Of all of it, this pisses me off the most. Because who needs a retirement? Thanks for your years of hard work, here's a 401(k) fucking income supplement. Oh, and no medical coverage for you. Have fun working until you die.
* The pension based retirement defined benefit plan is a bonus item that originated because the government encouraged it in the 1921 Revenue Act  by exempting pensions from being taxed as income. Then when the National Labor Relations Board "interpreted" the law 27 years later to include it as a benefit that was inclusive of employment did it become a larger liability. Large companies were able to absorb the costs of pensions being paid into the Pension Benefit Guaranty Corporation  after the 1974 setting of requirements, hurting the ability of small companies to set up comparable benefits. The slow death march of private based pensions follows the incentive curve and the movement to defined contribution for companies enables smaller companies to be more competitive with the big companies .
* The medical coverage one vexes me financially, as I do not know how guaranteed this is, of all the things that would be eliminated in a bankruptcy, this is most probable and would save the receiving company a lot of money.
My point here is that the 401k and retirement program free of the company means you create an employee who has more worries about retirement, but is not locked into an employer's retirement pension contribution system.
The total value of the system is on the order of $18 trillion dollars, slightly more than the ~$15 trillion annual GDP.
Too, employees have far more at stake, and far less negotiating power, than employees, a fact quite openly recognised in Adam Smith's Wealth of Nations (Book 1, Chapter 8: https://en.m.wikisource.org/wiki/The_Wealth_of_Nations/Book_...)
There's further a great deal of other infrastructure which reinforces the existing system, from tax and other laws based on employer-provided benefits (including substantial advantages to both employers and employees participating in such plans), and of the services industries built around these (it's far more economical, and actuarially defensible, to deal with groups of people, particularly large aggregates, than one-on-one).
Which means that:
1. You cannot simply turn this ship on a dime. It's quite literally larger than the economy.
2. Changes to present employee benefits represents a material change in compensation and risk profile to those employees, for which they're poorly equipped to either address or organise against.
That is why the social security system needs to start being changed for longer lifespans, not for those who operated under the current system, but so it can remain solvent for those entering the program now.
While I have a similar sentiment regarding the fact that employers should get out of the business of retirement, life insurance, medical, etc., that's the way it's been for the older generation. Phase it out, don't just cut everyone over and cut benefits in one moment.
Same with Social security, for that matter.
* Plan freeze: All currently earned benefits are given to the employee without any future opportunity to earn further benefit. In this case, the earned benefits are still there, just now one needs to find another retirement system.
* New freeze / Grandfather Freeze: All current employees are allowed to fill out the vesting period, but new employees are not allowed onto the pension.
Aside: nice handle.
I feel like recent history has shows that pension plans plans are a disaster for companies b/c you're just offsetting costs into the unknown future when you may not be able to afford it. (see american car companies and unionized labor)
It also seems to attracts complacent people ie. lifers (see gov't sector)
Though there are irritating artificial tax benefits, I always would rather get cold hard cash
On the plus side, your future pension is not dependent on the success of your employer, a much larger crisis (as in Greece now) is required before your retirement is in danger.
On the minus side, it's dependent on the success and long-term planning of the country, and any kind of early retirement may be impossible/harshly penalized.
Personally I would prefer to handle it on my own, but on the whole I really appreciate that everyone is guaranteed a stable and healthy retirement.
I'm not seeing the link between defined benefit company-sponsored retirement plans and retraining.
2) Assuming tax collections for Social Security remain at the same level they are today, the trust funds won't run out of money until the year 2034. (See https://www.nasi.org/learn/socialsecurity/future-finances)
So there's a gap between what they're collecting and what they're paying out, but "will be a problem 20 years from now" is quite a bit different from "living paycheck to paycheck." And since the Social Security Administration doesn't have control over either the amount of revenue they get or the amount of benefits they pay out -- those decisions are all made by Congress, not SSA -- it's difficult to argue that any of this is their fault.
Definitely agree with you that SSA is not at fault here.
If idiots are left in charge of them, then yes, they're a bad idea. But that sort of applies to everything.
I, for one, will deal with some idiocy to guarantee a safe and secure retirement. I have neither the time, energy, nor expertise to actively manage my retirement funds. So that's my trade-off.
Calling a 401(k) a replacement for pensions is disingenuous. They're ridiculously cheaper for employers and provide a much, much less valuable return for employees. Regardless of who is in charge, the switch has nothing to do with the people managing them and only to do with saving the company money.
I just started a job in government. I had two choices: 10% of my salary in a 401K, or 5% of my salary in a 401K and 5% in a pension. I selected the full 10% in a 401K and let me explain why:
- The 401K can follow me job to job. The pension is tied to this employer.
- If I quit this job or get fired before 65, I lose a good chunk of my pension, however my 401K remains safe.
- The pension is largely a "black box." Money goes in, and I have zero control over how it is invested or what their fees are.
- If I retire at 62 I lose 10%(!) of my pension, if I retire at 60 I lose 15%(!). 401K doesn't care when I retire, just when I withdraw the money (e.g. I could live on other savings from 62-65).
- If I die before retirement there are a complex set of rules deciding what percentage my spouse receives (summary: less than me, almost always).
- If I die on a 401K, my spouse receives 100% of the money as long as they cash it after their retirement (for tax reasons).
- I can invest it all in a nice safe diversified index fund with extremely low management fees (the management fees on other funds alone between now and retirement could wind up costing me almost a years salary!).
- The 401K money vests in 4 years. The pension money effectively vests in 20 years (takes 20 years to receive a really crappy pension).
Pensions have a lot of asterisk/gotchas/limitations/etc. The devil is in the details. 401K requires some self-management, but removes most of the limitations, and you can receive a good retirement as long as you put it somewhere relatively safe, diversified, and inexpensive.
Plus if you die then either your spouse OR kids massively "win" with a 401K. A pension definitely doesn't protect their interests.
The vast majority of people are absolutely terrible at picking investments, so this is a feature, not a bug.
You don't need to be a financial expert to pick a managed fund. Just look at the fees and history and decide. A pension is like being locked into one managed fund the entire time no matter how poorly it performs or how high the fees go.
Plus some pensions don't diversify enough. I'm sure Enron's former employees will tell you all about it.
You're talking about 401(k) so I'm assuming US here. Are you using 401k to mean TSP? Or is there a federal gov't position that actually offers 401(k) plans?
And if you do mean TSP, then you'd be under FERS. Or is this a state job?
Did you also get to opt out of Social Security with this position? That's a common thing when states offer pensions. With choosing your option (401(k) and no pension) did that force you to pay into social security?
The potential for idiocy negates any guarantee for a safe and secure retirement. If they're idiots they'll lose your money. Anyways, if that's your preference why not take the cash and give the money to an investment manager of your choosing? Why let your employer choose the investment manager and force it on all your coworkers?
> Regardless of who is in charge, the switch has nothing to do with the people managing them and only to do with saving the company money.
Oh yeah, no doubt. But hypothetically, given the same present value, I would rather take cash over a pension plan that may or may not be managed well and exist in 40 years.
There's no magic behind the management of pension funds; they're utilizing the same markets. So how can they "guarantee a safe and secure retirement"?
They can't and that's the problem with them. During boom times they promise the world and in lean times they go bust, or worse, put the onus to pay for it on the next generation (while those people face cuts to their future benefits). No thanks.
Pensions are almost always better for the worker. The issues on the employer side are almost always a result of underfunding, or “diversion" of employee funds for some short term crisis.
So they're a better deal except when they're not in that you can lose it all or have your benefits drastically reduced through bankruptcy etc.
More broadly, defined-benefit pension plans were designed for a world where you expected to work your career at the same organization. Pensions tend to make it very expensive to move around companies. (Hence, people in the US military sticking around for their 20 year mark for example.) It's very much a related problem to health care being tied to employment.
The company was doing badly. No new pensions. The company stays alive under new ownership, after cutting fat. This is probably bad business but the good business math would have been to let them fold. Take your pick.
It's a massive advantage for large corporations in their battle against innovative startups. Who would ever join a startup if it meant that you might be penniless in retirement? (Because you depended on a failed company instead of personal or social savings.)
It's not about catching up & competing, it's about dragging them down to our level!
Rather, it should be in the form of either individual accounts or nationalized.
Snark aside, I think we have an extremely big problem on our hands, in a sense this big bucket of money does exist, it is in the bank accounts of the 1%. Now who that money "belongs" to is kind of a fun but futile philosophical argument, the fact of the matter is a LOT of people are going to be reaching retirement age without the funds necessary to sustain an even remotely pleasant lifestyle, with (in my opinion) very little correlation to each individual's contribution to society throughout their lifetime.
That's what scares me to death. I've spent my entire working life scrimping and saving. I haven't had the fun lifestyles, the swanky apartments or the fancy cars that many others I've personally known have had. As a result, I have accumulated a sizable sum. Meanwhile, I personally know people a few years younger than me with zero savings, not even cash, who literally live paycheque to paycheque, despite making roughly what I make.
When they are no longer able to work, the only possible thing will be for the State to rob that nest egg I've been accumulating and sacrificing for, in order to finance their retirements. Whether it's tax-deferred or tax-exempt, I know that I am going to lose the vast majority of that money. It'd be inhuman to let them starve on the street, and so my own dwindling years will be impoverished.
I should have just lived high on the hog like everyone else.
Because they have no money and I have a fair amount, and because letting them starve on the street would be unfair. Someone's going to have to finance their waning years.
* 401(k) or similar. These are usually tax advantaged (no tax up front, but taxed on payout; taxed up front, but no tax on earnings at payout). Usually very limited investment options (bonds, domestic markets, international markets). Which investment options depends on who your employer selects as the manager for the 401(k). Typically funded entirely by your own money, may get some matching (3-10% of your annual salary). Capped at various amounts (401k is capped at $18k/year right now) depending on the particular one.
* IRAs. Similar tax advantages to 401(k), many more investment options (essentially any bank/investment account can be used so the full market is at your disposal). Capped at $5500/year right now, entirely your own funds, your employer is uninvolved.
* Social Security - outside state employees and maybe some federal employee, everyone is supposed to be paying into this as a payroll tax (6% from you, matched by your employer). You can start collecting at 62 with penalties, 67 (?) for full amount.
* Pensions - very few companies offer these anymore, really only the big ones and often the result of union actions. In theory, a lifetime guaranteed income starting either on retirement or at a certain age. Usually a percentage of your annual income (or high 3-year average or similar) based on number of years of service. FERS (the federal pension) works by giving 1% per year of service of your high 3-year average. Collectible at 58 with at least 5 years of service and a penalty, 62 (?) with no penalty. Graduated penalty between those two ages. If you hit 20 or 30 years of service it changes when you can collect and what penalties apply.
In theory, corporate pensions encourage employees to stick with it for the longhaul. But at the rate employees get screwed, it's not the most compelling thing anymore.
With regard to your specific question. Some people seem to get scared that private retirement accounts will suddenly be taken by the federal government or have much higher taxes/penalties applied. This seems incredibly unlikely to me, and would require the US federal government to be in severe fiscal distress. It would devastate several generations of workers, and completely remove any trust in the US dollar and government by most people. It would be a moronic move, though not entirely impossible. There is some precedence (see ). But given the reaction, I can't imagine them repeating that.
It makes sense to discount the future value of Social Security and corporate pensions when planning for retirement. But 401(k) (and similar) and IRAs are unlikely to be touched, IMHO.
Your inane snark about "the 1%" aside (whom, by definition, own the big bucket of money. Not exactly a revelation), I agree that the lack of money that most people have saved for retirement is going to be a disaster. It's equally bad up here in Canada.