addition to, social security.
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Originally Posted by Quimby View Post
. . . What? I have several friends and family members that work in the public sector and this isn't true for any of them or anyone I have ever heard of. Maybe their pension effects the amount of their benefit, don't know, but I never heard of anyone having to give up SS to get their pension.
I can attest that the City of Stockton pays into CalPERS, but not into Social Security. A lot of execs work as consultants after retiring to qualify for SS, too. Stockton does pay into Medicare, so we get that.
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Old 10-18-2018, 12:43 PM
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It's worth noting that public sector employee pensions are often instead of, not in addition to, social security.

Before 1974 most government employees were not covered by SS and did not have to pay into SS. In California 7.5% of the pay was deducted from their pay and put into CalPers, and the state should have put a matching amount into PERs. around that time congress passed a law requiring new employees pay into the SS fund. New employees, I started August 1974, paid I believe 5.5% into CalPERs and SS. And at retirement the payout receives a small adjustment down because of SS. Existing employees were given a one time option to change to the new system or stay paying the same into only CalPERs.


My wife went to work for the county office of education and paid into both CalPERs and SS and is receiving both checks now. My son now works for a government agency and pays into his state employee retirement system and SS.


so fewer and fewer government employees are paying into both systems.
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Old 10-18-2018, 01:21 PM
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What? I have several friends and family members that work in the public sector and this isn't true for any of them or anyone I have ever heard of. Maybe their pension effects the amount of their benefit, don't know, but I never heard of anyone having to give up SS to get their pension.
This is absolutely true for teachers, at least in the states my wife has worked in - their pension is in place of SS, not along side it.
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Old 10-18-2018, 01:47 PM
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The Ohio state teacher retirement system allows a choice of defined benefit or defined contribution plans. I don't know which is more popular.

And when I said that most employers of career employees offer pensions, what I should have said is that most offer retirement plans, which is not necessarily the same thing. One could certainly envision a job where the compensation package consists entirely of salary, with the employee being responsible for their own retirement savings, insurance, etc., but that's not very popular.
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Old 10-18-2018, 01:49 PM
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This is absolutely true for teachers, at least in the states my wife has worked in - their pension is in place of SS, not along side it.
Wow I had no idea this was true and as I wrote know people of different levels and different positions in the public sector. It's funny that it had not affected any of them (to my knowledge).

Last edited by Quimby; 10-18-2018 at 01:50 PM.
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Old 10-18-2018, 02:47 PM
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Wow I had no idea this was true and as I wrote know people of different levels and different positions in the public sector. It's funny that it had not affected any of them (to my knowledge).
It's not universal, only covering 15 states. But that's 40% of teachers since it includes a few big states.

https://www.npr.org/sections/ed/2018...ocial-security

Quote:
"Fifteen states do not offer all of their teachers Social Security coverage," Aldeman says, "and that means about 40 percent of the workforce is not covered."

Forty percent of all teachers. That's more than a million educators, in Alaska, California, Colorado, Connecticut, Georgia, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Missouri, Nevada, Ohio, Rhode Island and Texas.

Now, these teachers aren't benefit-less. The law requires that states that opt out of Social Security give teachers a pension that is at least as generous.
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Old 10-18-2018, 02:51 PM
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Out of curiosity, could those teachers pay their entire SS tax on their own, and THEN get SS benefits later?
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Old 10-18-2018, 03:11 PM
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What? I have several friends and family members that work in the public sector and this isn't true for any of them or anyone I have ever heard of. Maybe their pension effects the amount of their benefit, don't know, but I never heard of anyone having to give up SS to get their pension.
You don't "give up" Social Security. When you have such a job, you don't pay into Social Security but into an alternative state pension plan.

If you had a private sector job before getting such a job, which was subject to Social Security, you would collect SS on retirement based on those earnings. In addition, you would receive a state pension based on the time you worked under that system.

I friend of mine works in a state university system and he told me he paid into this alternative system rather than Social Security.

Last edited by Colibri; 10-18-2018 at 03:12 PM.
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Old 10-18-2018, 03:15 PM
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Out of curiosity, could those teachers pay their entire SS tax on their own, and THEN get SS benefits later?
Why would they do that, when the state system is required to be at least as generous as SS?

You pay both halves of SS if you are self-employed, as I am. I'm not sure how you could claim to be self-employed if you were receiving a paycheck from a state system.
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