livin'thesim
Well-known member
- Joined
- Apr 6, 2005
- Posts
- 926
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.
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.