> Typically, institutional investors like pension funds are the biggest investors in hedge funds.
Maybe, but pension funds (should, at least) invest in multiple asset classes and assets to diversify risk. Not only equities and bonds, but if in hedge funds, then multiple hedge funds. Further, hedge funds generally have multiple investments going as well. In both cases if one particular thing goes to zero, not all the money (should) be lost.
Whereas with workers it is hard diversify risk away from your employer and your retirement savings if you have a pension.
This is why, contrary to popular opinion, shareholders are not actually owners of a company, but 'just' another stakeholder: other stakeholders would include employees, suppliers, bond holders, retirees, etc.
Shareholders are often lowest priority, and for taking on that risk of losing more, they get typically get rewarded more (i.e., stock goes up).
> Shareholders are owners by virtue of having a seat at the board table and controlling the C-Suite. […] This, shareholders are true owners of the company. But laws prevent them taking other stakeholders for a ride.
There are laws and legal precedents in multiple countries that state the shareholders are not owners:
Further, directors and such have a fiduciary to the corporation and not to the shareholders:
> This separation of ownership and control provides the basis for many of the fundamental principles of corporate law. One example is the principle that the directors and officers of a corporation owe a fiduciary duty to the corporation: see Canadian Aero Service Ltd. v. O'Malley, [1974] S.C.R. 592.
> Under the CBCA, directors have a fiduciary duty to act honestly, in good faith and in the corporation’s best interest. 2 Until a few decades ago, the corporation’s shareholders were often considered its primary beneficiaries. This shareholder-centric form of corporate governance was known as the shareholder primacy model, a model that would, theoretically, obviate managerial self-dealings. 3
> However, at the end of the last century a shift to include non-shareholder interests began to emerge. Many attribute this shift to the hostile takeover wave of the 1980s, which increased shareholder wealth efficiently but left employees scrambling for work and government institutions struggling to respond.4 The shareholder primacy model came under further scrutiny, in both Canada and the US, after the burst of the tech bubble in 2002 and the 2008 financial crisis.5
The primacy of shareholders started to become in vogue in the 1970s, and so (because of recency bias) is what is best known now, but there is a history of other philosophies before that:
It seems appropriate that a company's own pensions should be senior claims over shareholders which might indirectly be responsible for part of other pensions or retirement funds somewhere down the line.
Indeed. It seems next level insanity that we dont have wage liabilities (capped at some decently high amount per month like 10k a month to avoid c suite abuse) at the absolute front of the line followed immediately by pension liabilities (again with some capping mechanism to avoid c suite abuse) and then followed by everything else in the evemt of a bankruptcy enshrined in bulletproof law. It should just be how it works with no exceptions.
True, we should change bankruptcy law so hedge funds get priority over employees who worked their whole lives for a company. This will benefit all workers with pensions that invest in hedge funds.
... right after hedge fund "costs" are limited to a microscopic amount.
If you're going to treat private financial service organizations as if they are organized for public good (i.e. paying employee pensions), then they need to operate as such, rather than as wealth generators for their officers.
And don't come at me with "that keeps the incentives aligned - if the managers/officers make money, the hedge fund is making more money". I don't buy that the only way to get effective investment growth is by making the officers wealthy beyond all belief. Vanguard agrees with me.
> There is a statutory maximum benefit that PBGC can pay. Participants receive the lower of their
benefit as calculated under the plan or the statutory maximum benefit. If a participant’s benefit is
higher than the statutory maximum benefit, the participant’s benefit is reduced. Participants in
single-employer plans that terminate in 2021 and are trusteed by PBGC may receive up to
$72,409 per year if they begin taking their pension at the age of 65. The single-employer
maximum benefit is adjusted depending on the age at which the participant begins taking the
benefit and on the form of the benefit (e.g., the maximum benefit is lower for a joint-and-survivor
annuity). The maximum benefit for participants in multiemployer plans that receive financial
assistance depends on the number of years of service in the plan. For example, a participant with
30 years of service may receive up to $12,870 per year. Currently, most workers in singleemployer plans taken over by PBGC and multiemployer plans that receive financial assistance
from PBGC receive the full pension benefit that they earned.
> However, among participants in
multiemployer plans that were terminated and likely to need financial assistance in the future,
49% have a benefit below the PBGC maximum guarantee and 51% have a benefit larger than the
PBGC maximum guarantee (and therefore, would see a benefit reduction).
At the end of FY2020, PBGC had a total deficit of $48.2 billion, which consisted of a $15.5
billion surplus from the single-employer program and a $63.7 billion deficit from the
multiemployer program. PBGC’s single-employer program has been on the Government
Accountability Office’s (GAO’s) list of high-risk government programs since 2003. PBGC’s
multiemployer program was added in 2009. PBGC projects the financial position of the singleemployer program is likely to continue to improve, but the financial position of the
multiemployer program is expected to worsen considerably over the next 10 years.
The shortfall will eventually be made up from the general fund, funded by taxpayers. But, we are in the weeds unnecessarily. The PBGC should be a last resort, based on the above context.
Although the number of Americans holding shares in companies and mutual funds has increased dramatically, "just ordinary people investing in businesses" is misleading in the extreme.
> About 162 million Americans, or 62% of U.S. adults, own stock. The top 1% holds 50% of stocks, worth $21 trillion. The bottom 50% of U.S. adults hold only 1% of stocks, worth $437 billion.
> Most Americans indirectly hold stocks through a mutual fund, an index fund, or a retirement account such as a 401(k). A smaller percentage directly holds stocks, meaning they purchase individual shares.
> About 93% of U.S. households' stock market wealth is held by the top 10%. ; While it's true that a record high 58% of American households do own stocks via mutual funds or as individual shares, in the aggregate the amount of stock most of these folks own is tiny.
I saw a video on YouTube of a Yellow employee of 30 years distraught that he wouldn’t receive pension that he was counting on (see https://youtu.be/kZyHlPMOCvw?t=105s) . It’s heartbreaking. I don’t really understand the pension model or how it is legal to just take it away randomly. Why isn’t the model just to pay employees more and let them save to a 401k that they control?
Anyways this outcome sounds like good news. Employees get what they were due.
A pension plan is guaranteed. A 401k is not. A pension is theoretically much better because the company must pay you the money even if the investments didn’t work out. Contingent on the pension being there at the end of your career it’s much better. YMMV on getting a worse deal with a 401k that is more secure.
They can’t “take it away”. They just ran out of money with the judge ruling that shareholders don’t get priority access to what’s left.
Didn’t Boeing get rid of its pension plan? I don’t know the details but at least news interviews of striking union workers made it seem like a pension that they had worked for previously was then taken away, which seems unfair.
A quick Google suggests they stopped offering it and moved to a 401k, not that they just canceled their existing obligations.
This is generally the popular move because pensions plans create huge liabilities over time because you’re promising a final outcome rather than a promised level of funding.
A ton of companies moved away from defined benefit plans. There's still on the hook (in general) for existing obligations; they can't just go "never mind" for the most part. They've just focused on different retirement benefits going forward.
I think that depends. My Mother-in-Law continued to receive pension benefits from her late husband after he passed. I'm sure it depends on the pension and such.
Surviving spouse benefits are fairly common. That’s different from inheriting the unspent account balance in a 401(k) [such as by your kids and, of course, if there is any].
When I elected to start taking my pension I think there was an option to take a lower amount with a surviving spouse benefit. (Same is true for another annuity I have.) Different, as you say, from a pool of money that's "yours" with whatever tax consequences may be involved.
We don't really know yet if the 401k experiment is going to be successful. People retiring right now are by and large the earliest beta testers of the 401k idea. My parents and their parents had typical Defined Benefit pensions, and they were all able to simply enjoy their retirements without having to lift a finger to understand the stock market and index funds and tax rules and without needing to micromanage some brokerage account. They never had to worry about contribution limits, IRAs vs. 401k, Roth vs. non-Roth, asset allocation, the right investments for pre-tax vs post-tax money, rules about withdrawing contributions vs. earnings, having to guess what year they'll die to pick the right draw-down rate. They just worked, retired, and money magically came in. You have to admire the simplicity.
401ks are great, if you know what you are doing. I consider it a miracle if a blue collar worker has a 401k, is actually putting money in it, AND has the funds allocated to an appropriate fund AND hasn't withdrawn it a few times in some cockamamie attempt at making a smart financial decision like: paying cash for a truck so they don't have a payment.
Public schools successfully teach most Americans to read and do basic math. Being able to read and do math is all you need to navigate the greater part of modern society. Putting 15 year olds into a personal finance or home economics class can be productive, but we can't expect high school to teach you what to do in every possible scenario you'll encounter in life. At some point you're going to have to read and do a little bit of math.
I'm certainly not opposed to having a home economics class even in a college prep curriculum. Throw in some stats while you're at it and maybe some cooking lessons. But that doesn't stop people from being greedy and stupid like a lot of the tech folks during the past couple decades or so. Yeah, some won big, but so do some people who play the lottery every week. And sometimes it even makes sense to roll the dice a bit.
Pretending that successfully managing investments during 40+ years of working life so as to provide a reasonably comfortable requirement just requires "a little bit of math" is disingenuous in the extreme.
It is not disingenuous and it really doesn't even require much math. Buying target date and index funds is remarkably straightforward in 2024. Know how and where to buy them takes about an evening of reading. I know because that's how I did it. I did not have a home ec class, I did not have someone to show me how, and I am not that great at math.
my wife, who is perfectly capable of basic math, would never have been able to do this task, nor would she have wanted to, and in the past she was exploited by financial advisers seeking to do it for her.
I have no doubt that some people with weak/average math skills can do this, mostly because the math skills have nothing to do with it, really. Confidence about how to invest and manage your life savings is an entirely different thing, and since we don't teach people anything about this, many, many people do not have it.
I think in the end we are agreeing here. The big problem is that it's opt-in. Making this mandatory like Australia and Singapore solves the biggest problems of apathy or simply being unaware.
Social security for example only works because it's mandatory. I think having some percent of your check go into index funds automatically would work too.
We have social security in the US. If you think people should be putting more money in so they mostly automatically get more money out after they retire that's "just" a political problem. Setting up a parallel mandatory system just seems like an unnecessary complication.
There's nothing especially magical about 401ks. Yes, many companies match contributions up to some level. And there are some tax benefits but it's mostly about saving for retirement. It's not like defined benefit plans were anything like universal in the US--mostly big companies for employees with relatively long tenures.
The thing that makes 401ks magical compared to social security is decades of compound interest. The average social security payment is only $1700 a month. Not enough to live on, yet the program is almost unaffordable.
But that hasn't historically made 401ks magical relative to personal savings more broadly. Yes, many companies match up to a point and there are some tax benefits relative to just making an automatic contribution to an index fund, but most of the benefit is just saving on a relative basis.
I agree that SS by itself isn't really enough to live on for most people. But that's also just about what I get from my defined benefit pension--albeit for just about a third of my career. A nice bonus but just that.
Knowing basic math, and applying it are two different things.
The financial markets are vastly complicated. If you have exposure simply to arithmetic and not how it is applied to financial instruments, you are ill equipped.
Better to teach the basic financial instruments (Checking accounts, fees, overdraft, Credit Cards, Home Mortgages, Retirement accounts, bond and index funds, and simple allocation), and just the math necessary to understand the fundamentals. You can go a lot farther I think with the 3 R's and a solid home economics class than even things like Algebra, or higher math.
And, if nothing else, teach these people that if your employer matches, fund AT least that much. That's just free money, and you can't get a better return on your money out of the gate than that unless you're lucky at the sports book (ill-advised...).
Vanguard should be publishing ready to go lesson plans for this and giving them gratis to every high school in the nation.
How has our public school system failed? I know mine in the 90s had all of the information on financial literacy that covered everything you listed. I think the failure is expecting every 14-18 to absorb that information and start making life impacting financial decisions for that point forward.
'My plan would work, if it wasn't for that fact it involved human beings' actually just means your plan doesn't work.
You can relay general concepts and even the details. Figuring out all of the possible combinations of details that are legal and amount to the greatest benefit is not taught, at all. It involves an intermixture of various IRS rules, state laws, financial regulations, stock market peculiarities, and business entity types...not to mention trusts.
It amounts to teaching kids how to be free vs. being trapped in debt. The mentality that money is not to be spent but to be invested and leveraged. All this shit is over the head of anyone trying to teach in our school system. They are just riding out the misery to get their pension.
Can you clarify what you’re referring to with defined benefit? I am really looking to make it so that companies don’t hold pensions hostage. I think they should be putting money into some outside thing that is independently managed
Right. And there are some (fairly significant) protections these days. Learned recently that my pension which was farmed out to an outside benefits company at one point is now being farmed out to an insurance company TBD. I'm not especially concerned. The risk seems fairly low and I'm not really dependent. But this is the plus and minus of defined benefits versus something like a 401(k).
Retirement plans are defined benefit ("employee will be paid $X per time period during retirement") or defined contribution ("the company puts $Y per time period into this retirement vessel").
Or a custodian steals the money. Or the beneficiary selects poor investments. Or their employer doesn't do a generous match. Or the retiree switched jobs a few times and never fully "vested" in employer contributions. Or the market doesn't make the "math + time" formula work quite right. Or they couldn't contribute at various times due to family or health emergencies. Or all of these things.
Most of these points apply to pensions too. Getting laid off two weeks before your pension vests is an all too common story. Companies go bankrupt and the judge rules the opposite of what he did here. Pension plans themselves can go bankrupt, and although they're insured, it's only up to a certain limit.
And most of your 401k is going to be the money you put in, not the match anyway. So it sucks when you aren't able to vest or your employer doesn't match well, but that doesn't kill the concept.
The formula is proven to work in other countries. My point is you can't refuse to use a defined contribution scheme and then complain it didn't work.
If it doesn't work, we can always go back to the pre-finance retirement model - raise lots of kids and live with them during a 'retirement' in which you continue to work as much as possible.
Defined benefit plans mostly work OK (with some bankruptcy exceptions modulo various legal protections) for people working a decade or two for a firm. Probably not great benefits but I know I wasn't even thinking about my pension early career. So now it's essentially free money from mental accounting perspective.
401ks require deliberate action which a lot of people won't do or at least put off and they may make poor investment decisions--like invest everything in their own company's stock if that's an option.
> We don't really know yet if the 401k experiment is going to be successful.
Wouldn't there have been some segment of the population with about 25 years of 401k by 2008? It should be possible to compare them retiring during the downturn to people living off their pensions.
Pensions pay (paid?) regardless of how the stock market is doing, and they pay for life. They grow with inflation, and you don't need to know anything about stocks, markets, funds, rebalancing or anything else to benefit. It was an elegant weapon for a more civilized age. If it wasn't mismanaged and raided. Incidentally, today only 1/3 of working Americans have 401ks.
"More civilized age" also mostly meant people working for an extended period of time, e.g. 10-years plus, for a single employer.
And, even if an employer doesn't offer a 401(k) these days, there are generally other tax-advantaged savings mechanisms although they, of course, don't get employer contributions.
> Why isn’t the model just to pay employees more and let them save to a 401k that they control?
If you really want to understand this, it's probably worth your while to check out the Frontline piece The Retirement Gamble[0]
But a few key takeaways:
1) the 401k was never designed to be a general purpose retirement plan,
2) you would expect professional fund managers to be better at maximizing returns compared to a trucker selecting their own individual funds...,
3) if they even voluntarily invest in it in the first place.
The purpose of the pension is that a pool of employees collectively invest a portion of their income by hiring professional investment managers that ostensibly know what they are doing and can stay abreast of the market. They design short and long term investment strategies to meet the defined obligations of those pension contracts. The 401k is not the same thing; we are placing the onus on the individual to research funds, understand the market, re-balance their portfolio. And in the event of a recession, the individual might be SOL if they are dependent on that portfolio.
Next time you're at a rest stop, take a sampling and see how financially literate they are and how much they know even about mutual fund selection.
Fair enough, but we also know that an index fund beats "professional investment managers" over any reasonable time horizon. Warren Buffet bet a million dollars that this is true and won. The big problems with a pension is the rent seeking by all the brokers and "professionals" just for the employee to earn less than the index and if there is a recession, you need more new employees to prop up and bail the pension out (pyramid scheme).
Why not just have something like SIMPLE+ and you get a matching percentage that has to be a major index and you can't move it out until retirement when you can roll to your own devices and whims. The employees and their families would see a net benefit of such a mechanism.
Companies do restrict 401(k) options. Of course you could restrict even further but a lot of employees complain (loudly) that they don't have a broader array of investment options.
> Fair enough, but we also know that an index fund beats "professional investment managers" over any reasonable time horizon.
OK, now couple that with a mandatory contribution + defined benefit calculated by actuaries and you've got a pension except now everyone knows exactly what they're going to retire with and can plan accordingly and, BONUS, they can still contribute into self-managed retirement accounts if they wish to.
Pensions provide socioeconomic stability and predictability in a way that a 401k never can.
#3 is the big one. Given no real forcing function a lot of people with bills to pay just leave things for another day.
#1. 401ks weren't really designed. They fell out of some tax law changes.
#2. (Given #3.) Really isn't a big deal. You don't need to maximize returns. You can come up with a reasonable fire and (mostly) forget investment strategy without being a financial genius. I keep my eye on some of my portfolio but mostly leave it alone. It seems to infantilize working class people to assume they can't make the most rudimentary investment decisions on their own. Maybe we shouldn't let them buy houses either.
> I don’t really understand the pension model or how it is legal to just take it away randomly. Why isn’t the model just to pay employees more and let them save to a 401k that they control?
1. It is not legal to just take it away, as this ruling kind of indicates.
2. Most people are absolutely at (a) putting aside money, and (b) investing it properly. See for example "Retirement Crisis: The Great 401(k) Experiment Has Failed for Many Americans":
Why is pension managed by the company, wouldn't a national pool be better? In India in the latest system, employee pays some, company adds some and from the money collected over lifetime, the pension will be given. The fund is managed by central government.
For the US, you're describing the Social Security program more or less which almost all workers participate in. The benefits aren't enough to live comfortably on, so people need to supplement it with something else.
A lot of people complaining about the downsides of company-sponsored defined benefit programs (which are significant) basically just want higher social security payouts (and presumably associated taxes).
It isn't legally possible to "just" take a pension away.
However, it is not economically possible to deliver defined benefits into an uncertain future.
The collision of the unstoppable force of law and the immovable rock of economic reality creates a great deal of excitement and uncertainty. Also rather a lot of those "heat and not much light" arguments, as people speaking in one of those two frames argue with someone else in the other and they end up talking right past each other.
I agree with your point that delivering on this is an impossibility for business, which inherently means it's an even bigger impossibility for individuals (if a huge corporation can't figure it out, Bob working on the line definitely can't) and should therefore be moved to the government as the other option (Logan's running everyone) is going to be a really hard sell.
Government can't do it either. Defined benefit is impossible for everyone.
"Government" should be understood as a general term, not just "The US government" or whatever Western country you may live in. How many governments have fallen in the past 20 years? Probably more than you may realize. How sure are you that "the government" you live under will be there in 30 years? There's an awful lot of stress in the world right now.
And I'm not even talking about governments providing pensions, I'm talking about the fact you can't even count on them to exist. They still can't provide the impossible after that and promise absolutely defined benefits. Although this is a non-trivial part of why defined benefit is impossible for any entity to provide, because no entity can provide 100% reassurance it's going to be there in 40-50 years. None. Not government, not an individual, not a foundation, not a company, none. There is no way to put an obligation on future humans that the future humans can not do some combination of repudiation or simply failing to be able to meet them.
It is already looking to me very likely that if the US does have continuity up until my retirement, still ~20 years away, that while it may nominally provide all the "dollars" it promises I will receive, that those dollars will be not worth very much. There's more than one way to fail to make good on promises and confusing people about "give me $20 today and I'll give you $50 in 40 years" is one that still gets almost everyone... that sounds fantastic to most people and it's actually terrible, if the government also controls what dollars are worth.
Society might collapse so we can't feed old people is a heck of a take.
The government controls what the dollars are worth no matter what.
You provide no solution only doom and gloom. Maybe go for a hike in the woods. Either we figure something out or we go back to old people eating scraps out of trash cans like they did before we established social security. If a society can't progress and get rid of at the very least scarcity of food for old people during the most unprecedented growth of productivity in the history of the planet, what is the point of that society?
You are misreading a descriptive take with a normative take. The problem is that defined benefit plans are not possible. If you actually care about old people, rather than caring about scoring internet points yelling at people online, then the correct solution is to understand the problem, and start dealing with it.
The "yell at anyone explaining that defined benefits plans are impossible and then give out defined benefits plans anyhow" is what is and will continue to hurt people. It's not people like me hurting people, it's people like you who insist on living in fantasy because my gosh isn't the fantasy nicer than the reality.
> It isn't legally possible to "just" take a pension away.
Is that true?
I simply point out the common TV trope of police officers, essentially, "trapped" waiting to, I guess, vest and get their pensions. They seem to use it a lot as a discipline incentive, for example. "Don't do that Hank, or you'll lose your pension!" etc.
But I know my mother got a pension working for a company for only a few years, so I don't know how that all works. "It depends" I'm sure.
"just", complete with scarequotes, is doing a lot of heavy lifting in that phrase. Once it is obtained you can't "just" take it away, legally. That doesn't mean there's no way to do it or that there's no legal way to do it, it's just not something you can "just" do.
And it's not just legal. The solution to the US's debt problem isn't that you "just" stop paying Medicare and Social Security, because that causes its own problems. From a sufficiently cynical point of view, but one that still carries rather a lot of truth, Medicare and Social Security are payoffs for certain portions of the population to not riot, or induce other parts of the population to riot. The government can't "just" stop paying them.
I didn't watch the video, but the Pension Benefit Guaranty Corporation would pay him if Yellow Trucking didn't.
The argument is about the source of the money, not if they'll get paid.
> how it is legal to just take it away randomly
That's not what's happening. It's not random, the company has no money, so it can't pay. Instead the PBGC will pay in such a situation (companies pay an insurance premium to it, in case to go under).
This particular argument is about leftover money - how much should go to which company, it's not about the individual retiree.
Having control of your own destiny (whether in a 401k or an equivalent handled by the government on your behalf) is much better. With a pension, you may have to stick with the same company, or the company could mismanage the pension and go backrupt and try to dump the pension on the federal government, which may not pay out at 100% (especially if too many companies try to discharge their pension obligations this way).
I actually think a government run program that taxes employees and puts it in the S&P 500 would be a better system. No need for these pension-runners to be earning fees.
To clarify, Yellow has ~$2.1B in assets and ~$2.6B in debts. The Teamsters Union claims Yellow owes the pension fund ~ $6.5 billion (which works out to about $300k for each Teamster who worked at Yellow when it shut down). But the actual numbers here are mostly made up and don't matter.
> The funds asked Goldblatt to rule that billions of dollars in federal grant money they received from the US last year should be ignored when that liability is calculated.
The wording here is unclear. But the grant money mentioned here is the relief provided by the American Rescue Plan - the federal government dumped nearly a trillion dollars in guarantees that all qualifying pensions are going to pay out at 100%. So what the pensions lawyers are are arguing is that it doesn't matter that the pension is funded or not, they still have a senior claim on the debt.
> The Pension Benefit Guaranty Corp., which regulates retirements funds like those set up for Yellow’s union workers, argued that other companies with traditional pension plans would have an incentive to cancel their retirement benefits if Yellow won since shareholders wouldnt be forced to pay a hefty penalty.
More specifically, if every company made the same argument, they would all dump their pension funds and now they would all be the government's problem. It would not be a great precedent.
The moral hazard is already in place: unions will push for more and more generous benefits, even when they know the employer cannot afford it, because they're pretty sure the government will come and bail it out. Why does only the union get to benefit from this largess?
Debts held by favored and disfavored political groups have increasingly different values and this difference can only get so large before something has to break.
If the company has to pay out pensions before shareholders in bankruptcy, that would incentivize shareholders and debt holders to push company to reduce or manage pension obligations.
If the company cannot afford the pensions, the company goes bankrupt and then the government covers the pensions. If the company is bankrupt the shareholders are screwed. Companies do not make plans that involve zeroing out shareholders so I don't see what moral hazard there is.
'Corporations with all their resources can't figure out how to do retirements with the resources available to them, so just dump the responsibility on Bob with a high school diploma working on the line and even less resources and let him figure it out, he has access to 401ks, and if he doesn't, f him he deserves to starve' is the kind capitalist logic that is turning the tide against capitalism in the USA.
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[ 4.6 ms ] story [ 100 ms ] threadMaybe, but pension funds (should, at least) invest in multiple asset classes and assets to diversify risk. Not only equities and bonds, but if in hedge funds, then multiple hedge funds. Further, hedge funds generally have multiple investments going as well. In both cases if one particular thing goes to zero, not all the money (should) be lost.
Whereas with workers it is hard diversify risk away from your employer and your retirement savings if you have a pension.
This is why, contrary to popular opinion, shareholders are not actually owners of a company, but 'just' another stakeholder: other stakeholders would include employees, suppliers, bond holders, retirees, etc.
Shareholders are often lowest priority, and for taking on that risk of losing more, they get typically get rewarded more (i.e., stock goes up).
Bond holders and pension employees don't have a seat to control power.
This, shareholders are true owners of the company. But laws prevent them taking other stakeholders for a ride.
There are laws and legal precedents in multiple countries that state the shareholders are not owners:
* https://edwardslaw.ca/blog/shareholders-agreements-in-canada...
* https://www.ippr.org/articles/who-owns-a-company
* https://www.cambridge.org/core/journals/journal-of-instituti...
Further, directors and such have a fiduciary to the corporation and not to the shareholders:
> This separation of ownership and control provides the basis for many of the fundamental principles of corporate law. One example is the principle that the directors and officers of a corporation owe a fiduciary duty to the corporation: see Canadian Aero Service Ltd. v. O'Malley, [1974] S.C.R. 592.
* https://decisions.scc-csc.ca/scc-csc/scc-csc/en/item/699/ind...
And that stakeholders must be considered as well:
> Under the CBCA, directors have a fiduciary duty to act honestly, in good faith and in the corporation’s best interest. 2 Until a few decades ago, the corporation’s shareholders were often considered its primary beneficiaries. This shareholder-centric form of corporate governance was known as the shareholder primacy model, a model that would, theoretically, obviate managerial self-dealings. 3
> However, at the end of the last century a shift to include non-shareholder interests began to emerge. Many attribute this shift to the hostile takeover wave of the 1980s, which increased shareholder wealth efficiently but left employees scrambling for work and government institutions struggling to respond.4 The shareholder primacy model came under further scrutiny, in both Canada and the US, after the burst of the tech bubble in 2002 and the 2008 financial crisis.5
* https://www.nortonrosefulbright.com/en-ca/knowledge/publicat...
The primacy of shareholders started to become in vogue in the 1970s, and so (because of recency bias) is what is best known now, but there is a history of other philosophies before that:
* https://scholarship.law.cornell.edu/facpub/865/
And the primacy of shareholders, being thought of as the most important stakeholder, did not change the legal precedents.
... right after hedge fund "costs" are limited to a microscopic amount.
If you're going to treat private financial service organizations as if they are organized for public good (i.e. paying employee pensions), then they need to operate as such, rather than as wealth generators for their officers.
And don't come at me with "that keeps the incentives aligned - if the managers/officers make money, the hedge fund is making more money". I don't buy that the only way to get effective investment growth is by making the officers wealthy beyond all belief. Vanguard agrees with me.
The ruling is just about where that money comes from, the money would be paid either way.
Also the "shareholders" are taxpayers, they are in general just ordinary people investing in businesses.
> There is a statutory maximum benefit that PBGC can pay. Participants receive the lower of their benefit as calculated under the plan or the statutory maximum benefit. If a participant’s benefit is higher than the statutory maximum benefit, the participant’s benefit is reduced. Participants in single-employer plans that terminate in 2021 and are trusteed by PBGC may receive up to $72,409 per year if they begin taking their pension at the age of 65. The single-employer maximum benefit is adjusted depending on the age at which the participant begins taking the benefit and on the form of the benefit (e.g., the maximum benefit is lower for a joint-and-survivor annuity). The maximum benefit for participants in multiemployer plans that receive financial assistance depends on the number of years of service in the plan. For example, a participant with 30 years of service may receive up to $12,870 per year. Currently, most workers in singleemployer plans taken over by PBGC and multiemployer plans that receive financial assistance from PBGC receive the full pension benefit that they earned.
> However, among participants in multiemployer plans that were terminated and likely to need financial assistance in the future, 49% have a benefit below the PBGC maximum guarantee and 51% have a benefit larger than the PBGC maximum guarantee (and therefore, would see a benefit reduction). At the end of FY2020, PBGC had a total deficit of $48.2 billion, which consisted of a $15.5 billion surplus from the single-employer program and a $63.7 billion deficit from the multiemployer program. PBGC’s single-employer program has been on the Government Accountability Office’s (GAO’s) list of high-risk government programs since 2003. PBGC’s multiemployer program was added in 2009. PBGC projects the financial position of the singleemployer program is likely to continue to improve, but the financial position of the multiemployer program is expected to worsen considerably over the next 10 years.
The shortfall will eventually be made up from the general fund, funded by taxpayers. But, we are in the weeds unnecessarily. The PBGC should be a last resort, based on the above context.
> About 162 million Americans, or 62% of U.S. adults, own stock. The top 1% holds 50% of stocks, worth $21 trillion. The bottom 50% of U.S. adults hold only 1% of stocks, worth $437 billion.
> Most Americans indirectly hold stocks through a mutual fund, an index fund, or a retirement account such as a 401(k). A smaller percentage directly holds stocks, meaning they purchase individual shares.
https://www.axios.com/2024/01/10/wealthy-own-record-share-st...
Anyways this outcome sounds like good news. Employees get what they were due.
There is a conflict of interest here, but regular employees aren't able to evaluate that.
They can’t “take it away”. They just ran out of money with the judge ruling that shareholders don’t get priority access to what’s left.
UA didn't fund the pension plan, then declared bankruptcy in 2005 primarily to get the $10B pension off it's books.
Now that UA is profitable again, it's under no obligation to fund the pension plan it discharged from it's 2005 bankruptcy.
https://www.pbgc.gov/wr/large/united/united-airlines-plan-re...
This is generally the popular move because pensions plans create huge liabilities over time because you’re promising a final outcome rather than a promised level of funding.
A ton of companies moved away from defined benefit plans. There's still on the hook (in general) for existing obligations; they can't just go "never mind" for the most part. They've just focused on different retirement benefits going forward.
A 401(k) is theoretically better because you can pass the unspent amount to your heirs.
(I make this post to point out that it’s a tradeoff, not that one is dominant over the other for all people/situations.)
Unlikely, based on the data.
https://news.ycombinator.com/item?id=41488940 (citations from a previous comment I wrote)
Our public school system has failed. Full stop.
my wife, who is perfectly capable of basic math, would never have been able to do this task, nor would she have wanted to, and in the past she was exploited by financial advisers seeking to do it for her.
I have no doubt that some people with weak/average math skills can do this, mostly because the math skills have nothing to do with it, really. Confidence about how to invest and manage your life savings is an entirely different thing, and since we don't teach people anything about this, many, many people do not have it.
Social security for example only works because it's mandatory. I think having some percent of your check go into index funds automatically would work too.
There's nothing especially magical about 401ks. Yes, many companies match contributions up to some level. And there are some tax benefits but it's mostly about saving for retirement. It's not like defined benefit plans were anything like universal in the US--mostly big companies for employees with relatively long tenures.
I agree that SS by itself isn't really enough to live on for most people. But that's also just about what I get from my defined benefit pension--albeit for just about a third of my career. A nice bonus but just that.
The financial markets are vastly complicated. If you have exposure simply to arithmetic and not how it is applied to financial instruments, you are ill equipped.
Better to teach the basic financial instruments (Checking accounts, fees, overdraft, Credit Cards, Home Mortgages, Retirement accounts, bond and index funds, and simple allocation), and just the math necessary to understand the fundamentals. You can go a lot farther I think with the 3 R's and a solid home economics class than even things like Algebra, or higher math.
And, if nothing else, teach these people that if your employer matches, fund AT least that much. That's just free money, and you can't get a better return on your money out of the gate than that unless you're lucky at the sports book (ill-advised...).
Vanguard should be publishing ready to go lesson plans for this and giving them gratis to every high school in the nation.
'My plan would work, if it wasn't for that fact it involved human beings' actually just means your plan doesn't work.
It amounts to teaching kids how to be free vs. being trapped in debt. The mentality that money is not to be spent but to be invested and leveraged. All this shit is over the head of anyone trying to teach in our school system. They are just riding out the misery to get their pension.
https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/...
This could be solved by making contributions mandatory like Australia and Singapore. As long as you're putting money in, the rest is just math + time.
And most of your 401k is going to be the money you put in, not the match anyway. So it sucks when you aren't able to vest or your employer doesn't match well, but that doesn't kill the concept.
The formula is proven to work in other countries. My point is you can't refuse to use a defined contribution scheme and then complain it didn't work.
401ks require deliberate action which a lot of people won't do or at least put off and they may make poor investment decisions--like invest everything in their own company's stock if that's an option.
Wouldn't there have been some segment of the population with about 25 years of 401k by 2008? It should be possible to compare them retiring during the downturn to people living off their pensions.
And, even if an employer doesn't offer a 401(k) these days, there are generally other tax-advantaged savings mechanisms although they, of course, don't get employer contributions.
But a few key takeaways:
The purpose of the pension is that a pool of employees collectively invest a portion of their income by hiring professional investment managers that ostensibly know what they are doing and can stay abreast of the market. They design short and long term investment strategies to meet the defined obligations of those pension contracts. The 401k is not the same thing; we are placing the onus on the individual to research funds, understand the market, re-balance their portfolio. And in the event of a recession, the individual might be SOL if they are dependent on that portfolio.Next time you're at a rest stop, take a sampling and see how financially literate they are and how much they know even about mutual fund selection.
[0] https://www.pbs.org/wgbh/frontline/documentary/retirement-ga..., https://www.pbs.org/wgbh/frontline/documentary/retirement-ga...
Why not just have something like SIMPLE+ and you get a matching percentage that has to be a major index and you can't move it out until retirement when you can roll to your own devices and whims. The employees and their families would see a net benefit of such a mechanism.
Pensions provide socioeconomic stability and predictability in a way that a 401k never can.
#1. 401ks weren't really designed. They fell out of some tax law changes.
#2. (Given #3.) Really isn't a big deal. You don't need to maximize returns. You can come up with a reasonable fire and (mostly) forget investment strategy without being a financial genius. I keep my eye on some of my portfolio but mostly leave it alone. It seems to infantilize working class people to assume they can't make the most rudimentary investment decisions on their own. Maybe we shouldn't let them buy houses either.
1. It is not legal to just take it away, as this ruling kind of indicates.
2. Most people are absolutely at (a) putting aside money, and (b) investing it properly. See for example "Retirement Crisis: The Great 401(k) Experiment Has Failed for Many Americans":
* https://www.nbcnews.com/business/retirement/great-401-k-expe...
Doing a search for "401k experiment has failed" will give lots of results.
However, it is not economically possible to deliver defined benefits into an uncertain future.
The collision of the unstoppable force of law and the immovable rock of economic reality creates a great deal of excitement and uncertainty. Also rather a lot of those "heat and not much light" arguments, as people speaking in one of those two frames argue with someone else in the other and they end up talking right past each other.
"Government" should be understood as a general term, not just "The US government" or whatever Western country you may live in. How many governments have fallen in the past 20 years? Probably more than you may realize. How sure are you that "the government" you live under will be there in 30 years? There's an awful lot of stress in the world right now.
And I'm not even talking about governments providing pensions, I'm talking about the fact you can't even count on them to exist. They still can't provide the impossible after that and promise absolutely defined benefits. Although this is a non-trivial part of why defined benefit is impossible for any entity to provide, because no entity can provide 100% reassurance it's going to be there in 40-50 years. None. Not government, not an individual, not a foundation, not a company, none. There is no way to put an obligation on future humans that the future humans can not do some combination of repudiation or simply failing to be able to meet them.
It is already looking to me very likely that if the US does have continuity up until my retirement, still ~20 years away, that while it may nominally provide all the "dollars" it promises I will receive, that those dollars will be not worth very much. There's more than one way to fail to make good on promises and confusing people about "give me $20 today and I'll give you $50 in 40 years" is one that still gets almost everyone... that sounds fantastic to most people and it's actually terrible, if the government also controls what dollars are worth.
The government controls what the dollars are worth no matter what.
You provide no solution only doom and gloom. Maybe go for a hike in the woods. Either we figure something out or we go back to old people eating scraps out of trash cans like they did before we established social security. If a society can't progress and get rid of at the very least scarcity of food for old people during the most unprecedented growth of productivity in the history of the planet, what is the point of that society?
The "yell at anyone explaining that defined benefits plans are impossible and then give out defined benefits plans anyhow" is what is and will continue to hurt people. It's not people like me hurting people, it's people like you who insist on living in fantasy because my gosh isn't the fantasy nicer than the reality.
Is that true?
I simply point out the common TV trope of police officers, essentially, "trapped" waiting to, I guess, vest and get their pensions. They seem to use it a lot as a discipline incentive, for example. "Don't do that Hank, or you'll lose your pension!" etc.
But I know my mother got a pension working for a company for only a few years, so I don't know how that all works. "It depends" I'm sure.
And it's not just legal. The solution to the US's debt problem isn't that you "just" stop paying Medicare and Social Security, because that causes its own problems. From a sufficiently cynical point of view, but one that still carries rather a lot of truth, Medicare and Social Security are payoffs for certain portions of the population to not riot, or induce other parts of the population to riot. The government can't "just" stop paying them.
I wonder if this can and will be appealed. If it hits the US Supreme Court, we can guess what will happen :(
The argument is about the source of the money, not if they'll get paid.
> how it is legal to just take it away randomly
That's not what's happening. It's not random, the company has no money, so it can't pay. Instead the PBGC will pay in such a situation (companies pay an insurance premium to it, in case to go under).
This particular argument is about leftover money - how much should go to which company, it's not about the individual retiree.
I actually think a government run program that taxes employees and puts it in the S&P 500 would be a better system. No need for these pension-runners to be earning fees.
> The funds asked Goldblatt to rule that billions of dollars in federal grant money they received from the US last year should be ignored when that liability is calculated.
The wording here is unclear. But the grant money mentioned here is the relief provided by the American Rescue Plan - the federal government dumped nearly a trillion dollars in guarantees that all qualifying pensions are going to pay out at 100%. So what the pensions lawyers are are arguing is that it doesn't matter that the pension is funded or not, they still have a senior claim on the debt.
> The Pension Benefit Guaranty Corp., which regulates retirements funds like those set up for Yellow’s union workers, argued that other companies with traditional pension plans would have an incentive to cancel their retirement benefits if Yellow won since shareholders wouldnt be forced to pay a hefty penalty.
More specifically, if every company made the same argument, they would all dump their pension funds and now they would all be the government's problem. It would not be a great precedent.
Debts held by favored and disfavored political groups have increasingly different values and this difference can only get so large before something has to break.
"and they all lived happily ever after"