# Why are pension plans blamed for gov and private company's problems? **URL:** \ **Category:** Factual Questions\ **Created:** [December 11, 2012, 5:39pm UTC](https://boards.straightdope.com/t/why-are-pension-plans-blamed-for-gov-and-private-companys-problems/643719 "2012-12-11T17:39:04Z")\ **Posts on this page:** 6\ **Page:** 4
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [December 14, 2012, 4:02pm UTC](https://boards.straightdope.com/t/why-are-pension-plans-blamed-for-gov-and-private-companys-problems/643719/61 "2012-12-14T16:02:30Z")
> [@Fotheringay-Phipps](#): > > Well if you liked that Transportation Bill, you may end up liking the Fiscal Cliff deal. > > [Fiscal talks could result in corporate pension funding relief](http://www.pionline.com/article/20121210/PRINTSUB/312109970/fiscal-talks-could-result-in-corporate-pension-funding-relief) See, that’s the difference. The Canadian law requires a company to begin immediately and contribute enough each year that over 5 years the plan is fully funded. The company cannot take a break or expect thye market to fix things. As a result, Canadian pensions are in much better shape that US ones. However, the economics of a defined benefit plan in a volatile market still suck so much that Canadian compaies, like US ones, are dropping them for new employees. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [December 14, 2012, 4:12pm UTC](https://boards.straightdope.com/t/why-are-pension-plans-blamed-for-gov-and-private-companys-problems/643719/62 "2012-12-14T16:12:09Z")
> [@md2000](#): > > See, that’s the difference. The Canadian law requires a company to begin immediately and contribute enough each year that over 5 years the plan is fully funded. The company cannot take a break or expect thye market to fix things. > > As a result, Canadian pensions are in much better shape that US ones. I’m not sure if you’ve actually read the article, but it has nothing to do with what you’re talking about. The issue is not a change in the requirements for full funding, but the interest rates used to measure the liabilities. The lobbyist’s point (or at least one of them) is that interest rates are being held artificially low in an effort to stimulate the economy and this is causing them to need a greater level of funding for “full funding”. The point though is that one big reason the government allowed this is not because of its merits but because allowing it would increase tax revenue. And that’s how the sausage is made. The years later when everything collapses everyone points fingers at everyone else. > [@](#): > > However, the economics of a defined benefit plan in a volatile market still suck so much that Canadian compaies, like US ones, are dropping them for new employees. Which is another argument for leniency. The idea is that if we make it too tough for these companies to sponsor pension plans fewer will actually do it, so let’s make the costs lower. Bottom line is that it will have to be paid, in the end. ---
**Author:** ![Tom\_Tildrum](https://avatars.discourse-cdn.com/v4/letter/t/e95f7d/32.png) [@Tom\_Tildrum](https://boards.straightdope.com/u/Tom_Tildrum)\ **Post date:** [December 14, 2012, 4:44pm UTC](https://boards.straightdope.com/t/why-are-pension-plans-blamed-for-gov-and-private-companys-problems/643719/63 "2012-12-14T16:44:21Z")
> [@What\_the](#): > > The main ones left are those forced into it by union and of course governments who are …well, governments. Note that the US government switched to a defined-contribution plan a while back. ---
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [December 14, 2012, 9:03pm UTC](https://boards.straightdope.com/t/why-are-pension-plans-blamed-for-gov-and-private-companys-problems/643719/64 "2012-12-14T21:03:17Z")
> [@Fotheringay-Phipps](#): > > I’m not sure if you’ve actually read the article, but it has nothing to do with what you’re talking about. > > The issue is not a change in the requirements for full funding, but the interest rates used to measure the liabilities. > > The lobbyist’s point (or at least one of them) is that interest rates are being held artificially low in an effort to stimulate the economy and this is causing them to need a greater level of funding for “full funding”. > > The point though is that one big reason the government allowed this is not because of its merits but because allowing it would increase tax revenue. And that’s how the sausage is made. The years later when everything collapses everyone points fingers at everyone else. > > Which is another argument for leniency. The idea is that if we make it too tough for these companies to sponsor pension plans fewer will actually do it, so let’s make the costs lower. > > Bottom line is that it will have to be paid, in the end. > [@](#): > > **Originally Posted by NYT** > Of the 500 companies, 338 have defined-benefit pension plans, and only 18 are fully funded. Seven companies reported that their plans were underfunded by more than $10 billion, with the largest negative figure, $21.6 billion, reported by General Electric. This is what I was talking about. You don’t get to $10B in the hole while contributing what you should have, in a matter of a few years. Especally considering that the interest rates have been very low for a decade. (See my post: I talked about this interest issue) > [@](#): > > **Posted by MD2000** > I should add that the actuarial calculations - what amount of money was needed to make the payments the fund was obliged to pay - depended on anticipated growth of the fund. This in turn was calculated using interest rates; so there’s a fourth Whammy - the future value of the current fund dollars dropped as interest rates dropped and appeared poised to stay low. (I forget exactly which market rate the calculations used, but it was based on the bank rate or long term projections, somehow.) > > So not only did the value of the fund drop due to a bad stock market, but the amount of money needed to make up the shortfall was much higher than before too. Adjusting the interest rate used for the calculations may ease the amount the fund is considered in shortfall - but it’s not going to take a fund $10B in the hole and paint it black… ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [December 17, 2012, 3:15pm UTC](https://boards.straightdope.com/t/why-are-pension-plans-blamed-for-gov-and-private-companys-problems/643719/65 "2012-12-17T15:15:58Z")
> [@md2000](#): > > This is what I was talking about. You don’t get to $10B in the hole while contributing what you should have, in a matter of a few years. Especally considering that the interest rates have been very low for a decade. (See my post: I talked about this interest issue) That’s fine. But that has nothing to do with the Transportation Bill or the potential Fiscal Cliff deal, which is what you were commenting on. ---
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [December 17, 2012, 3:34pm UTC](https://boards.straightdope.com/t/why-are-pension-plans-blamed-for-gov-and-private-companys-problems/643719/66 "2012-12-17T15:34:09Z")
> [@Fotheringay-Phipps](#): > > That’s fine. > > But that has nothing to do with the Transportation Bill or the potential Fiscal Cliff deal, which is what you were commenting on. Oops, sorry - should have been responding to the post above yours. Sorry for my confusion… [Previous page](https://boards.straightdope.com/t/why-are-pension-plans-blamed-for-gov-and-private-companys-problems/643719.md?page=3)