Traditional Pensions Gold Standard of Lifetime Employee

[luckytohaveajob]

Traditional pensions are the gold standard of lifetime employees. Airline management maintains their pensions as secured bonds which even pay in bankruptcy proceedings.

Union workers who think they are over rated because they are not in your name and won't get them don't get it.

Guaranteed benefit is what is so important. And employee groups which sacrifice guaranteed payable benefits to keep the company in business are losers. UAL/US Air/ NWA/DAL/CAL sacrificing benefit to keep a paycheck is obsurd!

And companies who never offered such are inferior and short term thinkers concerning their employee's futures creating haves and have nots when the growth stops- SWA. SWA new pilots will all be the have nots while the old timers screwing everyone over will be the have it and pull up the ladder types.

http://finance.yahoo.com/focus-reti...raditional-pensions?mod=fidelity-changingjobs

 

[Raoul Duke]

oh yes, the newly hired southwest pilots are so mistreated. . .

 

[CitationLover]

good luck they are gone, bye bye. too expensive to maintain versus a 401k.

if interest rates skyrocket pensions will swing to vastly overfunded in no time after the asset beatings they took this year. the traditional pension is just that: traditional. management has fallen out of favor with them due to it's budgeting unpredictability versus dc plans, too expensive to maintain (actuaries, auditors, attorneys, etc.), etc.

 

[Yuppyguppy]

I lost my pension...GLenn TIlton still has his. What's wrong w/ this picture.

 

[luckytohaveajob]

good luck they are gone, bye bye. too expensive to maintain versus a 401k.

because line pilots are towing management lines and believing it

 

[snow-back]

Pension plans have to be managed properly...just like a 401k. Pension plans managed and administered by competent responsible people should have no problem remaining intact. Are they more expensive than a 401k? Absolutely, but they are a much better benefit. If certain managements would have spent half the effort properly managing their pension obligations as they did managing their own "retirement" packages, thousands of employees would NOT have received retro-active pay cuts going back to their dates of hire.

 

[CitationLover]

because line pilots are towing management lines and believing it

please look at facts. when you can understand SFAS 87/132 and how it applies to the bottom line versus x% of compensation (a typical DC plan) you will understand. this isn't a management "line" it's reality. pensions are dying from ALL industries due to their increased complexities and massive overregulation versus 401k's and DC plans. don't believe me, ask your alpa r&i committee chairman.

tilton doesn't have a pension, he has an employment contract: as do all senior managers at most corporate companies. the "pension" portion of their contracts are all not funded (if they were funded they would be subjected to tax qualification rules and be deemed discriminatory). unfortunately the golden parachute mentality lives well. look at stephen wolf: made a killing at republic, made a REAL killing at united, then fooled them all again at US Airways and made a killing. It's no different than coaching in professional sports: it's hard to get in the club, but once in you'll bounce around awhile.

 

[CitationLover]

Pension plans have to be managed properly...just like a 401k. Pension plans managed and administered by competent responsible people should have no problem remaining intact. Are they more expensive than a 401k? Absolutely, but they are a much better benefit. If certain managements would have spent half the effort properly managing their pension obligations as they did managing their own "retirement" packages, thousands of employees would NOT have received retro-active pay cuts going back to their dates of hire.

Please understand how "pensions" work before stating this. Plan's, by law - 1973 ERISA, have to be created as a separate and legal entity. The plan also has documents detailing how the plan's assets are to be invested. A lot of these decisions are outside of management's everyday hands. Now management can easily control benefit improvements and freezes, etc (amendments to the plan), but the -40% return from last year and the lowering of interest rates over the last 10 years is a little past their egomaniacal control.

It is questionable what is a "better" benefit. Typically for older people, a traditional pension is much better. The younger workforce demands portability these days and a 401k fits nicely into that equation. Add to that the transfer of risk from the company to the plan participant and walla. These plan's are all administered via outsourcing companies: Fidelity, Hewitt, etc and not from your internal HR department.

 

[CitationLover]

A small example regarding the vast differences between a DC plan and a pension plan (DB - defined benefit plan):

Once you quit from a company with a DC plan:
- You can take your money and roll it over or take a tax hit if not 59 1/2.
- You can take your money after 59 1/2 and be subject to taxation
- Either way both are lump sum distributions after which the plan owes you nothing.

Once you quite from a company with a DB plan:
- You can only take your money if not early retirement eligible if the actuarial equivalence of your monthly benefit is less than $5,000 otherwise you are entitled to an annuity starting at age 65 (60 if an airline pilot unless the plan amended its definition of normal retirement age to 65 after 65 passed two years ago). If you quit at age 30 you are responsible for informing the company for the next 30/35 years where you live.
- If retirement eligible you must elect what type of payment form you want for your annuity or a lump sum if your plan allows large lump sum cashouts. The annuity forms are all subject to various regulations (ie if married you must offer at least a 50% joint and survivor annuity, of which if you decline it, your spouse must consent and sign a notarized form). In addition there are various minimum distribution rules (MDIB) that must be checked. If the participant dies before retirement but has a surviving spouse there are insurance rules that must be met.
- In addition to all of the above all of this information must be transmitted to the plan's trustee, which will then start sending monthly paychecks until you die.

DB plans are way more expensive not due to the benefits involved, but due to the administration of the plans. In theory the benefits are equivalent in a lot of ways. Once you typically meet early retirement eligibility a DB plan becomes more expensive than a DC plan, and vice versa if not early retirement eligible.

Hope this makes sense. Any questions, call your local r&i committee.

 

[Mike man]

good luck they are gone, bye bye. too expensive to maintain versus a 401k.

True, but a company must match the 401(k) (if it is matched)...they are supposed to fund a pension, but are there any pensions that are correctly funded? Other than the pension for Congress?

 

[livin'thesim]

The horse is out of the barn, but one of the largest problems was that labor groups did not use negotiation capital to ensure that the funds were kept current.

Accounting rule changes and management's mishandling or abuse of pension fund accounts has led to massive underfunding.


A major reason behind the underfunding was based on Wall Street financial models.
The idea that equities (stocks) could be used to provide high short and long term returns gave pension fund managers (both public and private) the justification they were looking for to decrease contributions into the fund.

Labor groups failed also, since they did not properly police management's actions. If they had used their bargaining power to contractually force management to set aside realistic amounts, we would be in better shape.

If you forget to look both ways before you cross the street and a drunk driver kills you, it is his fault. But you're still dead. Labor groups need to become educated on the financial math behind pension plans if they expect to see their money when they retire. Big pools of money like pension funds are JUICY targets for unscrupulous players. Not just management either - investment bankers, hedge fund operators, etc.

Much pension money has been lost to these charlatans as well.

I'm going to tell you a huge truth about pension funds:

You cannot grow a pension fund sustainable with large stock exposures. It is just too risky. While the long-term stock market returns MAY be above the rate of return on bonds, there are gigantic periods of loss an volatility, like we are in now.

When people retire, they need their money.

Therefore, moving ahead from here, labor groups need to ensure that their fund managers are not taking excessive risk to generate returns. The fund grows through contributions and return on investment.

Pension fund investing MUST absolutely return to the old days, with safe high-quality bond management mixed very carefully with value-oriented stocks.

The problem for labor is that when events like the runup to 14,000 a couple years back, or the dotcom bubble occur, some elements in management and even some in labor want to move pension funds into those investments to juice the returns.

We are now experiencing the fallout from that.

There is an important reason why the bond market is several times larger than the stock market, and why it is actually more important. Most of the large sovereign wealth funds, who have the best investment analysis money can buy, keep the bulk of their cash in government debt. This is not because they are too stupid to invest in stocks.

Union leadership is going to have to come up to speed fast on the mathematics of pension finance if they want to preserve this benefit into the future. Trusting management to control pension funds has proven to be the wrong way to do it.

I personally believe that labor groups should actually handle the pension money the same way that you or I would manage our 401k.

The money goes into an account, and the union's money managers (whom the union selects and pays their salary) manage the investments. The company just sends the cash in and the union does the rest.

This way, there can be no chance of chicanery.

 

[Whine Lover]

" Labor groups should actually handle the pension money the same way that you or I would manage our 401k." ( Right. A Direct Contirbution ( B-Plan ) as opposed to an A-Plan.)

" The money goes into an account." ( Right. MY Account. )

" The company just sends the cash in and the union does the rest." ( WRONG. )

"This way, there can be no chance of chicanery." ( WRONG.)

 

[StaySeated]

DB plans themselves are not the problem. Companies were given tremendous leeway with respect to the funding of their DB plans, and then they were required to disclose the details of why the plans were underfunded.

A DB plan is nothing more than an annuity (with regard to disbursement),and if you understand how an insurance company is required to invest their own assets (78/22) then there should never be a time when a DB is underfunded. The problem lies in the fact that our employers have not been required to fund the plans properly. The plans are not too expensive, nor are they too cumbersome. The concept itself has failed because we trusted "the company" to manage the account, when in fact we should have required the company to fund the plans properly and deposit those funds with a third party.

With all of that being said, a DC plan is basically better on every level. It is just a damn shame that so many people were devastated by the failure of their DB plan.

 

[StopNTSing]

DB plans themselves are not the problem. Companies were given tremendous leeway with respect to the funding of their DB plans, and then they were required to disclose the details of why the plans were underfunded.

A DB plan is nothing more than an annuity (with regard to disbursement),and if you understand how an insurance company is required to invest their own assets (78/22) then there should never be a time when a DB is underfunded. The problem lies in the fact that our employers have not been required to fund the plans properly. The plans are not too expensive, nor are they too cumbersome. The concept itself has failed because we trusted "the company" to manage the account, when in fact we should have required the company to fund the plans properly and deposit those funds with a third party.

With all of that being said, a DC plan is basically better on every level. It is just a damn shame that so many people were devastated by the failure of their DB plan.

An even bigger shame is the coming failure of state & federal pension plans because we trusted "the government" to manage the accounts and fund the plans properly. :bomb:

 

[livin'thesim]

Whinelover-

I think you misinterpret my post.

I am not advocating for or against pensions. What I am trying to say is that IF a DB program is desired, this is the way I think it should be done.

Personally, I prefer a 401k program myself, since I have the financial interest and time to manage my own savings.

I want to revisit the points you referenced:

" Labor groups should actually handle the pension money the same way that you or I would manage our 401k." ( Right. A Direct Contirbution ( B-Plan ) as opposed to an A-Plan.)

" The money goes into an account." ( Right. MY Account. )

If this is what you want, then sure. It is the system that we both prefer for ourselves. My point was that IF the labor group wants a DB program, recent history has proven that you can't leave management in charge of the account.

Giving the union control of the investments would be one step closer to direct employee control, which we both prefer.

" The company just sends the cash in and the union does the rest." ( WRONG. )

This is not a 'right' or 'wrong', it is a matter of preference. I suggested a method, I did not predict whether that method was the best method, just a better one than is currently in place. "Wrong" is the wrong word. Perhaps you meant "bad idea". Maybe, maybe not.

Again, this is less preferable than direct employee control with a personal account, but better than leaving it up to the revolving door of airline management.

"This way, there can be no chance of chicanery." ( WRONG.)

Hehe. I was wondering if anyone would point that out.

The full statement is that if the union controlled the investment strategy and the funds were set aside, any management chicanery would be eliminated, by virtue of who controlled the account. The potential for other chicanery is a debate outside the scope of this point.

 

[Smarta$$]

It is questionable what is a "better" benefit. Typically for older people, a traditional pension is much better. The younger workforce demands portability these days and a 401k fits nicely into that equation. Add to that the transfer of risk from the company to the plan participant and walla. These plan's are all administered via outsourcing companies: Fidelity, Hewitt, etc and not from your internal HR department.

Are you kidding? In what universe is a mostly self funded retirement plan, that is mostly funded out of depressed wages, better than an employer funded plan.

If it was so great than all of our young executives would be dropping thier retirement benefits and asking the BOD's if they can please fund thier own retirement.

 

[CitationLover]

Are you kidding? In what universe is a mostly self funded retirement plan, that is mostly funded out of depressed wages, better than an employer funded plan.

If it was so great than all of our young executives would be dropping thier retirement benefits and asking the BOD's if they can please fund thier own retirement.

Wake up. A pension by DEFINITION is deferred wages, so where do you get a 401k is depressed but a pension isn't? Aren't some pensions tied to pensionable earnings like final average pay plans? Do you even know what you are talking about?

I sympathize your plight with regard to executive employment contracts, but following ALPA's mantra: "you are what you negotiate". These are negotiated contracts between the BOD and their executives. Of course a lot of "you scratch my back, I'll scratch yours" goes on. Why do you think executives of one company are on boards of others and vice versa? It's all like a big fraternity and hopefully the outcome of this latest crisis is to finally have boards that really do hold into account executives.

 

[CitationLover]

DB plans themselves are not the problem. Companies were given tremendous leeway with respect to the funding of their DB plans, and then they were required to disclose the details of why the plans were underfunded.

So what leeway is that? The Revenue Protection Act of 1994 DICTATED what interest rates and mortality tables were used to fund plans! Do you understand what happens to measurable liabilities when interest rates go down (like they did in the late 90's)? Of course some pension fund managers are guilty of chasing the market, no different than any of the numerous mutual fund managers who have done the same thing over time.

A DB plan is nothing more than an annuity (with regard to disbursement),and if you understand how an insurance company is required to invest their own assets (78/22) then there should never be a time when a DB is underfunded. The problem lies in the fact that our employers have not been required to fund the plans properly. The plans are not too expensive, nor are they too cumbersome. The concept itself has failed because we trusted "the company" to manage the account, when in fact we should have required the company to fund the plans properly and deposit those funds with a third party.

You can keep speaking the company line, but the reality is they ARE more expensive. If the insurance model works so well, why are insurance companies receiving TARP money now? What strict definition would you use as to how to fund pensions?

With all of that being said, a DC plan is basically better on every level. It is just a damn shame that so many people were devastated by the failure of their DB plan.

The devastation of the DB plan failure has more to do with the PBGC and its archaic model of reducing a benefit from their normal retirement age of 65 to a pilot's old one of 60. The PBGC reduced pilot's guaranteed benefits even though their benefit was at their mandated retirement plan. This is the primary blow dealt to all pilot's pensions going to the PBGC. This is pure and simple idiocy on congress' part on how their regulations were being interpreted by their government agncies, IRS and PBGC.

 

[CitationLover]

note: I use ALPA as the representative aviation labor union. you can insert any union into their spot below.

The horse is out of the barn, but one of the largest problems was that labor groups did not use negotiation capital to ensure that the funds were kept current.

Accounting rule changes and management's mishandling or abuse of pension fund accounts has led to massive underfunding.

What abuse? Can you name one specific example?

A major reason behind the underfunding was based on Wall Street financial models.
The idea that equities (stocks) could be used to provide high short and long term returns gave pension fund managers (both public and private) the justification they were looking for to decrease contributions into the fund.

No one was complaining before last year about equities.

Labor groups failed also, since they did not properly police management's actions. If they had used their bargaining power to contractually force management to set aside realistic amounts, we would be in better shape.

You're misguided to think labor groups care about retirement. It is the EXACT opposite. Why do dues payers want their dues to help manage non-dues payers. Look at the NFLPA and how it treats it's retireees. Half the union membership is too young to even care about retirement. Usually the retirement sections of contracts at airlines are the concessions or company giveaways, they know in the long term ALPA doesn't care about YOUR retirement versus keeping the active dues paying members happy.

If you forget to look both ways before you cross the street and a drunk driver kills you, it is his fault. But you're still dead. Labor groups need to become educated on the financial math behind pension plans if they expect to see their money when they retire. Big pools of money like pension funds are JUICY targets for unscrupulous players. Not just management either - investment bankers, hedge fund operators, etc.

This is completely ridiculous. If ALPA knew a lot about pensions, guess what? They'd be managing pensions! ALPA should concentrate 100% on obtaining the best pay and work rules for its membership period. ALPA's rudder doesn't need to be swayed by this nonsense. ALPA and every other labor union has it's own problems with how they even allocate their own funds, its a simple fact of being just another bureaucracy. You want to add to that with your pension money, no thank you.

You cannot grow a pension fund sustainable with large stock exposures. It is just too risky. While the long-term stock market returns MAY be above the rate of return on bonds, there are gigantic periods of loss an volatility, like we are in now.

Sure you can. If the population is young enough they can spread the risk out a lot longer versus someone young. This is why DC plans are MUCH better at doing what you describe versus DB plans. DB plan's have one fund for a group of people (that includes old and young alike), thus a common ground is tried to be maintained.

 

[livin'thesim]

What abuse? Can you name one specific example?

Sure. A pool of money from several funds in an eastern state (I forget which) had exposure to Madoff through feeder funds.

Additionally, many pension funds had participated in shady derivatives deals, I think it was Milwaukee or Sheboygan. Large losses to the fund.
Calpers just wrote off something like 105% of a real estate deal that went south (the extra must have been for expenses incurred). There are many other cases. Much of this was government employee's pension money, but the implication is clear that you have to watch what your money managers are doing, and make sure that they are acting in your interests.

There are currently several investigations occurring nationwide about pension managers' possible fraudulent actions.

An afternoon on the internet will yield more.

No one was complaining before last year about equities.

Perhaps they should have been. Several severely underfunded pensions started going overweight equities (compared to normal weightings) just before equities started their slide. While it is true that it was a panic move to try and meet shortfalls, they still used historic equity appreciation models to justify this reallocation. Unless you actually believe that these managers knew they were rolling the dice on stocks. Either way, the commonly accepted 8% per year will end up turning out to be a fallacy.

I don't expect you to believe me, but just wait and see.

Btw: I got out of equities at Dow 12,800 (going up). So not everyone was blind to the problems that were brewing.

You're misguided to think labor groups care about retirement. It is the EXACT opposite. Why do dues payers want their dues to help manage non-dues payers. Look at the NFLPA and how it treats it's retireees. Half the union membership is too young to even care about retirement. Usually the retirement sections of contracts at airlines are the concessions or company giveaways, they know in the long term ALPA doesn't care about YOUR retirement versus keeping the active dues paying members happy.

Not misguided, because I make no assumptions about whether they care. In fact, based on many labor groups' actions, an argument can be made that the very senior may actually not care at all. I have no comment on their intentions.

My statement stands: Labor groups IF they care, would do well to monitor pension funding more carefully. I fail to see how more oversight of this will harm pensions.

This is completely ridiculous. If ALPA knew a lot about pensions, guess what? They'd be managing pensions! ALPA should concentrate 100% on obtaining the best pay and work rules for its membership period. ALPA's rudder doesn't need to be swayed by this nonsense. ALPA and every other labor union has it's own problems with how they even allocate their own funds, its a simple fact of being just another bureaucracy. You want to add to that with your pension money, no thank you.

Good thinking. Let's go further with that. I suppose that you think that ALPA should also not have their rudder swayed by all this safety nonsense either. They should focus on the best pay and work rules.

You are apparently very interested in ALPA ensuring that the words printed on the paper in the contract say things that pilots like. I guess it is a bridge too far to oversee this and ensure that the funds promised are in the account on time and that realistic investment models are being used.

Trusting management to ensure that the funds are there has not been a real winner as of late.

Again, I am not coming out in favor of or against DC or DB. I am simply stating that negotiating a pension and then having ineffective oversight of the funding or investment strategy is not a great way to operate. We have commitees for everything else, you know.

Or you could, in the interest of reducing beaureucracy, just leave the current system in place.

Sure you can. If the population is young enough they can spread the risk out a lot longer versus someone young. This is why DC plans are MUCH better at doing what you describe versus DB plans. DB plan's have one fund for a group of people (that includes old and young alike), thus a common ground is tried to be maintained.

See above. Not for or against. If the pilot group has a preference for DB, that is what they will try to negotiate.

Large equity exposure is risky, Like I stated above, many of these funds ran to equities in a panic to goose returns. Now they're screwed. There are also some serious fundamental flaws in the long-term stock market investment assumptions. Too much to go into now, but stocks will remain bad for some time to come. the bull market since 1982 has seduced everyone with the buy-and-hold strategy/religion. It is now coming unglued.


I prefer DC for myself since I prefer to do my own investment research.

The idea that DC is better is opinion. There is not reason that a pension fund manager cannot allocate according to employee age and achieve the same results. I think you are skeptical that the right decisions would be made, and you may be correct.

The average employee, though, is probably going to pick a handful of funds and let it ride.

You are obviously a huge fan of DC, which is fine. I prefer it myself.

But my whole post was about the problems and possible solutions for DB plans, if they remain. Getting rid of them, which you probably prefer, is just one more way of solving the existing problems.