Pension Funds a Pending Disaster?

[BigRedBuster]

I must be one of the lucky ones. I do not pay anything into my pension as it is 100% paid by the company. It is based off of your top 3 yearly earnings and the number of years of service. They have a formula that they use to figure it. When you retire, they will allow you to take it in cash or have it rolled into any account you want. A guy I work with just retired and his pension came out to be 2x his currently salary and he had been with us for 25yrs.

That's all great till the company starts doing bad financially or goes out of business.

[Lyons in the Sea of Red.]

I must be one of the lucky ones. I do not pay anything into my pension as it is 100% paid by the company. It is based off of your top 3 yearly earnings and the number of years of service. They have a formula that they use to figure it. When you retire, they will allow you to take it in cash or have it rolled into any account you want. A guy I work with just retired and his pension came out to be 2x his currently salary and he had been with us for 25yrs.

Do you work for a railroad?

[BigRedBuster]

Here is a good article spelling out why pensions are a horrible idea for everyone.

 

 

[RedDenver]

28 minutes ago, BigRedBuster said:

Here is a good article spelling out why pensions are a horrible idea for everyone.

 

 

Be careful drawing too much about pensions in general from a single case study. IMO it looks like Oregon over-promised such that it has pretty lavish pensions for the rich (Belotti is getting $46k per month).

 

Here's another article that's a bit more even-handed IMO rebuting some of the claims in the previous article and talking about why the pension fund is in trouble:

PERS: 9 myths about Oregon's public pension fund

 

Quote

The funding problem stems from outsize pensions granted under the system's lucrative money match formula, and the failure of the PERS board to set contribution levels high enough to fund those pensions, PERS director Steve Rodeman told lawmakers at a hearing last week. 

 

And lastly, here's an article from Forbes a few years ago about why pensions outperform 401k's (although I think the title is hyperbolic as the main reason is fees, which have been coming down on mutual funds):

Pension Plans Beat 401(k) Savers Silly -- Here's Why

Quote

 

Towers Watson, the global human resources consultant, found that pension-style plans beat 401(k)-style offerings by nearly 3 percentage points in 2011, the latest study year. Pensions made investment returns of 2.74% while defined contribution plans lost money, banking -0.22%.

 

It's no fluke. Pension plans often beat 401(k) plans. Since 1995, Towers Watson found, defined benefit plans outperformed by 76 basis points annually (0.76%). The did so in nearly all of those years except years in which stocks boomed, such as 2009.

 

Part of the reason is mutual fund fees. Mutual funds in the plans studied had weighted average expenses of 65 basis points in 2011, a drag which reduced overall returns by 31 basis points. Nearly half of the 401(k)-type plans were composed of mutual funds, compared to just 14% in the pension-style plans.

 

 

[BigRedBuster]

6 minutes ago, RedDenver said:

Be careful drawing too much about pensions in general from a single case study.

 

I'm not basing my opinion of mentions on a single case study.  There are a number of examples of where a company or public municipality got in major trouble because of pension funds.

[RedDenver]

11 minutes ago, BigRedBuster said:

 

I'm not basing my opinion of mentions on a single case study.  There are a number of examples of where a company or public municipality got in major trouble because of pension funds.

Sure. And there's tons and tons of cases where people got in trouble investing for their own retirement. I just think that before drawing conclusions like "pensions are a horrible idea for everyone", we should consider more evidence and for all sides of the issue.

[BigRedBuster]

1 minute ago, RedDenver said:

Sure. And there's tons and tons of cases where people got in trouble investing for their own retirement. I just think that before drawing conclusions like "pensions are a horrible idea for everyone", we should consider more evidence and for all sides of the issue.

Name another retirement vehicle where the worker is still reliant on the organization who funds the account to a) Still be in business and b) be honest and actually fund it.....for years and years after the relationship is ended between the two.

The idea is just idiotic.

 

Take the dollar figures out of the equation.  It's still unbelievable that the state of Oregon tax payers are still paying a Pension to Mike Bellotti who quit coaching there 10 years ago....and they will keep paying it for a very very long time.

[RedDenver]

6 minutes ago, BigRedBuster said:

Name another retirement vehicle where the worker is still reliant on the organization who funds the account to a) Still be in business and b) be honest and actually fund it.....for years and years after the relationship is ended between the two.

The idea is just idiotic.

 

Take the dollar figures out of the equation.  It's still unbelievable that the state of Oregon tax payers are still paying a Pension to Mike Bellotti who quit coaching there 10 years ago....and they will keep paying it for a very very long time.

I agree that those are issues with corporate pensions as they are compromised today. And I agree that the Oregon pension paying ridiculously high payouts is also an issue.

 

But that does not lead to the conclusion that all pensions are bad or idiotic, and especially does not mean they are better or worse than the alternatives.

 

EDIT: FYI, your 401k is dependent on whatever financial institution the money is at, so if that company goes under, you'll lose all that money. It's not exactly the same as the corporate pension, but it has similar downsides.

[BigRedBuster]

Just now, RedDenver said:

But that does not lead to the conclusion that all pensions are bad or idiotic, and especially does not mean they are better or worse than the alternatives.

To me it does.

[RedDenver]

7 minutes ago, BigRedBuster said:

To me it does.

So if the financial sector had collapsed in 2008, then 401k's and individual investing would also be bad and idiotic?

 

The only difference between these corporate and state pension collapses and individual investing collapses is that the federal government stepped in to save one but not the others.

[BigRedBuster]

9 minutes ago, RedDenver said:

So if the financial sector had collapsed in 2008, then 401k's and individual investing would also be bad and idiotic?

 

The only difference between these corporate and state pension collapses and individual investing collapses is that the federal government stepped in to save one but not the others.

You're missing the point of why pensions are idiotic.

 

Hint, it's not the return on investment.  It's the fact that tax payers or companies have to be relied upon to fund these accounts for years into the future.....and trusted to do so.

 

It's almost a Ponzi scheme.  

[RedDenver]

8 minutes ago, BigRedBuster said:

You're missing the point of why pensions are idiotic.

 

Hint, it's not the return on investment.  It's the fact that tax payers or companies have to be relied upon to fund these accounts for years into the future.....and trusted to do so.

 

It's almost a Ponzi scheme.  

I get what you're saying, but the alternatives have the same or similar issue. The stocks or bonds you're holding can always go under or the financial institution that you're investing in their funds could also go under. And you're still relying on those institutions to return your money for years into the future.

 

I'm not saying that these are the same risks or that the chances are the same, but rather that you haven't fully looked at the risks and issues for the alternatives to make a comparison.

 

One pension that is probably safer than all others is Social Security. The way SS is riskier than other investments is if the US government goes under (and other retirement vehicles don't). the laws are changed to remove SS benefits, or the US economy tanks (and again other retirement vehicles don't).

[BigRedBuster]

2 minutes ago, RedDenver said:

One pension that is probably safer than all others is Social Security.

SS is NOT a pension fund.

[RedDenver]

30 minutes ago, BigRedBuster said:

SS is NOT a pension fund.

Really? How is it different than the Oregon state pension you linked in the first post?

 

Also, I'm not entirely opposed to the points you're making, but I don't think you've made a strong argument to support the broad position you took in the first post.

[deedsker]

34 minutes ago, BigRedBuster said:

SS is NOT a pension fund.

pen·sion¹

ˈpenSHən/

noun

 

1. 1.

   a regular payment made during a person's retirement from an investment fund to which that person or their employer has contributed during their working life.