Public pensions

[badger]

There are currently two major cases involving public pensions being cut back in the U.S.

The first was Illinois, where the Democrat-controlled legislature (with the governor expected to sign) approved a measure to cut back cost of living increases, offer 401K alternatives and raise retirement ages for public workers. The measure is expected to help shore up a $100 billion pension shortfall.

Link (http://www.nytimes.com/2013/12/04/us/politics/illinois-legislature-approves-benefit-cuts-in-troubled-pension-system.html?_r=0)

The second was Detroit, who was allowed to declare Chapter 9 bankruptcy, and declared pensions to be contractual obligations that can be cut back in bankruptcy. It was thought that Michigan's constitution would protect pensions, but the judge determined that a federal law superceded it.

Link (http://www.forbes.com/sites/michelinemaynard/2013/12/03/detroit-is-eligible-for-bankruptcy-and-city-pensions-are-at-risk/)

It seems that both sides of the political spectrum are realizing that pensions were just gimmicks to be able to pay public workers less in the present, promising them more in retirement instead.

Rather than continue to fight for pension protection, I would hope that unions and non-union workers alike instead fight for the pay, benefits, etc. today, and rely on their own investing and planning for the future.

I think the lesson we can all learn from this is to rely on ourselves, not our employers, for our future, whether that employer is the government or a business.

[KantoSooner]

We desperately need to get away from pay-as-you-go systems and into fully funded, 401(K) type programs.

[badger]

We desperately need to get away from pay-as-you-go systems and into fully funded, 401(K) type programs.

I feel really bad for the retired workers, because I know that most are not in a situation where they can simply return to work and make up pension shortfalls. This decision will rob them of the independence and relaxing retirement many have enjoyed - and expected to continue - in their golden years.

But, I feel bad for them like I feel bad for those that are stuck in North Korea under a boy dictator that whines that none of the world respects his author-i-tay. There's nothing I can do to help them.

Unlike those suffering in North Korea work camps, I also suspect that many Detroit/Illinois pensioneers are making more money in retirement than many do while working and got to retire in their late 40s to early 50s, about 20 years before most of the rest of us can expect to retire. $20K-$30K a year is not wealthy, but it's more than minimum wagers make annually, before or after taxes.

I hope that everyone defaulted on in Detroit suffers equally and Illinois pensions can be cut back in way that fair's to everyone. It'll make a difficult situation easier to stomach.

[Bourbon St Sooner]

We desperately need to get away from pay-as-you-go systems and into fully funded, 401(K) type programs.

Why do you hate Social Security?

[FaninAma]

We wouldn't have this problem if federal, state and local government employee unions had been outlawed 60 years ago.

[KantoSooner]

Why do you hate Social Security?

Many reasons. But primarily two:

First, it is not secure. It relies on this year's tax to pay for promises made 50 years ago. Call it simplistic, but the minute you start making promises based on best guesses of what you'll have in income in the future, and those promises are not defined, you have a problem. And it is a problem that is growing closer each year. To resolve it, we'll all have to participate in increased taxation and reduced benefits. It's going to suck and it was all avoidable.

Second, it is not a pension program, but acts enough like one that it fools many people into failing to adequately plan for their retirement.

I would far prefer a portable pension plan paid for, in full, by employer/employee contributions. I put in X% of my salary and the employer matches it or some percentage of it. That money then goes into a special account. If I move to a new job next year, I've still got my pension. And it's not held by a government body that can then use it for whatever the program d'jour is.

I think havinig a society whose old age is secure is a wonderful thing. Social Security doesn't get us there.

[jkjsooner]

It seems that both sides of the political spectrum are realizing that pensions were just gimmicks to be able to pay public workers less in the present, promising them more in retirement instead.

This is the part that gets ignored by the crowd who appears to be jealous of those who are getting public pensions. Both my parents worked in salaries that paid much less than what they could have made in the private sector because of the benefits. I worked seasonal jobs at a state park while in college and the full time guys there all said they left higher paying jobs for the state job for one reason - the benefits.

Many of the complainers could have taken government jobs but they wanted the higher salary. I damn sure did. Sometimes I envy those who are my age (42) and either retired from the military or close to it. But, you know what, I could have joined, fought and 3 wars, and spent most of my early years making much less than I was making but I didn't. (I'm not comparing the sacrifices that a public sector employee makes to those of the military but in both cases decisions were made based on future promises.)

Anyway, if reality means that cuts have to be made then they have to be made. You can't escape reality no matter how much you want to. That being said, these were promises that were made and the governments should do everything in its power to keep promises just like you or I do. Whether you or I like it or not, the cuts to pensions should be as minimal as possible. (The Illinois plan sounds reasonable although in a decade or two inflation can reduce the value of the pensions significantly.)

[KantoSooner]

I wonder how much real estate Detroit has. Seems like a bunch. Maybe they can start parcellinig out the land to creditors like we did with revolutionary war soldiers with land in Ohio. Maybe they could monetize city licenses. Like giving drug dealing licenses for certain street corners. The pensioner could then sub-license to gangs and get their money, nothing would change on Detroit's streets and the city is clear some of its debt. And, oooooooo, here's a good one! Rent out tougher portions of town to various spec op units for live fire/live action training exercises. You could send in a SEAL unit for instance, to 'capture' a drug gang's main stash/warehouse. The SEALs pay for the 'training facility', the city of Detroit gets rid of some very bad people without having to spend on a police SWAT team. Win/Win.

[badger]

I wonder how much real estate Detroit has. Seems like a bunch. Maybe they can start parcellinig out the land to creditors like we did with revolutionary war soldiers with land in Ohio.
One of the problems continually cited is that Detroit has too much land, so if Detroit could in fact give land away to settle creditors... win-win?


Anyway, if reality means that cuts have to be made then they have to be made. You can't escape reality no matter how much you want to.
Agree. Those that protest the decision seem to think that there's more money out there somewhere, or that the governments can get more money from somewhere.

Should government be forced to sell all assets till they are homeless and broke, or should they, like private citizens who declare bankruptcy, be able to keep enough to get back on their feet?

[diverdog]

We desperately need to get away from pay-as-you-go systems and into fully funded, 401(K) type programs.

Kanto:

401k's were never met for retirement for the average worker and they have been a failure. I think a system like the postal service has is more workable. Not the pension but the savings plan.

[KantoSooner]

Don't take too much out of the label. I was trying to draw a distinction between a fully funded, but sequestered account and the dipsydoodle nonsense of pay-as-you-go.

If you want me to come clean, let's just go straight to the Singapore/Malaysia/Chilean type system. And all three of them work brilliantly.

[8timechamps]

There was a time when pensions were a great benefit to both employers and employees. It helped employers with retention, and it rewarded employees for longevity. Those days are gone, and so are pensions.

About the only places still clinging to pensions are municipalities and the like. The folks that served their time, need to be able to count on the pension they were promised. However, I am with Kanto 100% on this, fully funded plans are the only way to move forward.

[8timechamps]

Kanto:

401k's were never met for retirement for the average worker and they have been a failure. I think a system like the postal service has is more workable. Not the pension but the savings plan.

I'm not super familiar with the postal service savings plan, so some education may be in order. As for the 401(k), it absolutely was meant for retirement. That was the founding reasoning behind section 401. The problem was with the allowable contribution that congress passed. To offer a tax deferred savings plan was a great alternative, but to come out of the gate with a tight limit on the amount almost killed it.

It doesn't matter what you call it, a 401(k), ESP, etc., people have to make the decision to save. Most don't. So, there can be 100 options out there for the "average worker", but unless/until they choose to utilize them, the average worker will struggle in retirement.

[SanJoaquinSooner]

In California, the upscale neighborhoods are populated with doctors, attorneys, business owners, and retired public employees.

[diverdog]

I'm not super familiar with the postal service savings plan, so some education may be in order. As for the 401(k), it absolutely was meant for retirement. That was the founding reasoning behind section 401. The problem was with the allowable contribution that congress passed. To offer a tax deferred savings plan was a great alternative, but to come out of the gate with a tight limit on the amount almost killed it.

It doesn't matter what you call it, a 401(k), ESP, etc., people have to make the decision to save. Most don't. So, there can be 100 options out there for the "average worker", but unless/until they choose to utilize them, the average worker will struggle in retirement.

Champs go into the law that put 401k's into effect. It was designed as a supplement for highly compensated managers at Kodiak and Xerox....if I am not mistaken. The original intent of the code was never for the masses. The mutual fund companies saw a chance to get rich so they marketed it to companies as an alternative to defined pensions. On the whole it has been a miserable failure. The next big crises will be from retirees because they do not have enough savings.

As a side note it looks like the big investment banks are at it again creating a bubble in the housing rental market.

[Soonerjeepman]

In California, the upscale neighborhoods are populated with doctors, attorneys, business owners, and retired public employees.

as a public school teacher, when I retire, I will get a decent retirement...about $2500 a month BUT that will not allow me to live in an upscale neighborhood...even in ks.

The problem with KPERS, in my opinion, is I HAVE to participate. I also don't have a choice in ANYTHING about it.

[jkjsooner]

Obviously 401k plans have been a huge benefit to Wall Street.

I think the verdict is still out them. The US markets have stagnated over the last 13 years. Using the DOW as a guide, it was 11,723 in 2000 and now is just 15,885. That's a 35.5% rise in 13 years which comes to a compounded average rate of 2.3% if my math is right.

That type of return isn't going to cut it. If that's the return for the next couple of decades a lot of people (including those who have saved aggressively) are going to be in trouble.

Now, I don't know if the indexes take into consideration stocks that pay dividends so the real returns might be a little higher.

I also cherry picked the start time at a peak but the end time is also after a dramatic rise.

This particular 13 year period shouldn't be too damaging because the older workers should have had a lot in their 401k plans and should have seen dramatic rises throughout the '80s and '90s. The younger workers didn't have a lot in 2000 so much of their investments have been made during the two recessions where the market was significantly down.

But, if we have another couple of decades of 1.2% returns most people are going to be in a world of hurt.

There's also a question on what the baby boomer retirees withdrawing money from the markets is going to do to prices. I suppose this is where the 1% controlling such a high percentage of wealth is beneficial as this implies that the percentage held by baby boomers in retirement plans isn't that great.

[jkjsooner]

We desperately need to get away from pay-as-you-go systems and into fully funded, 401(K) type programs.

Kanto, what exactly do you mean when you say "fully funded"?

Are you saying that they should be able to meet future obligations without taking into consideration some rate of return on investment? If so that seems to be an impossible task.

I agree that plans should be fully funded but should take into account some conservative return. The problem is that 15 years ago 4% might have been considered a conservative return on investment but you've been lucky to get 1% over the last 10 years on conservative investments .

Even fully funded programs could run into trouble.

[KantoSooner]

My intended meaning by 'fully funded' is an account that has real money in it, not promises. So, let's say I put 10% of my income into some sort of special retirement savings account (use whatever label you wish for it) and my employer matches that. And let's say I'm making $50K per year, that would be $10K per annum, in cash, that would be placed in this account. Said account would have nothing to do with my employer. It would not be available for little accountant raids when times were tight. Nor would my retirement be held in a 'pool' controlled by the government, consisting largely of vague promises to be there when I need it, many years from now.
Nope, the account would be 'fully funded' as in: comprised of a sum of cash (and/or securities) that could be defined down to the penny at any time. And it would be owned by me, with the caveat that I trade restrictions on withdrawal for beneficial tax treatment and a mandated employer contribution.
Such programs work in various countries ("Central Provident Fund" - Singapore; "Employees' Provident Fund" - Malaysia) and are wildly popular.
They also provide a massive investment pool; which, you will recall, the absence of which periodically becomes a big concern for economists and is cited as a reason for slow relative growth in the USofA.

Just think of the impact on personal psychology if you could walk into a little kiosk, type in your SSN and a PIN and look at a print out that showed down to the penny what you had saved, in your name.


Just think of the impact on the economy if all the cash that has ever flowed through Social Security, X10 or so, was, subject to normal banking rules, available to the real economy for investment rather than to the government alone for whatever it is that government has done with it over the years.

And just think of the impact on government if, instead of being able to raid the Social Security piggy bank, they had to either raise taxes, borrow or divert spending every time they wanted to start up some new BS program.

[jkjsooner]

My intended meaning by 'fully funded' is an account that has real money in it, not promises. So, let's say I put 10% of my income into some sort of special retirement savings account (use whatever label you wish for it) and my employer matches that. And let's say I'm making $50K per year, that would be $10K per annum, in cash, that would be placed in this account. Said account would have nothing to do with my employer. It would not be available for little accountant raids when times were tight.

It sounds like you not only want it to be fully funded but you want to get rid of defined benefit plans as well - which of course very few non-public employees have anymore.

The problem with defined benefit plans is that even a fully funded one can run into trouble.

[8timechamps]

Champs go into the law that put 401k's into effect. It was designed as a supplement for highly compensated managers at Kodiak and Xerox....if I am not mistaken. The original intent of the code was never for the masses. The mutual fund companies saw a chance to get rich so they marketed it to companies as an alternative to defined pensions. On the whole it has been a miserable failure. The next big crises will be from retirees because they do not have enough savings.

As a side note it looks like the big investment banks are at it again creating a bubble in the housing rental market.

Not really. The original intent was exactly what it is today, to allow employees an avenue to defer income tax deferred. It wasn't intended strictly for highly compensated employees, it couldn't be, by law. The first company to actually utilize the benefit was Hughes Aircraft. Their CFO made a pitch to their board that the company phase out their ESA, and replace it with the newly adopted 401(k). The following year, Johnson and Johnson adopted the same strategy. Both boards saw it as a benefit they could offer their entire employee base, without singling out upper level management (this was largely a publicity move, as right around the same time began to offer stock option plans to executives). The entire basis of ERISA was born from the governments desire to cut costs in their pension plans (by adopting FERS, and a more 401(k)-like program).

401(k) plans are not a failure. I work with people every day that have funded their retirement solely through their 401(k). As I mentioned in my initial post, the responsibility lies on the employee. The company provides the match, but the employee must make the decision to contribute. Many folks elect to "take the money now", and not save. That's not fault of the 401(k), or ERISA, it's the fault of people not wanting to save, then waking up one day wanting to retire, and not having the funds.

Wall Street didn't drive 401(k) business. It's the opposite. Where do you think defined pension plans were managing their funds? Wall Street.

I have no idea how anyone can claim 401(k)'s as a "miserable failure". Basically, that's saying American Workers are a miserable failure for not saving enough.

[8timechamps]

Kanto, what exactly do you mean when you say "fully funded"?

Are you saying that they should be able to meet future obligations without taking into consideration some rate of return on investment? If so that seems to be an impossible task.

I agree that plans should be fully funded but should take into account some conservative return. The problem is that 15 years ago 4% might have been considered a conservative return on investment but you've been lucky to get 1% over the last 10 years on conservative investments .

Even fully funded programs could run into trouble.

Not if you know what you're doing, or you're working with someone that knows what they're doing. If you haven't been able to track (at the very least) inflation over the past 10 years, then you've done something wrong.

[diverdog]

Not really. The original intent was exactly what it is today, to allow employees an avenue to defer income tax deferred. It wasn't intended strictly for highly compensated employees, it couldn't be, by law. The first company to actually utilize the benefit was Hughes Aircraft. Their CFO made a pitch to their board that the company phase out their ESA, and replace it with the newly adopted 401(k). The following year, Johnson and Johnson adopted the same strategy. Both boards saw it as a benefit they could offer their entire employee base, without singling out upper level management (this was largely a publicity move, as right around the same time began to offer stock option plans to executives). The entire basis of ERISA was born from the governments desire to cut costs in their pension plans (by adopting FERS, and a more 401(k)-like program).

401(k) plans are not a failure. I work with people every day that have funded their retirement solely through their 401(k). As I mentioned in my initial post, the responsibility lies on the employee. The company provides the match, but the employee must make the decision to contribute. Many folks elect to "take the money now", and not save. That's not fault of the 401(k), or ERISA, it's the fault of people not wanting to save, then waking up one day wanting to retire, and not having the funds.

Wall Street didn't drive 401(k) business. It's the opposite. Where do you think defined pension plans were managing their funds? Wall Street.

I have no idea how anyone can claim 401(k)'s as a "miserable failure". Basically, that's saying American Workers are a miserable failure for not saving enough.

The average 401k has about $85000 in it. For those over 55 it goes up to $2660000. But here is the nut. That is the average of people who have saved and even at that $266,000 is not enough. This does not include a whole bunch of people who could not afford to save.

You are a financial planner and you are generally seeing people who have saved or come into some sort or windfall. What you are not seeing is the vast majority of people who have little savings or lousy 401k's.

The other issue is that you are asking people to manage their money who have no idea how to manage money. Do you think joe six pack knows the difference between a large cap stock fund and a Asia Pacific fund? Do you think they understand diversification? And guess what the average worker assumes 100% of the risk.

[8timechamps]

The average 401k has about $85000 in it. For those over 55 it goes up to $2660000. But here is the nut. That is the average of people who have saved and even at that $266,000 is not enough. This does not include a whole bunch of people who could not afford to save.

You are a financial planner and you are generally seeing people who have saved or come into some sort or windfall. What you are not seeing is the vast majority of people who have little savings or lousy 401k's.

The other issue is that you are asking people to manage their money who have no idea how to manage money. Do you think joe six pack knows the difference between a large cap stock fund and a Asia Pacific fund? Do you think they understand diversification? And guess what the average worker assumes 100% of the risk.

Fair enough, but you can't blame the vehicle for the lack of saving. For a long time, there have been savings options for people that wanted to save. I understand that there are situations that make it impossible for some to save, but I also think that the majority of those that haven't saved enough by retirement didn't prioritize properly.

You'd be surprised how many of my clients didn't come from money, or didn't have particularly high paying careers. The common bond between those folks was their disciplined saving strategy.

A few times a year, I offer my services free of charge to a local community center. I typically meet with 20-25 families, and most of the time it's about debt service. Since I started doing this, I'd say about 95% of the people that tell me they "can't afford to save", have no problem eating out, playing BINGO, etc, etc. The vehicle is there (401(k), IRA, etc), if a person chooses not to maximize it, that's not the fault of the plan, it's the fault of the individual.

[diverdog]

Fair enough, but you can't blame the vehicle for the lack of saving. For a long time, there have been savings options for people that wanted to save. I understand that there are situations that make it impossible for some to save, but I also think that the majority of those that haven't saved enough by retirement didn't prioritize properly.

You'd be surprised how many of my clients didn't come from money, or didn't have particularly high paying careers. The common bond between those folks was their disciplined saving strategy.

A few times a year, I offer my services free of charge to a local community center. I typically meet with 20-25 families, and most of the time it's about debt service. Since I started doing this, I'd say about 95% of the people that tell me they "can't afford to save", have no problem eating out, playing BINGO, etc, etc. The vehicle is there (401(k), IRA, etc), if a person chooses not to maximize it, that's not the fault of the plan, it's the fault of the individual.

Champs you are good guy to be sure.

i do not dislike 401k's per se. What irks me is that they have been foisted upon workers as a substitute for pensions. In a lot of cases pension funding has now shifted to senior management. GE is a prime example. Plus all 401k's are not equal. The one I had at my old company was horrible.

What I think should happen is that if we are stuck with 401k's then the law should read that 10% of your earnings are saved and you cannot touch it until you are 62. The savings options should go into some sort of asset allocation fund that is managed by an investment board with a base guarantee of the return of your principle plus a minimum guarantee of 3% annually. The guarantee is backed by the taxpayer. There should be no downside risk. I believe that a good investment strategy board could do this. Hell if you laddered bonds and treasuries you get 3%. The way you fund the guarantee is that the owner of the pension participates in a percentage of the market gains and the difference is set aside as insurance/protection. Almost like an index annuity.

[jkjsooner]

Not if you know what you're doing, or you're working with someone that knows what they're doing. If you haven't been able to track (at the very least) inflation over the past 10 years, then you've done something wrong.

It's my understanding that a lot of the pension plans are required by law to invest very conservatively. Could be wrong at just how conservative they have to be.

This is also a reason 401k plans have benefitted the mutual fund industry. Your traditional pensions couldn't just throw money at stocks and mutual funds.

[jkjsooner]

One other failure of the 401k system that luckily they fixed was that up until 2000 or so many companies forced the matching contributions into company stock. That was a disaster for some.

[diverdog]

One other failure of the 401k system that luckily they fixed was that up until 2000 or so many companies forced the matching contributions into company stock. That was a disaster for some.

See diverdog. We were forced into company stock and our own mutual funds. The bond funds were good. The rest were crap. The stock went to almost zero. I had friends lose six figures.

[SanJoaquinSooner]

The forced company stock is a terrible set-up.

I also know of people who had a guaranteed pension. But they were pressed to take early retirement and for the company to pay out a lump sum in lieu of the pension. So what do the people do? They often blow the lump sum and have nothing for retirement, which leads to them taking a low paying job in their senior years.

[REDREX]

The forced company stock is a terrible set-up.

I also know of people who had a guaranteed pension. But they were pressed to take early retirement and for the company to pay out a lump sum in lieu of the pension. So what do the people do? They often blow the lump sum and have nothing for retirement, which leads to them taking a low paying job in their senior years.----Who's fault is it if they blow the lump sum?

[badger]

----Who's fault is it if they blow the lump sum?

Not to sound to liberal or anything, but it might be society's fault :D

More specifically, having a certain amount of assets may prevent retirees from receiving government assistance for care and medicine and therefore, they may want to "blow the lump sum" quickly via transfers to children and grandchildren so that the assets stay in the family rather than get sent straight to a nursing home.

[REDREX]

Not to sound to liberal or anything, but it might be society's fault :D

More specifically, having a certain amount of assets may prevent retirees from receiving government assistance for care and medicine and therefore, they may want to "blow the lump sum" quickly via transfers to children and grandchildren so that the assets stay in the family rather than get sent straight to a nursing home.---It takes all of 10 min to roll a lump sum into another retirement account

[SanJoaquinSooner]

----Who's fault is it if they blow the lump sum?

the blowers' fault, no doubt.

[badger]

Update on public pension issues: Chicago edition.

Link (http://apnews.myway.com/article/20131210/DAAJB4881.html)


"Chicago sticks out for all the wrong reasons," said Rachel Barkley, a municipal credit analyst at Morningstar Inc. (MORN), referring to a public pension system that is only 35 percent funded, compared to New York's 60 percent and San Francisco's 88 percent.


Add in the unfunded liability for Chicago teacher pensions, and the total shortfall jumps to about $27 billion.


The city's annual contributions to the funds, set by state statute, also were well below what was necessary for meeting its obligations, according to a Morningstar analysis.

Under state statute, those contributions are now scheduled to more than double next year, to about $1.07 billion.


Chicago Public Schools' payment to the pension fund for Chicago teachers also is slated to increase next year, from $196 million last year to $600 million.

Yet another example of government thinking they could sell public workers short by promising things later, promises that could only be kept in the best of times (uber inflation and healthy economy) or the worst (a plague that kills everyone by age 50???). It's not a Democrat thing, it's not a Republican thing, it's government thing.

If governments are not allowed to go bankrupt or cut pension obligations, what's the solution?

1- Raise taxes and hope businesses don't move away.
2- Cut services and hope residents don't move away.
3- Sell government buildings and rent facilities instead
4- Sell government property, including works of art from museums
5- Change primary roads into toll roads
6- Privatize toll roads by allowing private companies to college tolls on roads they maintain and build (but are still owned by the state, similar to the Austin bypass in Texas)
7- Have all new government employees, from legislators to teachers, on 401Ks and not pensions. Absolutely NO new pension obligations.
8- Cut all other public employee benefits not protected by state constitutions and courts, including anything above bare bones health care (high deductibles, no coverage for family members, etc)

Or, they could just let the suffering wait until the next round of elections and try to kick the can down the curb a bit farther

[8timechamps]

Champs you are good guy to be sure.

i do not dislike 401k's per se. What irks me is that they have been foisted upon workers as a substitute for pensions. In a lot of cases pension funding has now shifted to senior management. GE is a prime example. Plus all 401k's are not equal. The one I had at my old company was horrible.

What I think should happen is that if we are stuck with 401k's then the law should read that 10% of your earnings are saved and you cannot touch it until you are 62. The savings options should go into some sort of asset allocation fund that is managed by an investment board with a base guarantee of the return of your principle plus a minimum guarantee of 3% annually. The guarantee is backed by the taxpayer. There should be no downside risk. I believe that a good investment strategy board could do this. Hell if you laddered bonds and treasuries you get 3%. The way you fund the guarantee is that the owner of the pension participates in a percentage of the market gains and the difference is set aside as insurance/protection. Almost like an index annuity.

Well, if we are going to move the conversation into executive benefits, then you and I are probably on the same page. I've seen some executive benefit packages that would make you really angry. Many are very unfair to the average employee. But, that's another thread.

There are ways a company can "guarantee" a 401(k), but none of them do it, as it's more costly to the employer. However, I have always felt like employers should be held accountable for the performance of the options they make a available. I'm just not sure that will ever happen.

[8timechamps]

It's my understanding that a lot of the pension plans are required by law to invest very conservatively. Could be wrong at just how conservative they have to be.

This is also a reason 401k plans have benefitted the mutual fund industry. Your traditional pensions couldn't just throw money at stocks and mutual funds.

There is a fiduciary responsibility for plan sponsors to be diligent in their investment strategy. However, pension plans have been misused since their inception. Even so, Wall Street didn't enjoy a windfall of money with the advent of the 401(k) (or ERISA in general). Most money managers (private) manged the same funds pre 401(k), and just moved money to additional options once ERISA became law.

If you want to believe that the Fund companies saw some huge benefit from the creation of ERISA, go ahead. I can tell you it's not true. Mutual Funds, in general, are far more cost effective (for the investor) than private money management. Wall Street lost fees when Mutual Funds became so popular. They made up for the loss in sheer volume, but they, by no means, made money.

[8timechamps]

One other failure of the 401k system that luckily they fixed was that up until 2000 or so many companies forced the matching contributions into company stock. That was a disaster for some.

You're blaming the 401(k) for stupid corporate decisions. That's like blaming your car for driving you to a terrible neighborhood.

[badger]

You're blaming the 401(k) for stupid corporate decisions. That's like blaming your car for driving you to a terrible neighborhood.

Roll em up! [/lampoon'svacation]

[badger]

California edition: Union polling less favorably, pensions cited as part of problem


The cost of "public pensions are starting to crowd out the services that local governments can provide. That doesn't sit well with the public," pollster Mark DiCamillo said.

Compared to the earlier poll, unions lost ground across most age, political and demographic groups.

Linky (http://www.breitbart.com/Big-Government/2013/12/13/Poll--Californians-gradually-souring-on-unions)

Governments really have to beware when voters on both sides are united --- all people like public services... but people don't like paying more for them than "necessary."

[jkm, the stolen pifwafwi]

Obviously 401k plans have been a huge benefit to Wall Street.

I think the verdict is still out them. The US markets have stagnated over the last 13 years. Using the DOW as a guide, it was 11,723 in 2000 and now is just 15,885. That's a 35.5% rise in 13 years which comes to a compounded average rate of 2.3% if my math is right.

That type of return isn't going to cut it. If that's the return for the next couple of decades a lot of people (including those who have saved aggressively) are going to be in trouble.

Now, I don't know if the indexes take into consideration stocks that pay dividends so the real returns might be a little higher.

I also cherry picked the start time at a peak but the end time is also after a dramatic rise.

This particular 13 year period shouldn't be too damaging because the older workers should have had a lot in their 401k plans and should have seen dramatic rises throughout the '80s and '90s. The younger workers didn't have a lot in 2000 so much of their investments have been made during the two recessions where the market was significantly down.

But, if we have another couple of decades of 1.2% returns most people are going to be in a world of hurt.

There's also a question on what the baby boomer retirees withdrawing money from the markets is going to do to prices. I suppose this is where the 1% controlling such a high percentage of wealth is beneficial as this implies that the percentage held by baby boomers in retirement plans isn't that great.

You do realize that most of the DOW companies pay out dividends right? And that dividends lower stock price by the amount of the dividend? That period even includes that monster Microsoft dividend of what 5 billion?

[jkm, the stolen pifwafwi]

The average 401k has about $85000 in it. For those over 55 it goes up to $2660000. But here is the nut. That is the average of people who have saved and even at that $266,000 is not enough. This does not include a whole bunch of people who could not afford to save.

You are a financial planner and you are generally seeing people who have saved or come into some sort or windfall. What you are not seeing is the vast majority of people who have little savings or lousy 401k's.

The other issue is that you are asking people to manage their money who have no idea how to manage money. Do you think joe six pack knows the difference between a large cap stock fund and a Asia Pacific fund? Do you think they understand diversification? And guess what the average worker assumes 100% of the risk.

So this is a good point about the issue with 401ks (though it leaves out a couple of issues).

1. Company stock should never be allowed in 401ks. When I was at Williams (pre-Enron) they used to pay our matches in company stock and it was locked out for 6 months (no selling). I still have 82 shares of WMB via employer match that were given to me at $55/share in 2001 right before it tanked to $.10 during the Enron scandal. It currently sits at $38. WCG went bankrupt at that time and took that money with them.

2. 401ks should have periodic advisement for its participants included.

3. the all in one target funds are pretty crappy.

[badger]

Looks like Boeing is edging the pensioneers toward conceding pensions.

Linky (http://www.washingtonpost.com/business/boeing-says-union-vote-will-decide-fate-of-jobs/2013/12/30/e7cbd0a2-71af-11e3-bc6b-712d770c3715_story.html)

It is sounding like the holdouts are the ones that are giving up the most --- the Seattle-area Boeing union workers --- but that everyone else, from Washington state politicians (probably mostly Democrats), to the national union officials (also probably mostly Democrats) are begging them to give up pensions in exchange for the union jobs not vanishing or not leaving Washington state.

However, it seems that the decision is solely the workers in this case, and they've already resoundingly said "NO" a mere month ago. I really don't see anything changing.

Quite frankly, the Seattle area already sent Oklahoma its NBA team. They can by all means send Boeing jobs here too.

[DrZaius]

There are huge financial gains for a company to have a 401k. My company does pretty well, lots of choices, unlimited advice, a pretty large employer match, one of the best I have heard of in my industry. The thing that bugs me the most is even after the banks tanked the financial market and everyone's 401 went into the crapper I was not able to choose to halt my 401k. I can and did lower my percentage of pay-in but I was not able to stop and cannot ever stop it unless I quit, get fired or die. I don't like not having the power over my savings like that. I am not sure if this is true for all companies but it is true for Time Warner.

[SanJoaquinSooner]

There are huge financial gains for a company to have a 401k. My company does pretty well, lots of choices, unlimited advice, a pretty large employer match, one of the best I have heard of in my industry. The thing that bugs me the most is even after the banks tanked the financial market and everyone's 401 went into the crapper I was not able to choose to halt my 401k. I can and did lower my percentage of pay-in but I was not able to stop and cannot ever stop it unless I quit, get fired or die. I don't like not having the power over my savings like that. I am not sure if this is true for all companies but it is true for Time Warner.

I too have a mandatory contribution (5% of salary) into a 403b. But the last thing I want to do is lower the percentage after a market tanking. My contributions in 2009, after the tanking, have more than doubled in value. You get the best return when investing in the valleys, not the mountain tops.

[badger]

If you all didn't hear, the Boeing union folded in Seattle --- by a 600 or so vote margin, they voted to accept the concessions.Here's an LA Times link (http://www.latimes.com/business/la-na-boeing-union-fight-20140107,0,6877900.story#axzz2pkmNFxdY)

Their vote, their loss/gain, I guess