
The Investor Class Hates Pensions - tysone
https://www.nytimes.com/2018/03/05/opinion/investor-class-pensions.html
======
whack
I feel like the author is mixing together some important differences between
401ks and pensions.

\------ Pensions:

\- "Your" money and everyone else's money is lumped into a single pool. If
previous retirees were given too much money because of poor planning, "your"
money will evaporate

\- Your future benefits are fixed, regardless of market conditions. Unless the
pension can't afford to do so because of a market crash, and declares
bankruptcy. In which case, anyone left holding the bag will be screwed

\- Zero financial literacy/discipline required. Your contributions are pre-
determined, and the pension managers will take care of all investment
decisions

\------ 401ks:

\- Your 401k is 100% yours. There is no risk of your 401k account "going
bankrupt" because too much of it was given to others.

\- Your future benefits are dependent on market conditions - unless you choose
to buy an annuity.

\- Financial literacy and discipline is required. If you don't contribute
enough, or make bad investment choices, you're screwed

\-----------------

The article completely ignores the 1st and 2nd differences, which is why many
people like myself are uneasy with pensions. The 3rd point is what the article
mostly focuses on, and that's a valid point. I'd love to see "full-service"
401k plans, where employees are forced to contribute at least X% of their
income, and all of it is managed by the equivalent of a pension-fund-manager
(ideally, invested into low-cost diversified index funds)

Too many people lack the financial discipline to make sufficient
contributions, and the financial literacy to make good investment decisions.
So full-service 401ks as described above, could be a net positive for society,
without all the baggage that come with pension funds.

~~~
ThrustVectoring
The 401k being 100% yours is a somewhat significant downside, too. It means
that the funds get transferred to your heirs on death, diverting funds from
supporting retirement in general. This can be counteracted by purchasing an
annuity, but that usually isn't the route taken by retirees. Overall, it means
that saving for retirement is more expensive than it needs to be, since you're
also effectively saving for an inheritance too.

The pension, on the other hand, effectively collects mortality credits as
beneficiaries die and distributes them to survivors.

The ideal retirement system would be effectively some sort of actuarially
adjusted tontine. Nothing gets left behind when you die - instead, it gets
split among surviving retirement savers in an actuarially fair manner.

~~~
sokoloff
Except for the fact that psychologically, those who think, expect, or worry
that their money might outlive them may take significant comfort in that money
being passed to their heirs. This may make them more likely to save for
retirement, even at the risk of over-saving, because the benefit of that money
is not fully "lost" on death.

You don't want to (IMO) design a retirement system where the well-to-do have
every incentive to opt-out.

~~~
ThrustVectoring
Erm, what? Yeah, you want to structure a retirement system where the well-to-
do want to opt out. Otherwise, we're giving tax advantages for "retirement
saving" that really goes to heirs. How it's currently structured in the US, we
do so through contribution limits.

If all the retirement system change is make rich people opt out and have poor
people who die early pay for the retirement of poor people who die late, it's
a smashing success.

~~~
sokoloff
I see your point, but in any private system where only the poor participate,
only the poor pay the fees that allow the system to exist, so you either
further disproportionately disadvantage them financially and/or you provide
them with notably worse service and support than the well-to-do enjoy for
their investments.

~~~
ThrustVectoring
We might have different definitions of "well to do". I was thinking of
households making over $500k per year.

------
alwaysdoit
The author just kind of brushes by this, but my main problem with pensions in
general is their tendency to be underfunded. It's just one more way for
current voters to externalize the costs of their benefits onto future
generations.

401(k)s by design can't extract funding as future liabilities. Are there
proposals for ways to do this for pensions? I know there are pushes to "fully-
fund" them, but the temptation to use overly optimistic projections seems like
it will never really go away.

~~~
hackermailman
Indeed nothing was written about city/state pensions that do not make
projected returns year after year and require significant funding which most
cities can't afford.

~~~
boomboomsubban
It's in the second paragraph, and the collective shareholders voice isn't
really part of the underfunding issue.

------
ng12
> We let ourselves be charged high fees that we do not understand, we accept
> poor returns quarter after quarter, we never sue to enforce our rights, we
> never vote as shareholders and we never tell our investment managers how we
> think they ought to vote.

Is this satire? How is a pension better than a 401k in any of these
dimensions? If my retirement is invested in overpriced, underperforming funds
it's 100% my own fault. If my pension is chronically mismanaged (as they tend
to be) there is literally nothing I can do about it.

~~~
ydt
Although I agree with you that many pension funds have been mismanaged, it's
not 100% your fault if your 401k plan only offers poorly-performing, high fee
funds as many do. I'm not sure either model is a good solution going forward.

~~~
hkmurakami
Are there plans that actually only offer actively managed funds? Even the bare
bones bottom tier Fidelity plan I had years ago from a notoriously tight
pursed startup gave me a few index tracking funds.

~~~
sokoloff
Have a look at the total fees for your account/index funds. My experience is
that they are not always competitive with the lowest fees in the free
financial markets. (3 basis points for Schwab S&P 500 index).

If your company is small or your benefits person clueless, you may have worse
funds available to you than in the taxable brokerage world.

~~~
perl4ever
I think there are better things to worry about than a couple basis points. If
I'm charged 1% for a basic index fund, sure that's a problem. But given the
minute fees for most, the inefficiencies from trading strategies could dwarf
the explicit fees - if you really care about every penny, you need to look at
the actual tracking error. You may be surprised to find it's substantially
larger than the fees.[1]

My attitude in practice is that if I'm getting an employer match, then why
complain about fees? It's their problem to minimize them - I'm still doing
better than I would on my own. The efficiency is their problem, and because
they have an incentive to minimize their costs, there shouldn't be a systemic
problem.

[1] Average ETF tracking error is said to be as high as 50 basis points:
[http://www.nytimes.com/2013/04/07/business/mutfund/exchange-...](http://www.nytimes.com/2013/04/07/business/mutfund/exchange-
traded-funds-tracking-error-is-often-overlooked.html)

------
poster123
When a state puts matching funds in workers 401(k) plans each year, that is an
easily quantified expense. A state that makes pension promises can minimize
the stated expense by using unrealistic investment assumptions. Government
workers' unions and politicians have collaborated to make promises that are
ruinous in the long run. If politicians had been more honest and unions less
greedy, I would be ok with public pensions. But both groups have shown that
they are not to be trusted.

------
rayiner
Pension funds are some the biggest investors in underperforming asset classes
like VC, and have been epically fleeced in recent years by professional asset
managers (pension bond debacles). Pension funds are desperate and easily
manipulated because many of the big ones, especially public ones, are
basically insolvent. Governments overpromised and under saved and now pension
funds are counting on 8% returns that they’re not going to get.

------
jpao79
With respect to the activism/pushing for improved corporate governance near
the end of the article, I like to think it is happening on the 401K and
individual side and that the reason it is behind the curve is because 401Ks
are a more recent invention than pensions.

Here's an example of it happening on the 401K front.

[https://www.morganstanley.com/articles/audrey-choi-ted-
talk-...](https://www.morganstanley.com/articles/audrey-choi-ted-talk-
sustainability)

“Today we have more choices and more opportunity to make our voices heard than
ever before,” says Audrey Choi, head of Morgan Stanley’s Institute for
Sustainable Investing. And collectively, we have the power to change the way
companies and other institutions approach environmental, social and governance
(ESG) issues. Finance, she says, “can be one of the most powerful forces for
positive social change at our disposal – if we ask it to be. We have the power
to make sustainable investing the new normal,” says Choi.

Choi calls out the fable that many of us carry in our heads that if you care
about environmental or social issues when you invest, you probably aren’t
going to make as much money. To bust those myths, she cites studies showing
that investing in companies with strong sustainability strategies can result
in the same if not better returns than investing in those that don’t.

~~~
jpao79
Another example is Larry Fink's letter to CEOs:
[https://www.blackrock.com/corporate/investor-
relations/larry...](https://www.blackrock.com/corporate/investor-
relations/larry-fink-ceo-letter)

As we enter 2018, BlackRock is eager to participate in discussions about long-
term value creation and work to build a better framework for serving all your
stakeholders. Today, our clients – who are your company’s owners – are asking
you to demonstrate the leadership and clarity that will drive not only their
own investment returns, but also the prosperity and security of their fellow
citizens.

------
kcorbitt
I feel like private annuities should be more popular than they currently are.
Like a pension, an annuity pays a defined benefit until the day you die. They
can also afford to pay out a slightly higher annual benefit than you could
safely take from your own 401(k), because it's a statistical certainty that X%
of the risk pool will die early, whereas with your own savings you can never
be sure how long you'll have to make it last.

Unlike a pension, an annuity isn't tied to a specific employer, so it doesn't
have career-immobilizing vesting requirements or weird payout rules tied to
how much money you make in the last N years of your career. And you can select
an annuity provider based on its fees and how solid its financials are,
factors that aren't necessarily high on the list while selecting an employer.

So, why aren't annuities more popular as a retirement savings vehicle?

~~~
gowld
It's too easy to write an annuity as a scam, and there's huge counterparty
risk of insolvency over 10-40 years. So we only see annuities where's there's
no meaningful choice whether to opt in (Social Security and pensions)

~~~
kcorbitt
So maybe we just need to invent the Vanguard of annuities? An annuity provider
with a governance model designed to work in the interest of its customers that
can build trust as a reliable player?

EDIT: it appears that Vanguard itself offers annuities, but they're not
particularly transparent so I'm unsure if they're "good enough" for general-
purpose retirement savings.

~~~
whitepoplar
Social security is an annuity, and a damn good one--it's guaranteed by the US
Government. What we need is for supplemental annuities (above SS amounts) to
be offered by the federal government at cost, or to guarantee annuities sold
by insurance companies (a la FDIC).

~~~
TheCoelacanth
It is much easier to create a mandatory annuity than an optional one because
you don't have to worry about people who have a lower than average expected
payout opting out. If the annuity is optional you need to have a much more
sophisticated way of determining how much people should pay.

~~~
whitepoplar
Good point.

------
williamscales
I've never quite understood how pensions are supposed to work when one changes
jobs every 1-5 years. With 401(k) I can roll my account into a Vanguard IRA
and keep all the control. I'd hate for my retirement to be beholden to 5-10
different sets of pension fund managers.

~~~
srtjstjsj
Correct, it's a huge pain to juggle pensions if you job-hop.

------
DanielBMarkham
Stream-of-consciousness - The Investor Class hates pensions? Really? I know a
lot of investors. None of them hate pensions. Quite the opposite, actually.
And since when did they become a class of people?

I have some friends who are politically-involved in California and quite
concerned about public sector unions and the fiscal sustainability of the
pension promises that were made. This couldn't be about that, could it? On HN?

 _"...his relentless, well-funded attack has taken every form of political
advocacy available. It ranges from campaign contributions to ballot
initiatives to model legislation to lobbying to lawsuits to financing academic
and judicial conferences...The justification is that these pensions are in
crisis. The familiar claim is that states and municipalities face
unsustainable pension obligations that will crowd out other government
spending and lead to higher taxes. Therefore, traditional pensions, which
guarantee retirement payments to workers — leaving states and cities on the
hook — must be replaced by 401(k)s, which offer no such guarantee...Though the
mainstream media has mostly taken the crisis claim at face value, economists
and actuaries debate its extent and even its existence..."_

Well fuck me. There it is. This isn't an analysis of pension funding. It's not
a survey of financial managers. It's political cover-your-ass. Some folks
think pension funds are in trouble. We're going to attack and say their claims
are politically-motivated.

Everything is politics now, including, it seems, figuring out whether you have
enough to retire on or not. I know plenty of people who are serious investors
who are concerned about public pensions, but it's got jack squat to do with
politics. All of the folks I know are huge union supporters. It has to do with
the numbers not adding up.

We gotta stop this thing we do where we form up into teams and throw crap at
one another. It's certainly possible that these two things are unrelated. It's
also certainly possible, highly-likely even, that this essay is a desire to
politicize something for the purpose of obfuscating the real issues involved.
That's a shame, especially for both the citizens and workers who are not
expecting a crisis.

~~~
phil21
> economists and actuaries debate its extent and even its existence

I mean... I'd ask for a citation right here. Maybe it's due to my "bubble" but
I've never once heard an actuary state that most public pensions are perfectly
fine. The opposite is almost universally true with a few notable exceptions.
Heck, a high schooler with a napkin and basic math skills can figure out how
utterly unsustainable so many of these plans are - and how they've only
sustained so far by being what amounts to a pyramid scheme.

Illinois in no way is even a sustainable state long-term at this point, almost
solely due to insane unfunded pension debt coming due. You can be pro-pension
or anti-pension, but either way the math is pretty clear.

~~~
DanielBMarkham
Agreed.

I think a much more productive discussion is over the models and standards
used to judge the worthiness of pensions, a discussion that has roots going
back a long time before the current stuff. None of this has to be political.
This is common stuff people have been doing for decades. I am quite curious
who these people are and how they defend the statements they make.

When friends of your cause tell you that you have a problem and your response
is creating villains and presupposing the dangers of various unacceptable
solutions that may or may never actually come to pass, you've got two really
bad problems instead of just one: the original problem and denial.

This type of essay is identifying bad guys and pre-planting rhetorical
defenses to be used if anybody gets close to the problem. Attack the
messenger! It's much easier to just discredit people than engage with them on
the merits. And it's simple enough that anybody can do it.

Hell, I'd be interested in a discussion of the various pension models and just
the history of how each has fared over the years. You could take all the
political fearmongering stuff out and just go with that. I think it'd be
fascinating. There are several fact-based, dispassionate essays that could be
written on this topic that would be both interesting and informative.

------
gascan
This doesn't seem to even try to explain by what measure 401(k)'s have failed
(if the problem is low contributions, that is not the fault of the 401(k)), or
back up the suggestion that pensions are _not_ bankrupting municipalities.

It seems to mostly invoke the Koch brothers and paint a target on The Investor
Class, and hope that is proof enough.

 _If the Koch brothers favor pension reform, then by definition pensions are
not failing!_

(I'm sure it is for some)

~~~
mfringel
You assert "if the problem is low contributions, that is not the fault of the
401(k)", but that conjunction doesn't hold.

To wit: is it possible that the requirements for participation in a 401(k) are
such that fewer and fewer people can actually contribute to one for a
significant period of time? In that case, low contributions would be a result
of the 401(k)'s structure, and your conjunction's consequent would be false.

------
leroy_masochist
This op-ed is a dog's breakfast of Big Labor talking points, and pretty much
what one would expect from a law professor flogging his latest book, entitled,
"The Rise of the Working-Class Shareholder: Labor’s Last Best Weapon" (see
author bio at bottom of piece).

TLDR: The Kochs are trying to kill pensions because they don't like Calpers'
political activism. The author doesn't get into specifics, preferring to make
sweeping accusations such as, "This relentless, well-funded attack has taken
every form of political advocacy available. It ranges from campaign
contributions to ballot initiatives to model legislation to lobbying to
lawsuits to financing academic and judicial conferences."

Sounds pretty scary. And as a former investment banker I can confirm that, in
fact, F500 CEOs and boards are afraid of Calpers and Ontario Teachers and a
few others who have gone the activist route. So maybe there is something to
the thesis that all these fat cats want to stymie the ability of the working
class to effect meaningful change through its collective ability to influence
corporate governance.

But as someone currently involved in the government of a small town, I can
also tell you that pensions are, legitimately, a major problem. Especially
when they pertain to unionized public employees whose unions are allowed to
force _every member_ of that group of public servants (cops, teachers, garbage
collectors, etc) to pay union dues _regardless of whether they want to be part
of the union_.

The tenacity of union leaders, coupled with the universally bad optics of
management not giving labor the future financial security that labor wants,
often results in management making pension promises that they won't be able to
deliver in a decade's time -- especially if the discussions happen during a
good market run when modeling a perennial 7% YoY return on the pension
portfolio seems reasonable.

This is ultimately much more of a public sector problem than a private sector
one. Unfunded pension liabilities can kill companies, giving union leadership
a strong incentive to compromise in cases where the pension is going to
bankrupt the company.

On the public sector side, what you see instead is hiring freezes that benefit
tenured union members, tax hikes that prompt wealthy residents to move to
Florida, and cutbacks in other areas (e.g., paving roads).

It's not a pretty picture, and this op-ed is a good example of the rhetoric
that can be deployed against people trying to make sources of funds equal uses
of funds. Please DO NOT take that as an implicit defense of anything the Kochs
are doing, btw.

~~~
sokoloff
> especially if the discussions happen during a good market run when modeling
> a perennial 7% YoY return on the pension portfolio seems reasonable.

That's a pretty reasonable, even conservative, assumption for the long-run
nominal total return of the stock market.

I wish I could find the version that had figures in it (rather than simply 3%
wide buckets, but all of the 25 and 30-year long periods in the heatmap have
real returns in excess of 6% (meaning the nominal would be over 7%)
[https://portfoliocharts.com/portfolio/total-stock-
market/](https://portfoliocharts.com/portfolio/total-stock-market/)

I think 7% nominal over a long period (such as a pension fund could expect) is
quite reasonable and would expect a pension so funded to be quite stable.

~~~
leroy_masochist
> I think 7% nominal over a long period (such as a pension fund could expect)
> is quite reasonable and would expect a pension so funded to be quite stable.

Pension funds aren't retirement accounts; you don't care about a total 30-year
return, you care about ongoing cash flow, and if you have fixed obligations in
a bad year then you eat into principal. This obviously creates problems down
the road, especially when you have decreased contributions over time due to a
shrinking population in the municipality in question -- or a shrinking tax
base (e.g., the downward spiral of rich people leaving because they don't like
tax hikes, which results in tax hikes to cover the revenue
shortfall....repeat).

Also, they're usually diverse portfolios with a fair amount of lower-
risk/lower-return assets (mostly T-bills and investment grade F500 debt), so
7% is actually pretty ambitious.

~~~
sokoloff
As a permanent pension fund (rather than an individual retirement account),
the fund has the advantage of a timeline of "forever" with a greater portion
of assets than a 401K could. This allows them to hold a smaller percentage of
cash/cash equivalents.

To your excellent point about shrinking base making things fall apart, this is
only a problem for underfunded pensions and Ponzi schemes. I leave it to the
reader to determine whether those are two different things or not.

~~~
leroy_masochist
Right -- the problem is underfunding, but the driver of the underfunding of
public pensions isn't just that nobody can predict the future; it's that
politicians and union leaders both have morally hazardous incentives to agree
to something that both parties know might not hold up in the future, because
they (the individual politician and the union leader, specifically) will have
moved on from their current roles by the time the wheels fall off in a couple
decades.

I'm not sure I understand your point about cash and cash
equivalents....securities are fungible to cash....the issue is that there's a
defined payout every year in $USD, and if the contributions to the fund from
which it were paid were modeled in an overly optimistic way, then the fund
runs out of money.

~~~
sokoloff
> your point about cash and cash equivalents.

Individuals need to hold a certain amount of their 401K/IRA in cash to pay
expenses, to prevent having to sell a lot of stock in a bear market.
Individuals will not have the time to recover from a sharp bear market just as
they begin retirement. This causes them to miss out on the higher upside in
normal and bull markets. (see "sequence risk")

Permanent funds, adequately funded, could leave a greater percentage of their
money in equities, which has (historically had) higher overall returns despite
larger short-term drawdowns.

~~~
leroy_masochist
> Permanent funds, adequately funded, could leave a greater percentage of
> their money in equities, which has (historically had) higher overall returns
> despite larger short-term drawdowns.

Agree, but they don't. Every pension portfolio I've seen has a lot of fixed
income in it.

~~~
sokoloff
How many of those pension funds are adequately funded? (defined as "could pay
out the already earned benefits for all current benefit holders without any
future cash infusion")

I think you see them holding fixed income and cash equivalents because they
need current cash and future cash deposits. (They're pretty damn close to
Ponzi schemes in a lot of cases.)

------
rdl
There are a few problems with pensions -- all basically forms of underfunding:

1) Underfunding due to shrinking business or region -- it's a lot easier to
make your pension numbers work if people who retired 20 years ago are a tiny
fraction of your current workforce.

2) Underfunding due to overly-generous plans (the retirement pay a lot of
public sector employees get is disproportionately generous vs. their pay while
working. Especially when contracts do "highest 3 years" or "last 3 years" and
employees collude to give lots of overtime or other special pay to let people
about to retire juice the pension

3) Underfunding due to bad math -- really easy to just make the "expected
investment return" the dependent variable

~~~
sokoloff
> the retirement pay a lot of public sector employees get is
> disproportionately generous vs. their pay while working

Perhaps the other way to look at it is "these government workers sacrificed
current income throughout their career in exchange for a secure retirement via
their pension agreement".

~~~
mythrwy
Yet another way to look at it is lower expectations for work performance along
with more security of employment along with lower pay and guaranteed pensions.

Seriously, many public pension schemes are absolutely ridiculous. People
shouldn't retire after 20-25 years of work and be defacto millionaires with
lifetime pensions on the backs of tax payers. The system really can't support
that scheme as is becoming painfully clear.

------
Lev1a
> turning retirement savers into passive investors

I.e. stealing money from pension accounts so you can satisfy your urge to
gamble with money you don't have for money you'll inevitably lose in the next
bubble or blow on unnecessarily expensive shit noone needs?

Cool, so when I rob someone on the street, I could tell the judge I just
turned the victim into a passive investor for that new phone I want to buy...

------
forapurpose
Many comments blame 'politicians'. I agree that some particular politicians
exacerbate the problem of underfunded pensions.

But it's easy to blame someone else. The problem is the people posting here,
including me, and the people posting on every other forum on the Internet and
people who don't use the Internet. People don't vote, they don't hold
politicians accountable, they create perverse incentives for politicians to
kick the can down the road by voting against those who are fiscally
responsible, and people oppose paying their share to fund the pensions.

I know it's more complicated than blaming the voter, but on the other hand,
it's also much more complicated than blaming the politician. There's also a
systemic problem, but that's also on the voter IMHO.

Trivia question: Name your local elected representatives (e.g., state
legislators, or the equivalent wherever you live. Can you? Those are the
people dealing with the pension issue to a large extent.

~~~
lopmotr
This is an underappreciated point when people see voting as just a way to keep
the evil enemy party out of power and forget to use it for what it's really
powerful at - getting the government to do what you want.

I think it would be a great idea if when people on the internet complain about
the government, they also identify who they voted for. Then they're forced to
face responsibility for whatever that guy does when the next blame-the-
politicians new story comes up.

------
adrianmonk
> _We 401(k) holders are the world’s ideal source of capital. ... alone and
> devoid of leverage to negotiate._

It's really best if leverage goes all the way through from me to the end,
though.

With a 401(k), if a fund is being managed poorly, I can "fire" the manager by
selling it and buying another fund in the plan. (And at next job change, I can
roll over to a new 401(k) plan or an IRA.)

If my pension is being managed poorly, as far as I know, I'm just out of luck.
I have a pension from an old job, and to my knowledge, I cannot touch it until
I'm 65. Of course there is no choice of pension "funds" to switch between
within the plan like mutual funds in a 401(k). Even though I've changed jobs,
I can't roll it over to anything.

So as far as I can tell, _the pension trustees (managers) may have leverage
over whatever they invest in, but I have no useful leverage over the pension
trustees_.

And it's not like pensions are never mismanaged. For example, in recent years
there has been a scandal where the Dallas Police and Fire Pension System
(DPFP) had a high guaranteed payout that their investment returns couldn't
match, and instead of trying to fix it properly (whatever that means), they
just kept it a secret and went wild with risky investments. See
[https://interactives.dallasnews.com/2017/dallas-police-
fire-...](https://interactives.dallasnews.com/2017/dallas-police-fire-pension-
fund-explainer/) . Thankfully my own pension is better managed. At least, I
assume so, but it's hard to research since it's a private fund thing.

------
darawk
It's disgusting to me that something like this could even be published in the
NYT. Pensions are absurd financial instruments. Paying someone a percentage of
their salary in perpetuity is financial nonsense, and creates all kinds of
perverse incentives for the recipients. The only reason these things ever got
popular in the first place is because they were a way of borrowing from the
future to pay the present. Creating a massive latent risk that allows you to
get cheap labor in the short term and exposes you to catastrophic failure on
the backend. Corporations realized this decades ago and stopped using them.

If the problem is that 401k fees are too high, let's make 401k's more mobile.
Let's create a liquid market in 401k managers so that fees get pushed towards
zero - as they should be.

~~~
tomc1985
Why? Pensions exist to serve retirees, not those retirees' former corporate
masters. One of the only truly _kind_ things an organization can do for an
individual that serves them over a lifetime, and you would shit on it?

401(k) is a poor solution that requires individual initiative to deploy
successfully. Those who don't contribute eventually burden those who do (even
if that burden can potentially be paid for in advance, if you have the account
type that taxes on deposit), and that's only if they withstood the lifetime of
temptations that press people into early withdrawal.

~~~
Kalium
You're absolutely right! Pensions exist to serve retirees, not their former
overlords. Looking after the needs of the retired is the kind, decent,
_humane_ thing to do.

It's not about whose interests they serve so much as it is how sustainable and
practical they actually are. Is it _kind_ to make a commitment to someone
around which they will organize their life at the cost of crippling the lives
of their successors? What if that organization isn't a company, but a
government, and the resulting costs cripple its ability to perform other
functions? Is it kind to cripple a city's services or a school's ability to
teach in order to meet pension obligations that were poorly planned for
decades? Who will pay a company's pension bill if the pensions push it into
insolvency?

These aren't trivial questions with easy, pre-baked answers. They also are
real, pressing questions that face us today. Your heart is unquestionably in
the right place - it's not about the investor class! It's about the retirees
who have given their lives! But there might be some room for subtlety.

~~~
tomc1985
You conflate mismanagement with the act itself...

I agree with you that increased lifespans throw a wrench in the works, but
that is not enough of a problem to justify throwing out the baby with the
bathwater. Pensions represent a HUGE portion of market actors' institutional
conservatism and that is a necessary counterweight to the sort of irrational
exuberance that is endemic to tech and other forward-thinking sectors

You want to talk about skyrocketing costs? Why not focus that energy on
sorting out the mountains of institutional waste found elsewhere in the
economy? Like, why the fuck does infrastructure here cost 10x other
industrialized countries? Lots more money to be freed up that way

~~~
Kalium
In the US, public sector pensions have been mismanaged so frequently that no
conflation is required.

EDIT:

Further, there's a basic accountability problem. It was - is - easy to gain
politically in the short term by making promises about pensions. Promise
bigger pensions, smaller contributions, and so on. The gains can be realized
almost immediately. The price is paid much later, often decades later, and the
people who made those unwise promises cannot be held to account so long after
the fact.

For many states and cities, pensions act as a counterweight to the ability to
do anything other than pay pension costs.

As before, you are absolutely right that there are _mountains_ of waste to be
investigated and addressed. You're completely right that there's a lot of
money to be freed up there. Those issues are real, and they are pressing. Yet
it is perhaps no more real or more pressing than the burden imposed by decades
of financial mismanagement around pensions.

~~~
tomc1985
Out of curiosity I checked my admittedly-boring hometown's financials for
2017, and found their pension spend to be less than 10% of overall budget for
the year (though they note a pending crisis and potential doubling of pension
expenses over the next few years).

Not knowing what other entities' books look like, and also knowing that one
town is hardly representative, pension spend looks large (large enough that
I'd guess many different types would like to optimize out of the equation) but
not _that_ large. How big of a crisis are we looking at -- 50% of total
budgets? 30%? 20%?

You're right- mismanagement needs to be addressed. And I have no idea how to
bring these firms to heel -- I just think that a market-based solution ("let
them have 401(k)s!") is not the right answer here.

~~~
Kalium
[https://en.wikipedia.org/wiki/Pensions_crisis#U.S._State-
lev...](https://en.wikipedia.org/wiki/Pensions_crisis#U.S._State-level_issues)

In general, underfunded pensions and large increases in expenses are a looming
threat to many state and local governments. In California, many cities are
expecting their pension costs to increase by 50% or more. Few have much in the
way of spare cash to begin with.

It's not just the mismanagement of professional pension management funds,
though you are of course right that that is a major concern. Broadly, the
crisis is the result of applying unreasonable discount rates (8% or more) and
making unrealistic promises about contributions and payouts. This is very,
very easy to do when you're negotiating a union contract, as a state generally
has little choice but to pay up when the time comes. It's also easy to do when
you can bump up the assumed discount rate a bit and use the cash this frees up
for goodies for your voters.

These weren't just poor management decisions made by self-interested private
companies. Indeed, private pensions often assumed much less rosy discount
rates and fared much better. These poor financial management decisions were
quite often made by union leadership and local officials, some of them
elected.

Sad to say, shifting from a defined-benefit system to a defined-contribution
system seems to be the only way to guarantee that this particular form of
politically expedient mismanagement will not recur. This doesn't have to be
401(k)s, 403(b)s, or other market-oriented system. But whatever the eventual
system is, it clearly cannot look anything like the pensions of yesteryear.
That system has failed, and the kindness and compassion and pure intentions at
its heart has gone to waste.

Let there be no doubt - this is tragedy.

------
Aunche
It seems like the "investor class" should love pensions. I'm not expert on
accounting or law, but pensions sound a lot like a free loan and a borderline
scam:

A young company wants to hire 100 people, but from the market rate of
salaries, they can only afford to pay hire 80 people. They also don't want to
dilute their stock holdings so they opt for pensions instead. The extra 20
employees increase company profits and stock prices explode. The company's
balance sheet looks good because they don't have to pay any pensions yet. The
original investors can sell their stock long before pensions get paid out, and
don't suffer any negative consequences.

~~~
nostromo95
>The company's balance sheet looks good because they don't have to pay any
pensions yet.

Companies under GAAP accounting actually do have to carry their pension
liabilities/assets on their balance sheet and have to report on the status of
their pension fund. So investors _can_ see if the pension is underfunded.

Edit: for example, check GM’s last 10-K, note 16. [0]

[0] [http://phx.corporate-ir.net/phoenix.zhtml?c=231169&p=irol-
se...](http://phx.corporate-ir.net/phoenix.zhtml?c=231169&p=irol-
secTextTest&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEyMDI2NTgwJkRTRVE9MCZTRVE9MCZTUURFU0M9U0VDVElPTl9FTlRJUkUmc3Vic2lkPTU3)

------
RhysU
Suppose someone effectively pools together investors' money and makes outsize
returns due to actively managing away the complacency the author purports.
Well, then, any 401k holder is free to share in those superior returns by
purchasing the security while the pensioner cannot.

Caveat emptor, because ain't nobody looking out for you but you.

------
mathiasben
these failing pensions are largely due to mismanagement, properly managed
these retirement vehicles work as intended. unfortunately in the current
climate a large company or even a state government can't resist the temptation
to use a massive pension fund for something other than it's intended purpose.
One lean quarter and they start eyeing up the 7 billion sitting in the pension
fund. I read a book a couple years back that changed my thinking on pensions,
before I was of the mind that they never worked, were a massive Ponzi scheme,
stealing from young workers, etc... no, pensions work provided they are left
alone. [http://www.retirementheist.com/](http://www.retirementheist.com/)

~~~
jerf
"in the current climate"

One of the reasons I'm not a big fan of pensions is precisely that it's _not_
"in the current climate", but a persistent problem over the span of decades.
Many of the bills that are now compounding to an unignorable size are
trainwrecks decades in the making. It isn't just that they were mismanaged
today; they were mismanaged in the 200xs, and the 1990s (much harder to see
because the stock market was doing _really well_ up until it wasn't), and the
1980s... it's not hard to think that maybe the fact they worked at all was
simply another historical accident of the bizarre just-after-WW2 period,
rather than any sort of good idea. We seem to lack angels virtuous enough to
be honest about the numbers and to resist dipping into the Honkin' Big Pile o'
Money.

~~~
mathiasben
I'm convinced it's the changes in the tax laws at the root cause of this. When
income over $400k/yr (5 mil in todays money) was taxed at 90% there wasn't the
incentive to screw over retirees. The "bizarre just-after-WW2 period" wasn't
some fluke it was the result of purposely crafted policies.

------
sjg007
We should have a portable national pension scheme. That's the only way to make
this work. If that means expanding social security then so be it.

------
adolph
Would pensions be needed in a world with Universal Basic Income?

~~~
gwright
Do you mean would "saving for your retirement" be needed? Or were you
specifically asking about pensions?

In any case I don't think any basic income plan works if you imagine that
everyone stops saving their earnings and relies on the basic income for their
working years and retirement. It is called universal _basic_ income after all
and not universal "luxurious" income.

