Traditional Pensions Gold Standard of Lifetime Employee

[livin'thesim]

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.

Well, one way DC is better is that it is much harder to lose it to BK or fraud.

Which is better is a matter of preference, company, and career track.

The reason the execs want DB is that they have the clout to ensure they actually get paid most of the time. The workers - not so much.

 

[CitationLover]

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.

Of course there are bad decisions made by asset managers all the time, myself included wrt my own 401k. This doesn't prove that management is WILLFULLY doing this, which is what you seem to be implying originally. Management is not that smart.

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.

Timing the market is bad investment strategy in my opinion, as you usually fail. Of course money managers think they know it all and take risks, the pension boards job is to vet this process. My point is from a management perspective they use pensions as tax shelters for corporate earnings. If the law allowed them to ignore a couple of bad years and rely on prior funding ratios (which is how the additional minimum contribution is calculated for DB pensions), they followed it. There is nothing sinister happening here.

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.

What oversight? The plan is legally mandated to follow a laid out asset allocation strategy. Labor unions are just another layer to add to the bureaucracy. The teamsters in the 70's did a great job with their pensions......

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.

C'mon sim, this is a stretch. Safety in aviation is something ALPA SHOULD be an expert in as it is their own profession. Corporate finance is not their cup of tea.

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.

There are arguments both for and against what you say. The point is though that the pension is a corporate transaction, no different than say payroll. I am furloughed and thus my payroll has been directly affected, but I do not think ALPA has the right to dictate how my airline should be run (and its lack of teeth lately seems to show this true). Businesses must be allowed to make decisions based on what their shareholders deed worthy.

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.

Again this is your strategy. I can point you to plenty of people I have flown with that will swear the exact opposite to what you preach. Just give them some derivatives and spiders and they'd claim to make a lot of money.

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.

Not a huge fan whatsoever, as I stated if you're early retirement eligible - DB is clearly worth more. However, I am simply trying to point out the pitfalls of why DB plans are dying (all over industry). I commend your ideals, however the cynic in me says things will remain the same.

 

[livin'thesim]

You imply that I am implying sinister intent.

I am implying stupidity. The accounting rules that allowed management to underfund pensions allowed them to play games with earnings for reporting purposes.

There have been books written on this. This is not an opinion. This is one of the reasons some of the funding laws were changed.

Re: Buy-and-hold. If you have the time, find a paper online called "What risk premium is normal". The paper is highly recommended by Bill Gross, CEO of the largest bond fund company in the US. It lay out a very compelling case as to why the 8% historic stock gains have several built-in anomalies that are unlikely to be repeated. It is a very technical paper, and runs about twenty pages.

But a word to the wise here: There are several long-term structural problems with buy-and-hold in a 401k, at least with regard to high levels of stock exposure.

Any investment plans based on 8% annual stock gains are likely to fall short. Until stocks are fairly priced again, AAA government debt or certificates of deposit yielding over 4% are probably a better deal.

Pension funds have no business using derivatives for anything other than hedging, and only minimally. Even the great Warren Buffet has been burned by derivatives (after saying they were weapons of mass financial destruction).

Pension funds are way too large to be nimble enough to make any serious money in derivatives, and are likely to be sheared by more agile hedge funds. This has already happened in spades over the last year or two. The city of Erie, I believe, was taken big time in derivatives.

The fancy-money era is over. Back to sound investing.


Anyway, you seem convinced that I am accusing management of theft, but I am not.

I am accusing them of pushing the law to the limit, just as they do in scheduling, for instance. They will exploit any loophole they can, possibly with the best intentions.

If you are part of a DB plan and want your union to stay the heck away from overseeing it, be my guest.

And if you think it is ALPA's highest calling to ensure that a great agreement is had, but a bother to see that it is carried out as promised, well okay.

Trust but verify.

 

[livin'thesim]

www.pensiontsunami.com

Great news aggregator for pension topics. Mostly national, some worldwide.

 

[CitationLover]

livin'thesim,

management knows NOTHING about funding pensions. they pay (actually the pension plan pays) consulting firms (hewitt, towers perrin, watson wyatt, mercer, etc.) lots of money to calculate these funding valuations to calculate the quarterly contributions. the plan's funding valuation is completely separate from its expense valuation (FAS 87). once again a DC plan is VERY simple (a 3rd grader could calculate it) to calculate it's expense and contribution.

government provided pensions are the huge debt storm coming (federal, state, and local). these beasts are not funded like employer provided pensions (pay as you go versus calculated) and are simple examples of plain old mathematics (they were set up with a 16:1 worker:retiree ratio thats now 2:1). the continual increase in age expectancy is the primary cause of this, not mismanagement (besides government pensions are mandated by law to invest in government bonds).

the primary problem with pensions is the simple fact that people continue to live longer than what is expected of them. this places an extra burden on the entire system (both private and government). in addition to this, the birth rate in civilized societies is decreasing and thus is not sustaining the funding of these plans. government pensions and social programs in europe are a very good example of this. the baby boomer generation and the mass chaos and severe population shift due to ww2 are the primary causes, not mismanagement (which you will always have) or relying on the stock market.

 

[livin'thesim]

No one will ever catch me arguing that pensions are a good idea. I prefer and every man for himself approach.

Having said that, my posts are a result of a couple years' research into the issue, not on offhand opinion or observation.

With regard to government pensions, you might be right about federal pensions, but MANY state and local pension funds have invested in garbage.

Government pensions have been using ponzi mathematics for a while now, and the fallout is just beginning. It's over for pensions for the most part. Did it have to be so?

Well, maybe not. But the sun is setting on DB in the US, and nothing will change that.

 

[StaySeated]

CL, the only insurance companies that received TARP funds are the ones that read the legislation and immediately proceeded to purchase a troubled bank. Once the owned the bank, they became eligible for the free money. This blew up in some of their faces, but insurance companies on their own are not eligible for TARP.

 

[CitationLover]

CL, the only insurance companies that received TARP funds are the ones that read the legislation and immediately proceeded to purchase a troubled bank. Once the owned the bank, they became eligible for the free money. This blew up in some of their faces, but insurance companies on their own are not eligible for TARP.

I thought this recently changed,

http://www.washingtonpost.com/wp-dyn/content/article/2009/05/14/AR2009051403866.html

 

[StaySeated]

I thought this recently changed,

http://www.washingtonpost.com/wp-dyn/content/article/2009/05/14/AR2009051403866.html

That link includes a story that leaves out a few very important details.

Hartford purchased the "Federal Trust Bank of Sanford Florida" for $10 Million. This qualified Hartford to receive $3.4 Billion in tax payer TARP money.

Lincoln National purchased "Newton County Loan & Savings, FSB" and will receive $2.5 Billion in tax payer TARP money.

Several large insurance companies that lost millions in variable annuities (not fixed or index annuities) immediately went shopping for the cheapest bank or savings and loan company that they could find. Hartford's purchase should go down in history as one of the greatest scams in tax payer history.

 

[CitationLover]

That link includes a story that leaves out a few very important details.

Hartford purchased the "Federal Trust Bank of Sanford Florida" for $10 Million. This qualified Hartford to receive $3.4 Billion in tax payer TARP money.

Lincoln National purchased "Newton County Loan & Savings, FSB" and will receive $2.5 Billion in tax payer TARP money.

Several large insurance companies that lost millions in variable annuities (not fixed or index annuities) immediately went shopping for the cheapest bank or savings and loan company that they could find. Hartford's purchase should go down in history as one of the greatest scams in tax payer history.

Some more great ideas from the republican socialist bush.