
McClatchy files bankruptcy - Jerry2
https://www.mcclatchydc.com/news/nation-world/national/article240139933.html
======
Waterluvian
I discovered the concept of pensions managed by corporations when Sears Canada
went under and a ton of people lost their pensions. I guess it's a pretty
common thing. But it seems absolutely insane to me.

Who in their right mind, given any choice on the matter, would want to lock
their retirement into the existence and health of a corporation?

Until I saw the Sears debacle occur, I thought everyone basically puts
together RRSP (Canadian retirement tax havens, I think 401k?) accounts and
rely on their required payments into the Canada Pension Plan. It's much less
likely that the government or a bank will fail, and the bank, unlike Sears, is
CDIC backed.

I guess my question is: why do we allow companies to manage retirement funds?

~~~
turc1656
The one thing that made them "make sense" to most people was that the average
person is/was terrible at personal finance and retirement planning. The
company running the pension was a way for the average person to be
"guaranteed" a retirement income without having to worry about anything.

Remember, corporate pensions were a big thing when the US was at it's greatest
economic strength (post-WW2) and the internet with all of its modern tools to
make investing much simpler for the average person didn't exist. You had to
pay brokers for every single trade or someone else to advise you or you had to
just buy and hold a small set of stocks for 30 years and hope those companies
would still be around (a fair bet at that time).

Back then companies didn't really go under like this. If anything, they got
bought by a larger company and merged, but the frequency of that was nothing
like today.

Today, with health care costs what they are, having pensions and defined
benefit plans are insane to me. It's much better for the company to say "we
will match x% in a 401k". They are defining their contribution and it has a
cap. If anything happens to the company, the employee's funds are safe as the
money is already transferred. For the employee, it does require them to manage
this money but that's far easier and cheaper today and that money doesn't
require the company to be around forever. If things tank, the employee is
protected.

~~~
Waterluvian
Thanks. That's all really quite educational. Does the U.S. have any social
program like Canada Pension Plan where:

1\. your paycheque is forcibly deducted an amount based on a formula

2\. that amount goes into CPP investment

3\. when you retire you can get a monthly pension based on the total amount
you paid in

To me that seems like a sane way to protect people from themselves.

~~~
turc1656
As others have mentioned, this is referred to as Social Security. I'm not sure
how it works in Canada once it's is forcibly deducted, but in the US, it's
just a tax like any other tax. The idea is that the government will honor the
promises made about the schedule of payments based on a complex formula - but
basically it goes by the year you were born and the amount of money you have
made over time. People who make less get a larger % of their earnings back
from Social Security. The higher earners make more, but there is a cap.
Similar to income taxes, there are steps in which you get back varying %'s,
which is why those with lower income get more as a portion of their earnings.

In this way, the government simply collects money from current earners and
then distributes that to the existing retirees. It's not like there is a trust
set up and your money is locked away with your name on it. Canada's system may
or may not be structured the same way. The idea is that if the government
defaults on this, then there are much larger issues anyway. But because it's
just a _tax_ they can technically do whatever they want with the money and
being the scumbags that they are, they periodically do steal from that money,
which is why Social Security is underfunded.

Personally, I think the payouts are even pretty respectable, despite what
others might think. The average payout is currently around $1,500 per person
per month. That's not a lot, but if you have a spouse that's $36,000 a year.
Also, one thing that most forget is that even if your spouse doesn't work
their entire life (i.e. stay at home parent), a spouse can claim an
_additional_ 50% of their spouses as their own. Every person who is married
has this option - they can claim their own or the 50% of their spouses (which
does _not_ reduce their spouses, it's just on top). For anyone working, it
usually makes sense to claim their own unless there is a massive difference in
pay. So if one person is scheduled for 2k a month, the other is guaranteed at
least 1k or their own if it's higher.

Honestly, it's a nice idea and has been working reasonably well for decades.
But the issue is that when you look at it with a technical eye, you'll see
it's all basically the same structure as a ponzi scheme. The current people
taxed don't pay for themselves, they pay for others who came before them. Over
time the number of people required to pay for a single retiree has gone up.
This indicates a growth requirement in the tax base. Without this constant
growth which seems to go up more and more over time, the system fails. People
ignore this because they think it's impossible because it's run by government.
I'm not so sure that's true.

~~~
Waterluvian
Thanks so much for sharing this detail.

With regards to "it's like a ponzi scheme". I completely see what you're
saying. But shouldn't it look more like a population pyramid? Where, yes, the
word pyramid is in the name, but generally a mature nation won't be top-heavy
(except for the baby Boomer issue but that's kind of transient, no?)

My sense is that it should work perpetually so long as a nation doesn't see
massive population decline and employment remains reasonably consistent. And
in years/decades when there are imbalances, the government can step in and
prop it up through other means rather than watching a private corporation file
bankruptcy.

I feel like maybe we're judging the long-term efficacy of such a system too
early. Right now we're dealing with a one-two punch: baby boomers are retiring
and people are living longer. But neither of those are going to increase
perpetually.

~~~
lotsofpulp
Civilization is a ponzi scheme if you step back far enough, but it's not a
useful way to model it. For a more accurate understanding of the way Social
Security is structured, I would check these links. The second link is to an
interview where it's explained in simple english.

[https://www.ssa.gov/policy/docs/chartbooks/fast_facts/2019/f...](https://www.ssa.gov/policy/docs/chartbooks/fast_facts/2019/fast_facts19.html#page35)

[https://us14.campaign-
archive.com/?u=bd0d1b66f832083794c33c9...](https://us14.campaign-
archive.com/?u=bd0d1b66f832083794c33c979&id=d540b66d82)

I also have not found a source to substantiate the claim that the US
government periodically steals money from Social Security.

~~~
turc1656
See my other comment(s) in this thread. I have acknowledged that was not in
fact true after checking further once called out on it.

~~~
lotsofpulp
Yes, I hadn't seen that yet. Thanks for acknowledging! I learned the same way
when I was researching it too.

------
legitster
> While we tried hard to avoid this step, there’s no question that the scale
> of our 75-year-old pension plan – with 10 pensioners for every single active
> employee

Holy crap. I remember a person from a newspaper told me it was 3-1 for them,
and I thought it was hyperbole.

~~~
SkyMarshal
It’s insane to me that private businesses are strapped with the burden of
running the country’s pension and healthcare systems. How on earth the US has
managed to remain economically competitive under those circumstances is a
miracle.

These functions really need to be divorced from one’s employer, and either run
independently via private industry, or via government. Especially in modern
times when people job and career hop frequently.

~~~
lucb1e
> How on earth the US has managed to remain economically competitive

Well after you're done working, you don't work anymore. So if a country spends
zero on providing pensions, they are actually more economically competitive.

Whether one would want to live there is another matter, but the lower income
people have little money to move and build a life elsewhere and the higher
income people can arrange a good future for themselves.

~~~
speakwithalisp
Losing their income has a greater economic impact than just their own
wellbeing. Pensioners might be retired but they are still consumers with debts
of their own. Homelessness alone is very costly to the U.S.

~~~
DuskStar
Pensioners are window-breakers, in today's society. They consume, but never
produce. (This used to be less true, with grandparents providing childcare
etc) This doesn't mean we should kill them all off! But the consumption of a
pensioner (or retiree in general) is more akin to digging a ditch and filling
it back in than it is to anything productive.

You can't build an economy on consumption alone.

------
danso
This has been a long time coming. In the mid aughts I worked at the Sacramento
Bee, which is also the HQ for McClatchy Corporate. Every financial quarter the
CEO would go into the newsroom and break the news of how print ad revenue was
falling, but digital ads were looking promising, with double digit percentage
increases, and that someday soon would make up the shortfall (most everyone in
the industry knew, without knowing the denominators, how unlikely that was).

What really screwed McClatchy over was that in 2006, it bought Knight-Ridder –
then the 2nd biggest chain – for $4.5 billion [0]. Historically speaking, it
wasn't the worst deal on the face of it. But in retrospect, McClatchy bought
when the price was highest, though it managed to quickly sell off a dozen
papers shortly after for not terrible prices [1].

So along with the declining ad revenue, the CEO would also talk about the
massive debt he had just acquired, and the amount of interest we were paying
each quarter, but how, once this "secular downturn" got stabilized, the new
acquisitions would start paying for themselves. I left the Bee before the
first big layoffs hit, but I remember people being mostly "whatever" at the
time and putting it out of sight and out of mind. As a regular rank-and-file
person, not much you can do or fuss about when the CEO is making billion
dollar deals.

[0]
[https://www.npr.org/templates/story/story.php?storyId=526041...](https://www.npr.org/templates/story/story.php?storyId=5260417)

[1]
[https://www.nytimes.com/2006/06/08/business/media/mcclatchy-...](https://www.nytimes.com/2006/06/08/business/media/mcclatchy-
sells-5-papers-bought-from-knight-ridder.html)

------
toomuchtodo
Dig deep into the article to understand that, while this was caused by
burdensome pension obligations, politics was heavily at play (and federal
legislation [Secure Act] spared other journalistic publications with similar
pension obligations).

~~~
seibelj
Pensions are going to cause enormous issues in the coming decades. Almost
certainly taxpayers won't stomach paying for them, as happened in Detroit and
smaller jurisdictions. Get ready for the implosion!

~~~
jagged-chisel
How common are pensions these days? None of my employers have offered
pensions, just a 401k. Current employer is over a century old; seems they got
savvy to the pension liability long ago.

~~~
chrisseaton
> None of my employers have offered pensions, just a 401k.

A 401k is a pension isn't it? Just a defined-contribution pension instead of a
defined-benefit pension.

I get a pension at my large young tech company.

~~~
Cymen
No, a 401k is not a pension. A pension guarantees a certain amount at
specified dates while a 401k is a way of purchasing securities for you to
manage your own retirement and is subject to the returns of your investment
choices. In other words, a pension is a guarantee of future income in which
the pension offerer is on the hook to ensure they have the funds to deliver
the pension while the 401k pushes all that responsibility on to you.

My wording is probably off on some of that so an article like this one is
probably helpful to flesh out the details:

[https://www.fool.com/retirement/2018/06/13/whats-the-
differe...](https://www.fool.com/retirement/2018/06/13/whats-the-difference-
between-a-pension-and-a-401k.aspx)

~~~
chrisseaton
> A pension guarantees a certain amount at specified dates

That's specifically a _defined benefit_ pension - just one type of pension.
There are many other types of pension. My pension is basically just a big
saving account my employer and I both pay into - it's a _defined contribution_
pension.

------
davidw
There are financial costs to not having good local news:

[https://www.citylab.com/equity/2018/05/study-when-local-
news...](https://www.citylab.com/equity/2018/05/study-when-local-newspaper-
close-city-bond-finances-suffer/561422/)

------
Shebanator
Love how they write an article about their own company's bankruptcy,
complaining about pensioners and discusses getting out from under pension
obligations as a purely good thing, and never once mentions the economic
impact on those pensioners.

------
cityzen
In 2017, Forman’s take-home pay from McClatchy was $1.7 million, excluding
restricted stock. His newest contract with the company, dated January 25,
2019, includes a base pay of $1 million, a bonus of $1 million, and an
additional $35,000 monthly stipend. According to Segal, this stipend will be
used to pay for Forman’s travel, housing, office, and security expenses. This
monthly stipend alone, which is up from $5,000 in his previous contract, could
fund several reporters’ salaries every year.

“The CEO’s compensation is set by the board of directors using public
consultants and comparable,” Forman tells CJR over the phone.

------
GCA10
This is a surprisingly informative article, given that it was published by
McClatchy itself. Nice to see that journalistic standards stay high, even in
the middle of what must be a harrowing time for everyone there.

------
SQueeeeeL
Wait, is this good or bad, I would hope this means we end up with more LOCAL
news, buy who knows

~~~
take_a_breath
Local news is being hurt most of all. Statehouse reporters are down across the
country according to PEW.

==Those papers lost a total of 164 full-time statehouse reporters—a decline of
35%—between 2003 and 2014.==

[https://www.journalism.org/2014/07/10/americas-shifting-
stat...](https://www.journalism.org/2014/07/10/americas-shifting-statehouse-
press/)

------
apta
Once again, we see why an interest and inflation based economy is
unsustainable. It's scary to think about what is going to happen in the future
when it all implodes.

------
smkellat
I’m glad I dumped my shares before they wind up being canceled. They only
depreciated to being worth a sum total of USD$5.00, alas. Better than getting
nothing.

------
hindsightbias
Stanford Public Pension tracker

[https://www.pensiontracker.org/](https://www.pensiontracker.org/)

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mzs
They bought Knight Ridder and a lot of that culture permeated particularly in
the DC bureau. I hope they come-out of this okay.

------
mimixco
TL;DR Owner of major newspapers in Miami, Kansas City, Fort Worth, and
Sacramento files bankruptcy and prepares for takeover by $4B hedge fund.

------
function_seven
It feels gross to see pensions listed among liabilities when a company is
facing bankruptcy or ruin. Why aren't they protected and held separate from
the company's finances?

My (maybe naïve) view is that whatever pension benefits are accrued by an
employee, should be paid into an annuity or similar, separate fund that is
firewalled off from the assets of the employer.

The choice whether to honor pension obligations or pay back debt holders
shouldn't exist. The pension was already funded and is held somewhere else
beyond the reach of creditors.

(I'm not saying that the _full_ dollar amount needs to be set aside today.
Just an agreed-upon NPV of the future payouts for some standard actuarial
retirement length.)

~~~
absherwin
A version of what you suggest has been the law since ERISA was passed in 1974.

The problem is what to do if investment performance doesn’t meet expectations,
lifespan increases, or future assumed yield decreases. Generally companies had
to pay enough to be back to even within seven years. Newspapers sought the
right to have thirty years to fully fund. McClatchy was larger than Congress
was comfortable with and found itself unable to pay the required fraction of
the difference between the NPV and finding amount. Hence, it declared
bankruptcy.

~~~
lotsofpulp
There's huge conflicts of interest with defined benefit pensions. It wasn't
until PPA of 2006 that standards really tightened up. But imagine being an
employer in 1970s. Instead of paying people higher wages, you could create a
pension plan on paper, pay the plan however much you wanted (there was wide
discretion on what assumptions could be used to calculate the cost of
benefits), and get the recipients of the benefits to work for you today for an
unknown benefit tomorrow.

If you're one of the decision makers, you're likely to be on the older side.
So you're likely to start receiving the benefits soon anyway, and so any
underfunding wouldn't affect you, since there would be a couple decades of
money available before it started to run out. So the decision makers can
easily choose to shortchange those 20 to 40+ years in the future in exchange
for enriching themselves in the now (1970s, 80s, etc).

Seems like society should've seen it coming. Of course, if everyone kept
having 4 kids, maybe those fantasy numbers could have been met, but who has
the ability to predict numbers decades in the future?

------
briandear
Regarding pensions, I never understood why an employer or a government would
have an obligation to pay for retirement. It would seem that The onus of
saving for retirement would be on the person. Crazy talk, I know.

~~~
lotsofpulp
It is on the employee. The employee chooses to accept an employer's promise to
pay for retirement, in lieu of cash now (via choosing to work for that
employer).

Government on the other hand taxes income in order to pay for retirement and
people don't have the ability to opt out, so of course they have an obligation
to pay it.

