Median boomer retirement account $144,000

[Urbandale2013]

I think this is a weak point in favor of a DB at the very best. This has to do more with the structure of contribution requirements than the plans themselves.

My previous employer was a DC with a 401(k). They did not require you to put anything into your 401(k) each paycheck, but at the end of the year a substantial part of your compensation was based on discretionary bonuses and profit sharing. Much of the bonus and profit sharing was not paid as a check, but rather went into the DC.

Is that not basically requiring participation in a DC? Salaries there could feel a little low even after commissions, but when you added up the substantial company-paid DC contributions, the total for the year looked much better.

On the DB side, while this is not a typical offering, there are DB programs that allow you to either not participate/take the money as salary or to cash out early.

I do not think there is really an ironclad rule that a DB is superior because it effectively forces you to save more. I have seen plenty of counterexamples.

I don’t really have a strong opinion either way. I guess I don’t get the hate lots of people have towards a DB plan.

 

[Sigmapolis]

I don’t really have a strong opinion either way. I guess I don’t get the hate lots of people have towards a DB plan.

I do not hate them. Heck, my wife has one (a small one). They do cause me two slight annoyances, though, which I bet a number of others share...

(1.) BD advocates and participants can be kind of arrogant about the "certainty" provided by their plans yet ignorant of how their plans are actually managed.

They act like the eventual, actual level of benefits paid by a DB will not actually be tied to market returns because "the plan says what the plan says," but if the plan comes up short, benefits will have to adjust to actual market returns. If the plan has an excess, then I bet benefits will expand until it is back in actuarial balance. This functionally makes a DB plan into a DC in the long-term, meaning we are all in the same boat.

They also complain that "doing it yourself" through a DC plan is "planning to lose your money at the Wall Street casino!" They seem to fail to realize or deny that any prudent DC investor is conservatively managing their money in market index funds and target date funds, which any prudent pension manager is doing, as well. No sane person should be day trading or investing in credit default swaps with their retirement nest egg.

They also fail to realize that many pensions are increasingly turning to high-risk and more exotic investment vehicles, such as CalPERS (the lodestar of public pensions funds in the U.S.) turning to private equity. That is way riskier than anything I am doing with my DC funds. They delude themselves that they are shielded from the risks of the market because some distant cabal of highly paid fund managers are handling their money, but they are just as exposed as the rest of us as a matter of fact on the ground.

(2.) I have never heard of a DC plan arguing for a bailout from the taxpayer (at the state level) or from the federal government (so just another set of taxpayers).

With a DC plan, you get what the market gives you and what your management of your assets yields you. Period. It is direct and honest, I am responsible for myself, and I have no pretensions the public treasury owes me something.

When a DB plan comes up short, rather than taking what the market and the skill of the management gave them, DB plans often argue for bailouts from the taxpayers (as Illinois and New Jersey are actively doing right now) to make up the shortfall.

DB advocates tout the benefits of the "stability" offered by their plans, yet they often implicitly or explicitly plan for "off-balance sheet assets" (money from taxpayers) to make up the shortfall when things go south. If your system sometimes needs periodic bailouts because of unrealistic promises, improbable assumptions about investment returns, and corrupt and/or incompetent management from fund management or the executives/politicians overseeing them, why are they so great again? Why do I want in on that?

Why would you want so much exposure to the malfeasance of this process? Why not just take the few steps it takes to manage your own DC plan well...?

We complain that our healthcare is stuck to one particular employer. Why would having your retirement be the same way be an improvement?

So it comes down to coddled public employees, with job security, time off, and retirement ages far superior to what people of comparable qualification can get from the private sector, asking for yet another largesse on top of these from the taxpayers. Those same taxpayers who are either struggling themselves or have their own priority for government spending (e.g., transportation infrastructure or education) that are probably more productive than subsidizing the retirement of a well-off public employee who punched out at 50. I can see why there are resentments there regarding a bailout.

 

[SEIOWA CLONE]

I do not hate them. Heck, my wife has one (a small one). They do cause me two slight annoyances, though, which I bet a number of others share...

(1.) BD advocates and participants can be kind of arrogant about the "certainty" provided by their plans yet ignorant of how their plans are actually managed.

They act like the eventual, actual level of benefits paid by a DB will not actually be tied to market returns because "the plan says what the plan says," but if the plan comes up short, benefits will have to adjust to actual market returns. If the plan has an excess, then I bet benefits will expand until it is back in actuarial balance. This functionally makes a DB plan into a DC in the long-term, meaning we are all in the same boat.

They also complain that "doing it yourself" through a DC plan is "planning to lose your money at the Wall Street casino!" They seem to fail to realize or deny that any prudent DC investor is conservatively managing their money in market index funds and target date funds, which any prudent pension manager is doing, as well. No sane person should be day trading or investing in credit default swaps with their retirement nest egg.

They also fail to realize that many pensions are increasingly turning to high-risk and more exotic investment vehicles, such as CalPERS (the lodestar of public pensions funds in the U.S.) turning to private equity. That is way riskier than anything I am doing with my DC funds. They delude themselves that they are shielded from the risks of the market because some distant cabal of highly paid fund managers are handling their money, but they are just as exposed as the rest of us as a matter of fact on the ground.

(2.) I have never heard of a DC plan arguing for a bailout from the taxpayer (at the state level) or from the federal government (so just another set of taxpayers).

With a DC plan, you get what the market gives you and what your management of your assets yields you. Period. It is direct and honest, I am responsible for myself, and I have no pretensions the public treasury owes me something.

When a DB plan comes up short, rather than taking what the market and the skill of the management gave them, DB plans often argue for bailouts from the taxpayers (as Illinois and New Jersey are actively doing right now) to make up the shortfall.

DB advocates tout the benefits of the "stability" offered by their plans, yet they often implicitly or explicitly plan for "off-balance sheet assets" (money from taxpayers) to make up the shortfall when things go south. If your system sometimes needs periodic bailouts because of unrealistic promises, improbable assumptions about investment returns, and corrupt and/or incompetent management from fund management or the executives/politicians overseeing them, why are they so great again? Why do I want in on that?

Why would you want so much exposure to the malfeasance of this process? Why not just take the few steps it takes to manage your own DC plan well...?

We complain that our healthcare is stuck to one particular employer. Why would having your retirement be the same way be an improvement?

The DB plans that have come up short like Illinois, Kentucky, NJ and others all have the exact same problem, money was borrowed from the fund by the state, and not repaid, instead of raising taxes generally property taxes by state legislatures and governors.

I would say healthcare is closer in form to a DC than a DB, where we are all fending for ourselves or in small groups. I have always wondered for example why the state refuses to allow all IPERS covered workers to go together, and bargain for medical insurance. The reason is simple, that would cause the insurance industry to lose money over what they are currently getting. There is power in numbers, and that is the last thing that anyone wants, that is trying to game the system and increase profits.

 

[Sigmapolis]

The DB plans that have come up short like Illinois, Kentucky, NJ and others all have the exact same problem, money was borrowed from the fund by the state, and not repaid, instead of raising taxes generally property taxes by state legislatures and governors.

Thank you for expounding on my point for me --

One of the key benefits of a DC relative to a DB is you are not exposed to the incompetence and mismanagement that you describe above.

With a DC, the exposure is to market fluctuations. With a DB, you are exposed both to market fluctuations and political whims. The pitch for DB is supposed to be "certainty" but that is not really the case -- the risk just comes in different forms.

I would say healthcare is closer in form to a DC than a DB, where we are all fending for ourselves or in small groups. I have always wondered for example why the state refuses to allow all IPERS covered workers to go together, and bargain for medical insurance. The reason is simple, that would cause the insurance industry to lose money over what they are currently getting. There is power in numbers, and that is the last thing that anyone wants, that is trying to game the system and increase profits.

Again with the "insurance companies are absurdly profitable!" thing when the data you linked me to says they are at around a ~3% profit margins.

They are just not. Deal with that fact.

I do hear you with the monopsony argument, though. However, there is no reason that individuals could not band together in this fashion in a private market for health insurance to the same ends. Indeed, they often did (in the form of churches, fraternal organizations, on a neighborhood basis, with unions, and with professional organizations) before the birth of the present employer-based system in the 1940s and the 1950s.

I would argue the employer-based system is what prevents the potential fruits of this process, rather than being the thing that somehow encourages it.

 

[Gunnerclone]

Thank you for expounding on my point for me --

One of the key benefits of a DC relative to a DB is you are not exposed to the incompetence and mismanagement that you describe above.

With a DC, the exposure is to market fluctuations. With a DB, you are exposed both to market fluctuations and political whims. The pitch for DB is supposed to be "certainty" but that is not really the case -- the risk just comes in different forms.



Again with the "insurance companies are absurdly profitable!" thing when the data you linked me to says they are at around a ~3% profit margins.

They are just not. Deal with that fact.

I do hear you with the monopsony argument, though. However, there is no reason that individuals could not band together in this fashion in a private market for health insurance to the same ends. Indeed, they often did (in the form of churches, fraternal organizations, on a neighborhood basis, with unions, and with professional organizations) before the birth of the present employer-based system in the 1940s and the 1950s.

I would argue the employer-based system is what prevents the potential fruits of this process, rather than being the thing that somehow encourages it.

The pitch I would give a standard DB plan is that I don’t pay a dime in to it. It’s all from my employer. It’s not like I’m losing money in any way shape or form. Of course the uncertainty and the tide going towards doing away with them makes planning more difficult. But other than that it’s free money and even if my employer terminated the plan tomorrow I’m still getting what’s coming to me at this point.

 

[Urbandale2013]

I do not hate them. Heck, my wife has one (a small one). They do cause me two slight annoyances, though, which I bet a number of others share...

(1.) BD advocates and participants can be kind of arrogant about the "certainty" provided by their plans yet ignorant of how their plans are actually managed.

They act like the eventual, actual level of benefits paid by a DB will not actually be tied to market returns because "the plan says what the plan says," but if the plan comes up short, benefits will have to adjust to actual market returns. If the plan has an excess, then I bet benefits will expand until it is back in actuarial balance. This functionally makes a DB plan into a DC in the long-term, meaning we are all in the same boat.

They also complain that "doing it yourself" through a DC plan is "planning to lose your money at the Wall Street casino!" They seem to fail to realize or deny that any prudent DC investor is conservatively managing their money in market index funds and target date funds, which any prudent pension manager is doing, as well. No sane person should be day trading or investing in credit default swaps with their retirement nest egg.

They also fail to realize that many pensions are increasingly turning to high-risk and more exotic investment vehicles, such as CalPERS (the lodestar of public pensions funds in the U.S.) turning to private equity. That is way riskier than anything I am doing with my DC funds. They delude themselves that they are shielded from the risks of the market because some distant cabal of highly paid fund managers are handling their money, but they are just as exposed as the rest of us as a matter of fact on the ground.

(2.) I have never heard of a DC plan arguing for a bailout from the taxpayer (at the state level) or from the federal government (so just another set of taxpayers).

With a DC plan, you get what the market gives you and what your management of your assets yields you. Period. It is direct and honest, I am responsible for myself, and I have no pretensions the public treasury owes me something.

When a DB plan comes up short, rather than taking what the market and the skill of the management gave them, DB plans often argue for bailouts from the taxpayers (as Illinois and New Jersey are actively doing right now) to make up the shortfall.

DB advocates tout the benefits of the "stability" offered by their plans, yet they often implicitly or explicitly plan for "off-balance sheet assets" (money from taxpayers) to make up the shortfall when things go south. If your system sometimes needs periodic bailouts because of unrealistic promises, improbable assumptions about investment returns, and corrupt and/or incompetent management from fund management or the executives/politicians overseeing them, why are they so great again? Why do I want in on that?

Why would you want so much exposure to the malfeasance of this process? Why not just take the few steps it takes to manage your own DC plan well...?

We complain that our healthcare is stuck to one particular employer. Why would having your retirement be the same way be an improvement?

So it comes down to coddled public employees, with job security, time off, and retirement ages far superior to what people of comparable qualification can get from the private sector, asking for yet another largesse on top of these from the taxpayers. Those same taxpayers who are either struggling themselves or have their own priority for government spending (e.g., transportation infrastructure or education) that are probably more productive than subsidizing the retirement of a well-off public employee who punched out at 50. I can see why there are resentments there regarding a bailout.

I guess I see it as you or I have a fundamental misunderstanding of the purpose of a DB plan. Personally I’d probably prefer a DC plan but that isn’t really relevant.

I view a DB plan as an agreement between the employer and the employee that is devoid of market returns. In my head a DB plan doesn’t require a cent of investing. It is an agreement to get paid based on a set of rules and not worry about the market. So therefore if there is a shortcoming that’s on the employer to make up the difference. If they are regularly having to make up big differences then they need to modify what they promise. That isn’t the employees fault that is the employers fault. So frankly yeah the pensions should be bailed out. Not because of a failure by employees but a failure of the states to live up to their end of the agreement.

 

[Sigmapolis]

The pitch I would give a standard DB plan is that I don’t pay a dime in to it. It’s all from my employer. It’s not like I’m losing money in any way shape or form. Of course the uncertainty and the tide going towards doing away with them makes planning more difficult. But other than that it’s free money and even if my employer terminated the plan tomorrow I’m still getting what’s coming to me at this point.

That mentality is a problem.

Yes you do -- $60k in wages and $50k in wages/$10k in pension contribution are, ignoring some small complicating factors like taxes that we can ignore to simplify the example here -- are the exact same thing to you. What do they pay you?

Everything. Wages. Salaries. Time off. Pension contributions. Insurance. Everything.

Employers are buying at the full cost of your compensation and you are being employed at the full cost of your compensation. Just because "they are paying it" does not mean it is not part of that market interaction that you have with them.

If you are thinking of your career and your compensation only in terms of wages and salaries, then you are not thinking about your finances correctly.

It is the same issue with healthcare. It is not "free" to you. It is coming out of the larger paycheck that you could have -- out of your total compensation.

I view a DB plan as an agreement between the employer and the employee that is devoid of market returns. In my head a DB plan doesn’t require a cent of investing. It is an agreement to get paid based on a set of rules and not worry about the market.

I think this statement is the problem. I think it only gives you the illusion that you are shielded from the market, rather than actually protecting you from it.

For instance... I have never seen an over-funded pension fund say, "Well, we were extra prudent and have extra money, so we should keep it that way." The argument at that point is invariably they should pay out the "excess" to the beneficiaries.

I do not think most people or most DB participants see things on quite the rather neutral and rules-based terms as you do. I admire that, but I do not find it realistic.

Plus, setting up neutral rules that can last the lifetime it takes for participants to reach retirement... costs are uncertain, market returns are uncertain, companies can and will go bankrupt, and governments can ride their own fiscal roller coasters even if they do not cease to exist... well, it is not going to work out in the end. All these uncertainties mean these things are going to need to adjust on the fly. Nobody knows what investment returns are going to be decades out, so the rules are never going to be realistic.

So therefore if there is a shortcoming that’s on the employer to make up the difference. If they are regularly having to make up big differences then they need to modify what they promise. That isn’t the employees fault that is the employers fault. So frankly yeah the pensions should be bailed out. Not because of a failure by employees but a failure of the states to live up to their end of the agreement.

You are picking up on my themes of moral hazard but not really embracing them. The crisis in state pensions was foreseen a long time ago. Public employees, unions, and states knew this was going to come to head at some point. Yet they did very little or nothing despite solutions being easy to math out working through a pretty simple spreadsheet.

They were able to make unrealistic assumptions, contribute too little, and mismanage the things because they assumed they would just get a bailout in the end. You act like the public sector unions are passive during this whole process with no say in these rules -- um, no, they are very powerful political forces in any state and were on the other side of the table when the neutral set of rules you described was drawn up to start.

It is in their interest more than anybody else to make sure those rules were sensible and the DB would live up to its obligation. Instead, they asked for as much as they could, tolerated the mismanagement and graft, but in the end assumed that, when things went awry, the taxpayer would be on the hook for them to make them whole.

This is where my resentment point comes in -- it takes two parties to make those rules, and they were clearly not setup with good faith in many states.

 

[ruxCYtable]

“Boomer” here. Only people I know that are my age with pensions are either government or union. Pensions in private sector for nonunion are not common at all.

They've become increasingly rare, but it wasn't until the mid 90s that 401k participants exceeded 30 million. There was a lot of boomer money in pensions prior to that, and still is.

 

[Urbandale2013]

That mentality is a problem.

Yes you do -- $60k in wages and $50k in wages/$10k in pension contribution are, ignoring some small complicating factors like taxes that we can ignore to simplify the example here -- are the exact same thing to you. What do they pay you?

Everything. Wages. Salaries. Time off. Pension contributions. Insurance. Everything.

Employers are buying at the full cost of your compensation and you are being employed at the full cost of your compensation. Just because "they are paying it" does not mean it is not part of that market interaction that you have with them.

If you are thinking of your career and your compensation only in terms of wages and salaries, then you are not thinking about your finances correctly.

It is the same issue with healthcare. It is not "free" to you. It is coming out of the larger paycheck that you could have -- out of your total compensation.



I think this statement is the problem. I think it only gives you the illusion that you are shielded from the market, rather than actually protecting you from it.

For instance... I have never seen an over-funded pension fund say, "Well, we were extra prudent and have extra money, so we should keep it that way." The argument at that point is invariably they should pay out the "excess" to the beneficiaries.

I do not think most people or most DB participants see things on quite the rather neutral and rules-based terms as you do. I admire that, but I do not find it realistic.

Plus, setting up neutral rules that can last the lifetime it takes for participants to reach retirement... costs are uncertain, market returns are uncertain, companies can and will go bankrupt, and governments can ride their own fiscal roller coasters even if they do not cease to exist... well, it is not going to work out in the end. All these uncertainties mean these things are going to need to adjust on the fly. Nobody knows what investment returns are going to be decades out, so the rules are never going to be realistic.



You are picking up on my themes of moral hazard but not really embracing them. The crisis in state pensions was foreseen a long time ago. Public employees, unions, and states knew this was going to come to head at some point. Yet they did very little or nothing despite solutions being easy to math out working through a pretty simple spreadsheet.

They were able to make unrealistic assumptions, contribute too little, and mismanage the things because they assumed they would just get a bailout in the end. You act like the public sector unions are passive during this whole process with no say in these rules -- um, no, they are very powerful political forces in any state and were on the other side of the table when the neutral set of rules you described was drawn up to start.

It is in their interest more than anybody else to make sure those rules were sensible and the DB would live up to its obligation. Instead, they asked for as much as they could, tolerated the mismanagement and graft, but in the end assumed that, when things went awry, the taxpayer would be on the hook for them to make them whole.

This is where my resentment point comes in -- it takes two parties to make those rules, and they were clearly not setup with good faith in many states.

At the end of the day I guess I just think your mad at the wrong side. It isn’t the employees problem that the employer/state agreed to bad terms. The failure has been on the employers to adequately insist on proper funding of them.

 

[DurangoCy]

I'll give you this, you're constant with your inability to objectively discuss the pros/cons associated with IPERs. Whoever is doing their marketing did a bang up job on it.

I guess I believe in the idea of shared risk, and what I will receive from a defined benefits program as opposed to trying my luck on the ups and downs of the market.

Would you also say that those that believe in the market also have an inability to objectively discuss the pros/cons of the market, as opposed to a defined benefits program?

I do not hate them. Heck, my wife has one (a small one). They do cause me two slight annoyances, though, which I bet a number of others share...

(1.) BD advocates and participants can be kind of arrogant about the "certainty" provided by their plans yet ignorant of how their plans are actually managed.

They act like the eventual, actual level of benefits paid by a DB will not actually be tied to market returns because "the plan says what the plan says," but if the plan comes up short, benefits will have to adjust to actual market returns. If the plan has an excess, then I bet benefits will expand until it is back in actuarial balance. This functionally makes a DB plan into a DC in the long-term, meaning we are all in the same boat.

They also complain that "doing it yourself" through a DC plan is "planning to lose your money at the Wall Street casino!" They seem to fail to realize or deny that any prudent DC investor is conservatively managing their money in market index funds and target date funds, which any prudent pension manager is doing, as well. No sane person should be day trading or investing in credit default swaps with their retirement nest egg.

They also fail to realize that many pensions are increasingly turning to high-risk and more exotic investment vehicles, such as CalPERS (the lodestar of public pensions funds in the U.S.) turning to private equity. That is way riskier than anything I am doing with my DC funds. They delude themselves that they are shielded from the risks of the market because some distant cabal of highly paid fund managers are handling their money, but they are just as exposed as the rest of us as a matter of fact on the ground.

(2.) I have never heard of a DC plan arguing for a bailout from the taxpayer (at the state level) or from the federal government (so just another set of taxpayers).

With a DC plan, you get what the market gives you and what your management of your assets yields you. Period. It is direct and honest, I am responsible for myself, and I have no pretensions the public treasury owes me something.

When a DB plan comes up short, rather than taking what the market and the skill of the management gave them, DB plans often argue for bailouts from the taxpayers (as Illinois and New Jersey are actively doing right now) to make up the shortfall.

DB advocates tout the benefits of the "stability" offered by their plans, yet they often implicitly or explicitly plan for "off-balance sheet assets" (money from taxpayers) to make up the shortfall when things go south. If your system sometimes needs periodic bailouts because of unrealistic promises, improbable assumptions about investment returns, and corrupt and/or incompetent management from fund management or the executives/politicians overseeing them, why are they so great again? Why do I want in on that?

Why would you want so much exposure to the malfeasance of this process? Why not just take the few steps it takes to manage your own DC plan well...?

We complain that our healthcare is stuck to one particular employer. Why would having your retirement be the same way be an improvement?

So it comes down to coddled public employees, with job security, time off, and retirement ages far superior to what people of comparable qualification can get from the private sector, asking for yet another largesse on top of these from the taxpayers. Those same taxpayers who are either struggling themselves or have their own priority for government spending (e.g., transportation infrastructure or education) that are probably more productive than subsidizing the retirement of a well-off public employee who punched out at 50. I can see why there are resentments there regarding a bailout.

The DB plans that have come up short like Illinois, Kentucky, NJ and others all have the exact same problem, money was borrowed from the fund by the state, and not repaid, instead of raising taxes generally property taxes by state legislatures and governors.

I would say healthcare is closer in form to a DC than a DB, where we are all fending for ourselves or in small groups. I have always wondered for example why the state refuses to allow all IPERS covered workers to go together, and bargain for medical insurance. The reason is simple, that would cause the insurance industry to lose money over what they are currently getting. There is power in numbers, and that is the last thing that anyone wants, that is trying to game the system and increase profits.

I stand by my original statement.

 

[Sigmapolis]

At the end of the day I guess I just think your mad at the wrong side. It isn’t the employees problem that the employer/state agreed to bad terms. The failure has been on the employers to adequately insist on proper funding of them.

Two sides signed the deal -- the public sector unions agreed to those terms. They negotiated them on behalf of their members. They were not forced to agree by violence. I admire your idealism, but at the same time, I think they need to bear at least some burden from agreeing to unrealistic terms and not doing their best to make sure the funds were managed prudently given they should care more than anybody else about that.

 

[SEIOWA CLONE]

That mentality is a problem.

Yes you do -- $60k in wages and $50k in wages/$10k in pension contribution are, ignoring some small complicating factors like taxes that we can ignore to simplify the example here -- are the exact same thing to you. What do they pay you?

Everything. Wages. Salaries. Time off. Pension contributions. Insurance. Everything.

Employers are buying at the full cost of your compensation and you are being employed at the full cost of your compensation. Just because "they are paying it" does not mean it is not part of that market interaction that you have with them.

If you are thinking of your career and your compensation only in terms of wages and salaries, then you are not thinking about your finances correctly.

It is the same issue with healthcare. It is not "free" to you. It is coming out of the larger paycheck that you could have -- out of your total compensation.



I think this statement is the problem. I think it only gives you the illusion that you are shielded from the market, rather than actually protecting you from it.

For instance... I have never seen an over-funded pension fund say, "Well, we were extra prudent and have extra money, so we should keep it that way." The argument at that point is invariably they should pay out the "excess" to the beneficiaries.

I do not think most people or most DB participants see things on quite the rather neutral and rules-based terms as you do. I admire that, but I do not find it realistic.

Plus, setting up neutral rules that can last the lifetime it takes for participants to reach retirement... costs are uncertain, market returns are uncertain, companies can and will go bankrupt, and governments can ride their own fiscal roller coasters even if they do not cease to exist... well, it is not going to work out in the end. All these uncertainties mean these things are going to need to adjust on the fly. Nobody knows what investment returns are going to be decades out, so the rules are never going to be realistic.



You are picking up on my themes of moral hazard but not really embracing them. The crisis in state pensions was foreseen a long time ago. Public employees, unions, and states knew this was going to come to head at some point. Yet they did very little or nothing despite solutions being easy to math out working through a pretty simple spreadsheet.

They were able to make unrealistic assumptions, contribute too little, and mismanage the things because they assumed they would just get a bailout in the end. You act like the public sector unions are passive during this whole process with no say in these rules -- um, no, they are very powerful political forces in any state and were on the other side of the table when the neutral set of rules you described was drawn up to start.

It is in their interest more than anybody else to make sure those rules were sensible and the DB would live up to its obligation. Instead, they asked for as much as they could, tolerated the mismanagement and graft, but in the end assumed that, when things went awry, the taxpayer would be on the hook for them to make them whole.

This is where my resentment point comes in -- it takes two parties to make those rules, and they were clearly not setup with good faith in many states.

There is little doubt that when the middleclass was at its peak was when unions and collective bargaining for wages and benefits were abundant.
You seem to want to lay the blame on the workers, that contributed to his retirement, the school or city that put in its fair share, and keep forgetting that is was the elected officials that the state level at took that money out of those funds, increased of raising taxes, and you want to give them a pass. Or ask the question, "why should the tax payer have to make up the difference?" Because that was the agreement, two sides held to that agreement the worker and city or school, while one side did not.

The business gets my labor, that is what they receive from me, before the Reagan years that is what they asked for in return for the business providing my salary and benefits.
Then switch over occurred that said, "the worker is less important than the stock holder" and the only way to keep them happy and investing in our stock is every increasing share prices and dividends. So you go from an agreement between the worker and the business, to an agreement between the corporations and its share holders. Who was left out, the person that actually provided the labor to make the products the company was selling. We became expendable, it cheaper to ship that manufacturing overseas or to Mexico. We got screwed and the investor class got rich of it.

But you did get one thing correct about it, I do not believe that health insurance companies are not profitable and just getting by. If that was true, they would be getting out of offering policies and pushing for M4A, instead of fighting it, and lobbying with 100's of millions to make sure that it does not happen.

Really it seems to fall back on people hate DB programs because they do not have them, and companies hate them because it forces them to fund programs, instead of only matching what you put it, and generally that is capped. Businesses learned a long time ago, that younger employees will not match out their 401K program, so they save the company money. They do not have to match those funds.

 

[SEIOWA CLONE]

I stand by my original statement.

Sure I defend defined benefit programs and pensions. History shows us that the middle class was at its height in salaries when they were abundant.

Its funny, I have rarely hear of anyone wishing they could give up their pension for a DC system. Why is that, if DB or pensions are so horrible?

The right and business has done a great job in turning public opinion against such programs, its their divided and conquer program, "why should they have those great benefits, when you don't" and it sways people to become anti union and the rest of it. A better question is "why don't you unionize so you can also have those same types of benefits and a pension?"

 

[Urbandale2013]

Two sides signed the deal -- the public sector unions agreed to those terms. They negotiated them on behalf of their members. They were not forced to agree by violence. I admire your idealism, but at the same time, I think they need to bear at least some burden from agreeing to unrealistic terms and not doing their best to make sure the funds were managed prudently given they should care more than anybody else about that.

Again you seem to be missing the point. It isn’t in anyway the employees problem to figure out if the funding allocation is sustainable. They are agreeing solely to contribute X amount to get a specific defined benefit. Their agreement has frankly nothing to do with the employer portion.

 

[Lexclone]

I do not hate them. Heck, my wife has one (a small one). They do cause me two slight annoyances, though, which I bet a number of others share...

(1.) BD advocates and participants can be kind of arrogant about the "certainty" provided by their plans yet ignorant of how their plans are actually managed.

They act like the eventual, actual level of benefits paid by a DB will not actually be tied to market returns because "the plan says what the plan says," but if the plan comes up short, benefits will have to adjust to actual market returns. If the plan has an excess, then I bet benefits will expand until it is back in actuarial balance. This functionally makes a DB plan into a DC in the long-term, meaning we are all in the same boat.

They also complain that "doing it yourself" through a DC plan is "planning to lose your money at the Wall Street casino!" They seem to fail to realize or deny that any prudent DC investor is conservatively managing their money in market index funds and target date funds, which any prudent pension manager is doing, as well. No sane person should be day trading or investing in credit default swaps with their retirement nest egg.

They also fail to realize that many pensions are increasingly turning to high-risk and more exotic investment vehicles, such as CalPERS (the lodestar of public pensions funds in the U.S.) turning to private equity. That is way riskier than anything I am doing with my DC funds. They delude themselves that they are shielded from the risks of the market because some distant cabal of highly paid fund managers are handling their money, but they are just as exposed as the rest of us as a matter of fact on the ground.

(2.) I have never heard of a DC plan arguing for a bailout from the taxpayer (at the state level) or from the federal government (so just another set of taxpayers).

With a DC plan, you get what the market gives you and what your management of your assets yields you. Period. It is direct and honest, I am responsible for myself, and I have no pretensions the public treasury owes me something.

When a DB plan comes up short, rather than taking what the market and the skill of the management gave them, DB plans often argue for bailouts from the taxpayers (as Illinois and New Jersey are actively doing right now) to make up the shortfall.

DB advocates tout the benefits of the "stability" offered by their plans, yet they often implicitly or explicitly plan for "off-balance sheet assets" (money from taxpayers) to make up the shortfall when things go south. If your system sometimes needs periodic bailouts because of unrealistic promises, improbable assumptions about investment returns, and corrupt and/or incompetent management from fund management or the executives/politicians overseeing them, why are they so great again? Why do I want in on that?

Why would you want so much exposure to the malfeasance of this process? Why not just take the few steps it takes to manage your own DC plan well...?

We complain that our healthcare is stuck to one particular employer. Why would having your retirement be the same way be an improvement?

So it comes down to coddled public employees, with job security, time off, and retirement ages far superior to what people of comparable qualification can get from the private sector, asking for yet another largesse on top of these from the taxpayers. Those same taxpayers who are either struggling themselves or have their own priority for government spending (e.g., transportation infrastructure or education) that are probably more productive than subsidizing the retirement of a well-off public employee who punched out at 50. I can see why there are resentments there regarding a bailout.

No, a DC plan will not argue for a bailout, but each individual who a) did not save enough; b) was not savvy enough to manage investment will band together with their millions of compatriots and argue for a bailout of their own. This type of individual is legion within the United States and they vote. We are all paying for them in one way or another. In a perfect world where everyone is financially literate, DCs should be the way. We are far, far from a perfect world.

 

[SoapyCy]

i don't like calculators that make you guess how much yoyu['re going to spend in retirement. right now we have daycare x 2, tuition, college savings, etc. how the heck am i supposed to know what i'm going to spend in 25 or 30 years?

 

[Sigmapolis]

Again you seem to be missing the point. It isn’t in anyway the employees problem to figure out if the funding allocation is sustainable. They are agreeing solely to contribute X amount to get a specific defined benefit. Their agreement has frankly nothing to do with the employer portion.

If they signed such agreements without thinking carefully about what employer contributions (or a lack of the same) might mean for the health of the fund, especially considering the retirement income of their members depended on it...

Well, if what you say is true, they were either hopelessly naive or negligent.

 

[Urbandale2013]

If they signed such agreements without thinking carefully about what employer contributions (or a lack of the same) might mean for the health of the fund, especially considering the retirement income of their members depended on it...

Well, if what you say is true, they were either hopelessly naive or negligent.

You’re still missing the point.

 

[abcguyks]

They've become increasingly rare, but it wasn't until the mid 90s that 401k participants exceeded 30 million. There was a lot of boomer money in pensions prior to that, and still is.

I agree with you. Although I am technically a boomer, I'm from the very tail end of that generation and my experiences are probably more in line with that of Gen Xers. I didn't have the option for a 401k until the late 90s. Pension was never an option for me.

 

[CascadeClone]

Sig, one other point on your "dead politician" problem. It's even worse when the dead politician gets campaign funding (or outright bribery) from the unions they negotiate with. Then neither side has an interest in keeping costs down.

Thus why not agree to huge pension benefits and just not fund them properly? I get money and/or political support now, and it's someone else's problem 30 years from now.

I would gladly pay you tuesday for a hamburger today.