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GE freezes pension benefits for 20k employees (businessinsider.com)
170 points by jrwan 7 days ago | hide | past | web | favorite | 246 comments





I really think that the sooner we can separate out pensions and healthcare from employers, the better.

Businesses main area of expertise is not in pensions and healthcare, and they cannot provide these services as efficiently as if there were many different insurance companies on the market offering these services for sale, and instead the company paid you a fee for your services, and then you went out on the market and bought your own pension plan and health insurance.


I would love for this to happen. But I see a couple blockers.

1) It is some sort of badge of honor to get a "job with benefits".

2) What if more people decide to not get healthcare? If your job gives it to you and you "only" have to pay a few hundred a month for your family, you are more likely to get it than if you payed everything out of pocket each month (even if your compensation increased). People would see all the extra money and just not get healthcare. If enough people did this, healthcare would be too expensive for the rest of us.

3) People are just reluctant to big change. And this is a big change. There would be politicians on the news claiming someone was "taking away your benefits".


I have yet to meet a single person who hasn't enthusiastically agreed that we should separate healthcare from employment. The reluctance comes when nobody has any idea what we're going to replace it with.

We're at an unusual social state in this country where nobody trusts the government and nobody trusts big business. What does that leave?

I'm a US freelancer, so I don't get health insurance through my employer. I get most of my healthcare directly from doctors and pay for visits and lab tests in cash. It works especially well when you tell them in advance you'll be paying with cash and haggle a price before walking through the door. I pay for a high deductible plan through a christian co-op for unforeseen events. This has proven to be considerably cheaper and more effective than paying for a plan through the obamacare marketplace.


> I have yet to meet a single person who hasn't enthusiastically agreed that we should separate healthcare from employment. The reluctance comes when nobody has any idea what we're going to replace it with.

Sadly, I have, and it is invariably from people who basically say those who don't work don't deserve healthcare. It is disturbing to hear people say this. They don't want to "pay" for someone else's healthcare. They don't get that they already are.

> We're at an unusual social state in this country where nobody trusts the government and nobody trusts big business. What does that leave?

Where did we go so wrong? Is it because we treat government like football games? One side has to dominate the other; all or nothing? What happened to compromise for the greater good?


Despite all our democratic and republican[0] efforts, we still wound up with a ruling class. Ruling classes aren't necessarily bad, but in order for that to work, the ruling class need to care about the welfare of the people they rule. That is not the case in the US right now. Our ruling class has turned parasitic and doesn't care that they are killing their constituents. The opioid crisis proves that.

[0]: the political systems, not the political parties


It seems like "healthcare linked to employment" is a nutty system even if you don't want healthcare for people who can't pay, though.

Even among people who work and have a lot of money, having healthcare based on employer causes all kinds of headaches. It makes a brief lapse between switching jobs unreasonably risky, especially before pre-existing conditions were covered. It punishes self-employment by denying people the major discounts big employers can negotiate. It punishes part-time work, because one 40 hour/week job with insurance might "pay" better than two equal-wage 30 hour/week jobs. And it makes long vacations or early retirement far less accessible; if you make in 6 months what someone else does in 12, you're not free to take those 6 months off without paying a steep premium on insurance.

And none of that is news, but it's always confused me that there's so little drive to delink healthcare from "being actively employed". Even for someone who wants to shut down Medicaid, the current system is bizarrely hostile to all kinds of high-earning people who could pay their own healthcare costs, but get punished for looking anywhere except full-time work at a big company.

Realistically, I think it's just ignored because the larger debates over cost and government care overshadow everything else. But in my more cynical moments, I can't help noticing that while the current system doesn't serve workers or entrepreneurs well, it's great at driving them to become a predictable labor supply.


"They don't want to "pay" for someone else's healthcare. They don't get that they already are."

Curiosity, because you seem to have first hand experience and I do not- what happens when you present that they already are paying for peoples' healthcare?


They state that they shouldn't be, and that the sooner the "government" stops that, the better off they think they'll be, like they imagine that their paycheck will rise directly and imminently as a result.

Would the free healthcare include only US citizens, all people who live in US, or everyone who comes to US on holiday?

If you want more affordable healthcare, you should make it cheaper, not force other people to pay overpriced bills for random strangers.


Naturally, it would include US citizens and permanent residents, and not holidaymakers. They already need travel insurance. By the way, those plans are more expensive with US coverage than without.

Everyone should be covered for emergency care. Beyond that citizens and permanent residents should receive unlimited care and anyone with a student or work visa should also be covered for the term of their visa.

Other countries have already figured this out. And no one ever calls it “free healthcare” except for a few naive American libertarians. They don’t provide free healthcare, and if you aren’t in the system (and paying via taxes or otherwise covered via tax revenue redistribution), you’ll get a bill one way or the other (unless there is an agreement between two socialized health systems).

> Other countries have already figured this out.

None of those countries are the size of the US. Just like in Physics, you can't expect a 1/10th scale model to behave the same as the life sized version.


Japan has what...126 million people? So according to your math, America must have 1.26 billion people? Australia is as big as the US if you meant by area, plenty of other countries approach 100+ million besides Japan.

The EU has 511 million people. Sure it is multiple systems, but they all work much better than ours does.


Japan is a totally different culture than America, and their health care system is similar to ours in that it is employer paid. Also, you have no medical privacy rights, your employer gets a copy of every medical bill you incur.

Source, lived there six years and spouse was in that system for over 25 years.


Our healthcare system isn’t employer paid, it also has a large individual market (or those who can’t get access at all).

Japan, unlike the USA, has a health insurance plan for those who can’t get it through their employers (NHI, hence their system is considered universal).


I'm not sure what you mean by "our", that's ambiguous in this context. If you mean US, we don't have a "healthcare system", most health insurance is partially employer paid. My comment was not as clear as I meant it -- I meant that Japan's healthcare system is employer paid, which is similar to how most people in the US are insured. Maybe that's more clear.

Japan does also have NHI, but most are insured through their employers, as nearly everyone in Japan either works or is insured by someone in their family who works.


Are you implying that unit cost would increase at larger scale?

>> We're at an unusual social state in this country where nobody trusts the government and nobody trusts big business. What does that leave?

> Where did we go so wrong?

False premise. Merchants and governments have been widely distrusted as far back as records exist. Merchants in particular are commonly the subject of some kind of official orthodoxy noting how evil they are.


I have yet to meet a single person who hasn't enthusiastically agreed that we should separate healthcare from employment.

You should talk to some union members then. Some unions have negotiated such generous healthcare benefits that they’d either never find on the private market or could never afford.

They don’t want to give those up.


a smaller and smaller minority though, and the smart strategic choice is understanding that it actually creates classes within the union (same as those w/ pensions grandfathered in vs. those that don't) which weakens the union generally. sort of like the two tiered GM setup currently under strike.

for example, new Washington DC transit workers aren't on the old health plan, which means there's basically a 50/50 split (trending upwards) for people who don't have the benefit. probably not a great strategy to lean on those should the union want to strike over that benefit.

since all that money comes out of wages anyway, it'd be more beneficial to just eliminate the variable vs. trying to salvage a legacy class of workers fortunate enough to have the benefit.


> The reluctance comes when nobody has any idea what we're going to replace it with.

The straightforward answer is to replace it with self-paid insurance plans. Even without redesigning our awful system of medical payments in the US, we could easily get rid of the “employer pays” part.


Self-paid insurance plans only work if you require every one to buy a plan. Otherwise many healthy people choose to go uncovered and the insurance pools get a higher portion of sick folks. Obamacare tried to get around this by using the individual mandate penalty. However, that was taken apart by the republican congress, so I think it's safe to say that self-pay insurance was/is not straight forward.

The most straightforward way is to have a universal coverage provided by the government (funded by tax revenue). Then we get rid of the whole problem of some people skipping out on coverage and free riding on the system.


It works in Switzerland. They do, however, have high healthcare costs second only to the USA (but much better results overall).

> Self-paid insurance plans only work if you require every one to buy a plan.

The US did this until very recently. It should IMO be reinstated.

In any event, this is more or less orthogonal to the issue at hand. As far as I know, nothing stops employees with employer-sponsored healthcare from opting out.


>2) What if more people decide to not get healthcare? If your job gives it to you and you "only" have to pay a few hundred a month for your family, you are more likely to get it than if you payed everything out of pocket each month (even if your compensation increased). People would see all the extra money and just not get healthcare. If enough people did this, healthcare would be too expensive for the rest of us.

ACA had a solution to this, it was an extra tax for not purchasing health insurance. Because health insurance premiums are basically a tax to provide healthcare to everyone. Because US voters don't want to directly pay the government to provide healthcare to everyone.


Regarding 2), you could just make healthcare insurance mandatory. We have that in The Netherlands.

It is currently mandatory in the US , however, this year, the penalty was reduced to zero. Which means it's basically not mandatory.

What if someone refuses to pay? Do they get a fine that's higher than what the cost of paying for healthcare would have been?

Here in Switzerland if you don't give proof of insurance the state will pick one for you. Then if you don't pay, it's like with any other bill, you'll get into troubles really quick.

Sounds like it would be far simpler and easier for everyone if the state provided healthcare services paid by everyone through taxes.

Yes of course, but that's beyond the point. Americans cannot argue that mandatory healthcare couldn't work in a multi-payer, private system.

It really depends on your definition of "work". Being forced to subscribe to a paid service is not the same as getting access to healthcare. Your examples only show that if a state resorts to authoritarian measures then it can force everyone to subscribe to a paid service.

And if you are a foreigner, you have to provide proof of insurance when you renew your residence permit at the control de habitant.

There's always stragglers, hold outs, conscientious objectors, cheats, freeloaders, randos, or whatever.

Just think of them as "overhead".

Spend a little on "enforcement", because rules are important. Call it audits, compliance, metrics, or whatever.

But not more than would be saved without enforcement. Because diminishing returns.

And at some tipping point, ratcheting up cost of compliance backfires, leading to more cheating.

So strive for some happy equilibrium. So that the general population (taxpayers) feel the system is reasonable, if not exactly fair, and overall friction is minimized.


Its send to collections. So you're only fine if you are poor enough to not have anything they can take from you. And at that point you are eligible for gov support to your healthcare bill anyway.

Here in germany you can actually kind of get away with not paying for a while when not consuming. But coverage has to be continuous, so if you need insurance since you want to go to the doctor a few years down the line, you have to pay up for the entire period.


Hospitals already charge higher rates to those without insurance because of those payers high default rate. Collections is expensive, and they might not be able to collect anything at the end, so they price that risk into the prices.

Cite? Generally people without insurance are able to negotiate significantly lower bills - or the bills simply aren’t paid at all.

They can negotiate afterwards if they say they can’t pay, but that also is already built into the higher non-insured price list...

Before it was stripped from the ACA, the price for not having insurance scaled with income. At the lowest end it was irrelevant because of Medicaid eligibility; above that it gradually increased from below-healthcare-price to above. So some people could still save money by opting out, but it pushed them towards the market by making the effective cost of insurance smaller.

(Technically speaking, it was a tax rather than a fine. That mostly mattered for legal reasons, but it did also work that way in practice. It applied to everyone, so insured people had the obligation waived, but the people paying it weren't in violation of any law or regulation.)


Contrarian argument regarding point 2:

I find it weird and misguided how people think that using coercion to force people into buying healthcare is somehow acceptable. To those that think it will make the cost of healthcare more expensive for the rest of us, I think that is a dubious assertion, in fact I think it will get much cheaper. The presumption that they are in contentious debate with is the necessity that different people have to get different tiers of service based on how much they pay.

It makes all the sense in the world when you compare it to any other business. You wouldn't expect for someone who paid $1M to get the same level of treatment as someone who paid $100.

People would buy insurance according to different tier levels of quality and risk profile, with their being astronomically high costs of insurance for old wealthy rich people, who in their desire to prolong life will incentivize creation of new modes of treatment to cure themselves (Which in the short run the development of which will help them, but in the long run, everyone, as after it gets discovered and scaled it will get cheaper).

People would also buy cheaper level of tiers, from which naturally the quality of treatment, and queues will get lower/longer.

You will also have people that don't buy insurance, and this should be their prerogative to do, as it would be the healthcare providers prerogative to decide whether to provide them with free treatment (they are not slaves, they are not obligated to provide a free service, and what makes the people that don't pay more important or a higher priority than those that willingly pay and fund these services).

I'm not saying that this is the BEST solution, I'm saying that this is BETTER than anything else proposed which leads to things like the "cobra effect" in which you make the initial problem way worse by the implemented solution, than by what it would have been without it.


>It makes all the sense in the world when you compare it to any other business. You wouldn't expect for someone who paid $1M to get the same level of treatment as someone who paid $100.

Currently, society does not find it acceptable for someone to die from a heart attack if they cannot pay for healthcare. And people already get different levels of care.


I don't see how you can justify without using a double standard the idea that its okay to use coercion to take advantage of a minority to enforce an idea of "acceptable" that they might not agree with.

I think the way that it works in America at least is that you have a minority of rich and healthy people and a majority that does not have much money and is not super healthy. Our democracy is suppose to be limited, in that the government is not suppose to use its monopoly of coercion to enforce the majority decision on the minority. So to get around this the voters forced the hospitals to treat them, even if the question "what if you can't pay for it" was left tacitly unanswered. The hospitals of course can't afford to pay for this bill either so they give the government an invoice for it, and the governments only way of paying that invoice is by increasing taxes. Which is a conundrum of where we are at.

Of course the majority (if its poor and sick) is going to pick the path of least resistance - which is to vote short term to get a subsidy from the healthy and rich (instead of pursuing to long term path toward developing skills to provide valuable services so that you could get rich and afford valuable services, such as healthcare, not to mention living life in a way to minimize chance of getting sick/ill in the first place.)

But in the end this sort of "take from the rich and minority" mentality just leads to the dissolution of thevalue that they create, and unfortunately only after they are gone, to the dissolution of the principle architects of that mentality.


It's not a double standard, I'm claiming that the way society works right now, people don't have complete freedom. Hospitals don't have the freedom to turn people away, even people don't have the freedom to refuse healthcare, so obviously something has to give from the side receiving the product/service (healthcare). It's similar to having to pay taxes for the myriad reasons. You can't opt out of roads and water and other infrastructure.

If voters came out and changed the requirement for hospitals to provide healthcare, or let people forego healthcare, then we can perhaps treat healthcare like any other business.


Europe has mostly already figured out all of these things. Jobs can still provide some benefits like accident insurance and transit cards, but healthcare and pensions are heavily regulated by the state apart from who you are working for.

Your points are American only and stem from a bunch of perverse decisions made during the wage controls of WW2.


>> What if more people decide to not get healthcare?

This is exactly what happened under the ACA. This is also the main reason many major health care companies like Aetna and UHG dropped out of the exchanges:

Insurers need young people to, in a basic sense, pay into the system, since they tend to be healthier and use fewer healthcare services — thus partially subsidizing the older and less healthy people that cost more to cover than they pay in.

Since the rollout of the exchanges, the number of young, healthy people signing up has not been enough to offset the sicker population, leading to millions of dollars in losses for many insurers.

https://www.businessinsider.com/millennial-uninsured-rate-ob...


1) Employers could still cover the premium as a benefit. You'd just get to choose how and where to use the money.

2) Make it truly mandatory like in all developed countries.


In Switzerland, employers don’t cover premiums, and premiums are paid post tax anyways. The USA is weird because employer provided health insurance is paid pre tax while individual policies are paid with post tax money (unless your expenses hit 10% of income).

> In Switzerland, employers don’t cover premiums

There are a few exceptions, like Google.

> and premiums are paid post tax anyways.

But they're deductible from your income when you're filing taxes.


1. Maybe I just haven't had a job with good benefits, but for me, the biggest and the only benefit I care about is the amount of PTO.

Other countries seem to be doing fine with that model, I'm not sure what it is about the US culture that prevents it from working.

2. Single payer.

3. This statement always seems like a cop-out to throw hands up in the air and do nothing. There are things you can achieve with a multitude of small steps. There are things where you can't, and you have to take a few large leaps.

To just say oh let's ignore the latter category forever, because people people don't like it, is simply giving up.


It also incentivises propping up old, failing companies at the expense of the newer, innovative ones that would replace them in a healthy economy. For the same effect, get everyone to invest their entire private pension into their final employer.

That's easy and libertarian to do — just stop government from treating benefits as a special case in terms of taxation. It feels like a policy that should have cross party support among those who want smaller government or better social systems.

It's frustrating that employer-provided healthcare is treated as the standard alternative to single-payer, with very limited time spent on why even private insurance is specifically coming from employers. (When historically, as you point out, the answer is "tax reasons".)

The current system drives all kinds of awful distortions independent of actual cost, and it wouldn't take much to improve. Swapping the tax exemption for a write-off would be a significant start to stop penalizing freelancers and part-time workers who have to buy their own insurance, and indirectly promote competitive not-employer-sponsored plans.

I'm not sure if this just gets ignored because the issue is so contentious that small changes aren't worth the political price, or if there's something darker there, but it sure seems like it could be a bipartisan move.


It's not that they can't, more that they don't want to, because that gives them leverage on their employees. Look at the recent GM strike : not happy ? We're cutting your health insurance. They reversed it ultimately but I bet it'll make people think twice next time they're thinking about going on a strike.

And you know what is even more efficient than market-based health insurance and pensions ? Socialist state-level monopolies. Yep, costs in Europe are about half of what they are in the US. Turns out governments are not more inefficient than companies, especially very large ones.


We have basically 'Medicare for all' in Australia. Works well. We spend way less as a proportion of GDP than the US on healthcare and the hospitals in the big cities (where they send people for anything serious) are world class.

Most things like GPs, physiotherapists, etc. are private but the Medicare system pays for something like 60% to 100% of the bill depending on various factors. You won't usually pay more than $30 for a standard GP consult, for example.

Crazily, the private insurers (it's optional) are trying to push for tax breaks to employers if they pay for private health insurance for their employees (more like the US system but basically unheard of here), despite the fact that the private system is already heavily subsidised (big rebate on private health insurance and also tax benefits for moderate and high income earners), and despite the fact that our public system is more efficient (according to studies), so we'd actually be better off just investing that cash in the public system (because of underfunding there are waiting lists for a lot of elective surgery).

But the private insurance industry is generally struggling because they've been raising premiums and reducing service (more exclusions and bigger excesses) and our public system is good.


You mean like in good, old Europe? No way!

Please don't post unsubstantive comments or foment regional flamewar here.

https://news.ycombinator.com/newsguidelines.html


Well, the european model sees these as natural monopolies and just provides them at the state level

I'm not sure that the European version of outsourcing that responsibility to the government is the way to go for the same reason.

Letting people set up private companies with competitive options I think would probably drive the best results.


That has been shown to work well where? And by well I mean for the customer not for the business/insurer.

That's how it used to be in many European countries. Insurance is an old concept that predates the modern nation state. Problem is that in an unregulated market, private will not keep a big enough buffer to avoid ruination because that hurts profits. In the 19th century a lot of upper class people had such insurances for their businesses which turned out to be worthless because when disaster struck they found that the money wasn't there. Gradually such worthless insurance funds were nationalized and became the foundations of many European welfare systems.

Isn't that what American health insurance companies are?

Kinda yes. But it isn't competitive when you cannot even pick your own health insurance company nor see prices for medical care (or see what is in/out of network).

Splitting employers from health insurance is one of several required changes that needs to happen before the supposed hand of capitalism can allow the market to get healthier.

I have no idea if it would work, but the status quo is so unhealthy at the very least improvement competition/choice could improve that somewhat.


>But it isn't competitive when you cannot even pick your own health insurance company

There's plenty of employers that don't offer healthcare, and you are not obligated to take it if your employer does offer it. You can always buy your own health insurance.


And pay substantially more for the same product. The individual insurance marketplace isn't competitive, plus you're also giving the federal government a free loan (since employer insurance is pre-tax dollars, individual plans get a refund after the tax return).

>Letting people set up private companies with competitive options I think would probably drive the best results.

Hello, please call

* 910 if you think your fire is not urgent, and can wait 10 minutes to come for free

* 911 if you think your fire is getting hotter, and can only way 5 minutes to come for $500

* 912 if you would like the fire department to come as soon as they possible can, and skip the queue of 910 callers for $10000


Are you suggesting that there are not places with private fire companies/insurance who will only put out your fire if you are a subscriber?

They'll also put out your fire if it looks likely to spread to a subscriber's property.


Why?

Keep in mind this comes on the heels of the Madoff whistleblower saying GE is a fraud:

https://www.barrons.com/articles/ge-insurance-fraud-madoff-w...

They piled up massive losses in their insurance division (long term care) and guess who gets slammed because of it?

The workers.


For what it is worth, the website that was launched alongside the fraud allegations has already been removed.

http://web.archive.org/web/20190929121126/https://www.gefrau...

So basically, there was some media orchestration, GE stock dipped somewhat, potentially the hedge fund paying Markopolos made some benefits and there was not really any follow up (so far) from the SEC. And the website disappeared a month later.

I felt that the reactions from analysts were that most long term care insurances are problematic, GE possibly a bit more but not spectacularly worse than competition, and that the "fraud" part was a bit overblown.

We'll see if the SEC will open an investigation, but so far not a lot happened.

Still even without being a fraud, this might be an issue in the years to come for GE to be able to generate enough cash to pay for its long term care business...


>the website that was launched alongside the fraud allegations has already been removed.

Maybe the SEC is starting the case and asked the tipsters to remove all relevant documents online to prevent prejury?


I doubt it, defined benefit pension plans don't make financial sense in the current climate. Who is able to predict which company will be around in 30 to 60 years in the future, and what the economic climate will be?

And much of the pension fund investments are going to the same place as 401k money anyway. Why not directly invest in VTI and skip paying all the pension fund managers and staff? It's not like they have some secret investment return recipe, and it shows in their performance.


The simple answer is that group mortality is easier to estimate and plan for than individual mortality.

At 65, you do not know if you are going to live to 70 or 101, so you need to plan your 401k accordingly, pessimistic.

Couple that with the fact that many many americans could not save enough to last to 101, but could last until 72. So they are left with the choice of living more poorly than they should or running out of money.

Defined benefit makes way more sense, some people "win" by living longer, others lose. But there is much less stress in the meantime.


Defined benefit might make sense on a societal level, aka Social Security benefits in the US.

On an employer level, it does not make sense as they have no idea if they will exist in the next 10, 20, 30 years, especially with automation and globalization changing the economic environment very quickly. Which is exactly what real life shows, as companies are jettisoning defined benefit pensions to stay competitive.

On an individual level, a pension plan also doesn't make sense, as you can do what pension fund managers do via target date funds and save the money spent on paying the pension fund managers. And avoiding the corruption risk of employers underfunding and fund managers malinvesting.

If you want protection that you will have income until you die, one should purchase an annuity. However, a much cheaper and better idea in my opinion, is raising a family that will support you in your old age, because it's prohibitively expensive to purchase the kind of care that comes from loving relationships in your old age.


The other issue is that defined benefit pensions were historically oriented around long-term employment with a single entity. This is most obvious in the case of the US government but pension benefits in general tended to be maximized when you stayed with one employer for a long time.

This worked out pretty well for me [added: it's been through 2 changes in ownership but it's still available for payout] but, if instead you look on 2-5 year job tenure being far more common today, a lot of people would end up with little or no pension under typical defined benefit pension terms.


Have you run the numbers on the cost of raising a family? I agree it’s the best strategy but I’m not sure it’s cheaper. I do believe it pays many psychic dividends, but I’m not sure it’s cheaper but I’ve not done the math.

I don't believe it's quite possible to put numbers on the benefits of being part of a tribe that has your back, but I doubt any realistic amount of money can get you the kind of care that family (and friends) can.

Assuming a birth costs $5k to $10k, and the kid costs $20k per year for first 5 years for daycare, and then $3k per year, ballpark $200k, not adjusted for inflation, plus tons of time spent teaching and raising them, should buy you a relationship worth much more. But you also have to be surrounded by the right people and culture, so it's super complicated to calculate.

But most successful families I know are successful because they can rely on each other to help each other out, and there are exponential benefits to knowing someone who knows someone, so as their networks expand, so do yours.


At an individual level, You can invest the same way, the problem is, you don't know how long you will live. Which was my main point.

There are annuities, but my research into those has come up with very high costs with lots of fees.


>There are annuities, but my research into those has come up with very high costs with lots of fees.

Yes, as most non taxpayer funded employers have found out, and reduced their offering of defined benefit pensions accordingly.

My point is that no one has the ability to protect and afford against the kind of long term risk that you are talking about, and the best model I've seen to address it is when children and grandchildren take care of their elders.


I agree that no individual can reasonably plan for to have enough money for 0-30 years but I disagree that nobody has the ability to spread that risk around.

If your pool is the whole country then it’s very manageable sans the human problems that any large government / financial institutions run into at scale.


Why would one ignore "the human problems"? It's the very reason defined benefit pensions don't work outside of a population and economic boom.

Pretty much every developed nation is raising retirement ages and reducing benefits to grapple with the fact that there is less wealth being created in their countries. No one can "manage" automation and labor from China/India/etc taking out a huge portion of your middle class.


But why is that? It seems like there should be a way to offer a simple annuity product profitably.

There are. But I think you're hearing a lot of people not liking the cost associated with significantly de-risking a future annual income stream.

Annuities can certainly make sense, including ones that, for example, you can get by donating appreciated assets.


How does that work? If you're getting an annuity in return for donating something, that doesn't sound like a donation?

Charitable organizations (basically 501(c)3s in the US) don't have to pay tax on the appreciated value. So annuities offered by those organizations may take advantage of that tax benefit. In many cases, it will still be a net donation relative to other options, especially insofar as you can't pass on residual assets to beneficiaries, but it is one way of taking advantage of tax law to create an annuity.

Predicting the future is extremely difficult (if not impossible).

Defined benefit for sustenance level probably makes sense (which is more or less what Social Security is if you've worked a typical career).

Defined contribution allows for the transfer of wealth to heirs at death, which many people find a preferable and more fair-feeling way to deal with the fruits of one's labor than to have it revert to the annuity provider (private or public).


This is an interesting view. For some reason I had never considered that participating in a large employer's defined-benefit pension fund might be kind of equivalent to signing up for a tontine with a bunch of your peers and all putting your cash in SPY for the duration.

That's what annuities are for.

I agree. It was interesting to see this all come up with union negotiations. The union's push against switching to a 401k was that it puts them at risk when the market performs poorly. Unfortunately from a company standpoint, when the market goes down, their required pension contributions go up, a real bind in cash when you need it most.

There's more politics involved - like the automotive unions giving up numerous raises for better pensions, companies refusing to fully fund pensions in good years leading to them being woefully underfunded in bad, etc.

Personally I'm glad to not have a pension hanging over my head. I could leave tomorrow and have the full value of my 401k. I know people who are miserable and hate their jobs, but if they leave before hitting 30 years, they get barely anything. At my company, leaving at 29 years would yield less than half the monthly payout compared to 30 years. The pension and social security is the retirement plan for those who live paycheck to paycheck.

I do really wish everyone had the same access to tax advantaged accounts. The administration costs of 401k's make it more challenging for small companies to offer. All else equal, having a 401k available versus unavailable is with a few thousand dollars per year to me because of the tax deferral.


> The administration costs of 401k's make it more challenging for small companies to offer.

It's not at all clear to me that 401Ks need to exist when we already have IRAs. Why not just increase the contribution limits on traditional IRAs to 401K levels? It gives everyone access to the same savings options, employees aren't tied to a single 401K provider that can gouge them on fees, employers don't have to administer anything.


I don't believe that employers can pay a "match" into IRAs. (Now, whether allowing them to do so into 401(k) is a good idea in the first place is a fair question. It's great if you're a solo employer, and serves to encourage some level of savings as an individual, but I wonder if we couldn't get some of the benefit of the second in another manner.)

There's no practical reason employers can't pay a match into IRAs. It's just how the laws are written at the moment.

>There's more politics involved - like the automotive unions giving up numerous raises for better pensions, companies refusing to fully fund pensions in good years leading to them being woefully underfunded in bad, etc.

This is the inherent agency risk in defined benefits. The people at the beginning can make off like bandits while screwing those down the line, whether intentionally or not (due to global economic environmental changes).

>I do really wish everyone had the same access to tax advantaged accounts. The administration costs of 401k's make it more challenging for small companies to offer. All else equal, having a 401k available versus unavailable is with a few thousand dollars per year to me because of the tax deferral.

401k are extremely easy to administer, or at least much, much easier than defined benefit pensions. However, it would be ideal if the US government stopped giving large companies subsidies (via the 401k tax deduction), and simply gave an IRA deduction to everyone, regardless of employer or whatnot. There is no need for employers to be involved.


>401k are extremely easy to administer, or at least much, much easier than defined benefit pensions.

Definitely so! They require filing the Form 5500 annually with severe penalties for not doing so, and if safe harbor criteria aren't met, I believe an actuary may be required. I helped setup a small business 401k a few years ago and found Human Interest to be about the cheapest option overall at {employer: $120/month + $4/user/month} + {employee: 0.5% AUM management fee + fund expense ratios (good funds available, coming in around 0.07%.)}.

The direct employer cost is still $1,500/year for 2 employees before any match. Simple IRA's are an option, but have much lower contribution limits.

>However it would be ideal if the US government stopped giving large companies subsidies (via the 401k tax deduction)

Do you mean the administrative expenses and employer contributions being tax deductible, or a more specific nuance to the tax code?

The intent of the 401k safe harbor rules is to ensure they don't only benefit the highest compensated employees. For someone earning 30k/year, saving for the future is a legitimately tough proposition. I haven't fully fleshed out how I'd best handle ensuring all groups can reasonably be able to retire.


I mean the only compensation between an employer and employee should be cash (withheld at whatever taxes according to income tax rates).

If the government wants to then incentivize retirement or healthcare savings via tax deductions, it should offer that to everyone, regardless of employer or where the income came from. However, I'm also against using tax deductions as it allows for price obfuscation.

I would be okay with government providing incentives such as matching contributions. That would allow for clear accounting of government expenditures.


I wouldn’t even agree to getting a defined benefit pension these days - why wouldn’t you want to invest your own money instead of letting one company you happened to work for control your pension?

I have a defined benefit pension from a previous employer and frankly I count it as zero in my financial planning since I have no idea if it’s actually coming or not.


It still has value, assuming you're intending on working until you retire and the company has no signs of failling - why wouldn't you want a (nearly) guaranteed income for the rest of your life? That doesn't preclude you from investing your own extra cash into investments.

I understand the dynamics have changed, but my boomer parents and in-laws are both enjoying retirement with the fruits of a defined benefit pension, and both are quite comfortable.


There are so many ways it can go wrong - and when it does, the results can be disastrous.

The article below mentions how poorly things can go, with private equity groups buying a company, things go poorly, it gets liquidated (pension gets dissolved), then the same private equity group buying it out of bankruptcy. Funny enough, with Marsh, the executive pension plan got a good payout relative to the thousands of store and warehouse employees.

The pension isn't free to offer. I'd much rather they increase my base pay or give a more generous 401k match.

https://www.washingtonpost.com/business/economy/as-a-grocery...


Personal savings can be equally disastrous - it's mismanagement of a pool or an individual. I get that individualism runs high, especially in this sector, which is running hot and people are enjoying being highly desirable, but pensions took the concern of managing retirement from the average worker for a generation. Would the average pensioned worker in 70's or 80's have had access to the education and resources required to ensure that they could save what they needed to to retire? I don't know.

30 years ago, if you said GE might be failing in 2019, you would have been considered crazy. There are no guarantees in life, even if the law says there are.

The only reason your elders are enjoying the fruits of a defined benefit pension is because the costs of their pensions was hidden by an assumption of ever growing populations and economic growth.

Additionally, why give control of your retirement funds to someone else when you can have control of your money? They're investing it in the same place as you would, and not getting any better returns.


Because when I retire they continue pumping money into the same funds - I can't do that, my contributions stop and I enter "withdraw" mode - the company doesn't.

Yes, the plan can have problems, but I'm just saying why I think people still like it, and it does have definite advantages over your own savings.


> when I retire they continue pumping money into the same funds

Lol you hope.


It's not without it's own faults, I get that.

On the flip side I know people who have completely squandered their 401k due to poor financial habits, and others who are getting a check, monthly, for life.

Guess which one of those two is happier? Sure, you may say the first group was foolish, but we are talking your average American workers here not an investor-savvy class.

Perhaps make it an option, if you want to gamble go for it, if you lose don't come crying for your retirement checks.


Paying out defined benefit plans aren't totally at the whim of the company. For example, there are protections through the Pension Benefit Guaranty Corporation and you could probably arrange for your own insurance as well.

Having some savings as defined benefit does give you predictability. Even if you don't have a defined benefit plan through a company, it may make sense to convert some savings into an annuity of some sort.


>For example, there are protections through the Pension Benefit Guaranty Corporation and you could probably arrange for your own insurance as well.

The PBGC is just for show. They can't even guarantee the pensions of the multi employer defined pension plans that are about to fail, so there is a bill in congress to bail them out currently:

https://burypensions.wordpress.com/2019/01/09/butch-lewis-ac...


Companies just suckle up to the public teat when they make a bad business decision and it's always the employees that take it in the shorts. The executives get paid big bucks for making decisions but bear no responsibility for the results. It's all upside for them. That's a gamed system in need of being broken.

Don't take this the wrong way but you need to take some serious advice, DB pensions are far far better than a DC.

Look at the transfer values of some DB pensions they can be worth multiple millions and no way would an individual be able to build up an equivalent amount in a DC scheame


There's no magic financial effect that makes the money going into a DB scheme worth more. The money has to come from somewhere and, in these cases, it's from companies that underestimated or ignored what the future costs would be.

You do understand that DB is a collective scheme and DC its not just you.

Your DB pension is funded by those that came before you and those coming after.


I'd love to hear how someone would intonate a statement beginning with 'you do understand' if they said it to me in meatspace.

Sorry I should have phrased that better for those whose first language isn't English.

Its phrasing in that sense would be similar to "Dude your making a big mistake"


Where and when.

> no way would an individual be able to build up an equivalent amount in a DC scheame

Well if you put millions in you get millions out.


Americans love having the one company they happened to work for control their healthcare, though.

1 DB schemes are much better for the employee than DC

2 Pensions funds are different to investing for individuals (with small portfolios)

DB schemes have very long lifetimes and have to invest for multiple generations and cant just invest in a tracker - they have to have a suitable investments in bonds and guilts for example./


It's worth noting here, that nothing in this new news indicates any sort of fraud, merely that GE is struggling - as everyone already knew.

Yes, GE lost a bunch of money in purpose so it could screw over workers.

Usually companies cut compensation as a last resort, as it's damaging to morale. They don't do it for fun. Some people are obsessed to see employment relations as a zero sum game.

It's not just the workers, GE shareholders have gotten slammed as well. GE's stock is down about 70% in the last 3 years.

This is what happens when a business underperforms.


GE is probably a bit more than fraud given my experience with some of their LED products. I'd say they're outright liars.

The UV Blacklight they advertise at 7W - you think that's getting 7W of UVLED. Nope, instead you get a single 1W UV LED surrounded by 4 1.5W LEDs. And you pay almost $20 for this rip-off of false advertising.


For what it's worth, shareholders are also getting slammed, but they can always sell to get away. Not always an option for folks that are employed at the organization.

An important distinction to make with GE is that most of their pension plan is "defined benefit" as opposed to "defined contribution". The latter is much more common nowadays because it avoids these massive long-term obligations to the company.

EDIT: Added "most of". A percentage of their employee base has already transitioned to defined contribution.


In the US, "pension" typically means a defined benefit pension.

Not any more... "The percentage of workers in the private sector whose only retirement account is a defined benefit pension plan is now 4%, down from 60% in the early 1980s. About 14% of companies offer a combination of both types." [1]

[1] https://money.cnn.com/retirement/guide/pensions_basics.money...


I mean that in common vernacular, when someone says "pension", they are referring to a defined benefit pension. Otherwise, in the US, we use 401k, IRA, "retirement funds", or other words.

And a 401k and IRAs is are very poor "pension" plan compared two other countries.

I'm not sure what you're claiming. It's possible to design a very lucrative and costly defined benefit pension, but in the US, no employer is offering it other than governments, and even the governments are beginning to croak under the stress of unsustainable benefits, so new employees are not eligible for them.

I was comparing the US DC (401k) vs say the UK (A Group Personal Pension or a SIPP).

Based on some quick Googling, I don't see what is so much better about an SIPP or a group personal pension plan? SIPP offers some kind of matching from the government, but it doesn't seem significant.

Main one is Tax relief at your highest rate on income tax you get an extra 20% into your pension - if your a higher rate tax payer you can reclaim the extra tax relief.

For a higher rate taxpayer you put in £60 and get £100 in your pension.

You can also do salary sacrifice and reduce you income tax and NI lability


Unless your retirement tax rate will be lower than your working years rax rate, it comes out in the wash eventually.

It's quite likely that some people today will end up paying higher income tax rates in retirement than today.


Id like to see that worked out in detail have you got an example? unless you mean you bust the lifetime limit, which is just bad planning.

And you can use drawdown to manage your income from the pension and you would of course make use of income from your ISA.


I don't know anything about the 401k system, but the money going into my pension is from my gross salary. Combined with high taxation, it means that it's worth up to twice as much going into my pension as it would be going into my bank account.

SIPPs are beyond my lifestyle.


It's the same in the US.

All that tells me is that there are no more pensions, not that the definition has changed. Employers are contributing money now, but have pushed any risk onto the employee, making it feel pretty worthless as a retirement strategy.

> Employers are contributing money now, but have pushed any risk onto the employee, making it feel pretty worthless as a retirement strategy.

You seem to be arguing that saving for retirement is futile. You can invest is (almost) arbitrarily low risk to principal investments like US treasuries. I probably wouldn't advise that as the sole investment strategy for most people. But it is one way to reduce certain types of risk. (And most defined benefit plans have the same risk with respect to inflation.)


I think all they're arguing is that the word pension =~= "defined benefit retirement plan".

I don't think I've ever heard someone refer to their 401k as a pension

I think they use the word "pension" for defined contribution retirement plans in the UK since they, of course, don't have the US tax code section 401k.

Earnest question from a non-American - aren't companies legally bound to pay these benefits?

It's always surprising to me to see those huge companies stopping payments and the story ending there


Legally bound doesn't mean much if it doesn't have the power to print money. If it affects enough voters, the government usually steps in with a bailout for part of the benefit.

In the past, this was generally true, but not anymore. Case in point, my great uncle - yes, that's a thing in genealogy, look it up - was fortunate enough to retire with one in the late 80's/early 90's.

You don't even have to know much about the system to understand how this works.

Defined benefit - Your pension is X, determined by rank, years of service, etc.

Defined contribution - While the above conditions may still apply, the bottom line of how well you do is determined by how much you put in on a regular basis.

Not hard to imagine why most companies made the switch or simply stopped offering traditional pensions - they're really expensive over the long term.


I never heard anyone in the US in my 30 years there use the term "pension" to refer to the typical retirement plans available in the US.

In UK and Ireland, though, most retirement plans are called "pensions", even defined contribution.

The first time I told my mom about pensions after moving, she said "oh my god you get a PENSION?!??" like it referred to the paycheck for life her parents got from the paper mill.

It's just semantics.


I think the point is about vocabulary more than anything. Most people (in the US) understand the word "pension" to specifically refer to a defined benefit plan.

"Defined contribution" is a euphemism to give a softer landing for employees that were expecting a pension. Workers should consider not using that language. The fact is the words are 50% the same but the product is 100% different.

I think it's a quite literal and clear explanation of the differences between the types of plans.

Which variable is fixed?

In a defined contribution plan, the contributions are fixed/defined and the benefits vary.

In a defined benefit plan, the benefits are defined/fixed and the contributions vary.


That's the spin coming through. In a traditional pension plan, the company pays you a defined amount for your retirement. In a "defined contribution" plan, the employee pays for their own retirement (maybe some of what they pay gets matched).

It seems that when the companies do not own the pensions and they are funded properly this issue goes away. It's when the companies play games with other peoples money that we have victims. Independent 3rd party management of pensions often means less shenanigans and trouble

Can someone explain what this means, and how its not illegal? Arent pensions a contract?

People currently accumulating benefits will stop accumulating. It’s a pay cut.

Plan was closed in 2012, so these are longtime employees.

People currently collecting pensions are not affected.

Ex employees in the pension are being cashed out with lump sums.

Source: https://www.wsj.com/articles/erie-hit-rock-bottom-the-former...


Not sure if this is legal or not, but this is definitely why I think the 401k/private saving model is the best. It's a lot easier for governments/corps to change the payout of a system they run vs. clawing money away from an account you own. That being said there should be a minimum safety net for those that don't have the diligence to save by their own accord.

Personal 401k’s don’t offer much over saving directly. It has some tax advantages at the individual level, but those tax savings are just shifting money around at the societal level.

The upside of public / private pensions is pooling money among a pool of survivors. Rather than saving X money to live off of at 95 while risking dying sooner you essentially save less on a bet that will live to be 95. Die early and you don’t care about losing that bet. Of course this means less money for people to inherit.

Sadly for individuals it’s illegal to set contracts up to do this as they create incentives to kill people which have resulted in past murders. Annuity‘s can offer some of the benefits, but are forced to make less risky investments.


That’s not why New York, et al, banned them. They became horribly mismanaged and turned into scams that paid out far less than they offered.

The idea that these encourage murders only came after they were banned, and used in plot devices that required a small number of people. (e.g the Fighting Hellfish)

There is plenty of discussion about brining them back as financial instrument.

https://www.npr.org/2015/11/27/457392597/live-long-and-prosp...

https://www.npr.org/2017/10/26/560152250/a-case-for-tontines...


The "death contract" is a Tontine. https://en.m.wikipedia.org/wiki/Tontine

Personal 401k’s don’t offer much over saving directly.

I beg to differ. My IRA doesn't offer a 6% match.


That’s a company 401k with matching funds. Clearly, if the company is willing to give you more money that’s a benefit, but you don’t get that opening a 401k at fidelity etc.

Unless you're employing yourself, you don't get to open a 401(k) at Fidelity yourself.

While true, it’s also common with 15.5 million workers filing a 1099 each year. Also, while an IRA is generally the same thing they have much lower annual contribution limits making the 401k a better option for many.

> but this is definitely why I think the 401k/private saving model is the best.

Not sure if it made outside just the Houston news cycle at the time but as an employee of a competitor I heard from friends at Enron that their employer froze all sales of their stock in employee 401ks before going under. Lou Pai managed to cash out as part of a divorce settlement as documented here https://www.chron.com/business/enron/article/Ex-Enron-exec-P... but most employees were not able to divest themselves and protect their retirement.


Definitely don’t put your own company’s stock in your 401k.

The 401k plans I’ve seen all had an option to invest the money in a diverse fund. Either a target date retirement fund that auto allocated to a mix of stocks and bonds, or to other funds such as an S&P 500 index.

Freezing employee stock sales is fairly normal as I understand it. I get emails all the time from my publicly traded employer stating I cannot trade in their stock during certain times (due to the risk of insider trading).


Freezing stock to prevent insider trading is one thing... Freezing it to prevent a stock price crash and buy the company a few more days at the expense of employees is another.

In the case of a company going bankrupt I could certainly seeing the lawyers ordering a trading freeze to prevent insider trading.

That said, I looked it up and it seems like the claim at the time was there was an “administrative change” to the plan during that period, so not what I speculated it might be.


Sadly companies never really have contributed much to employee 401ks which was one of the main selling points when being offered as an alternative to pensions.

Employees are very lucky if employers contribute 50% of their contributions (which would would be a max possible of $9500 match this year). And usually it’s significantly less.

In 2019 employers are allowed to contribute up to $36000. No company I have heard of provides anyway near that. The 401k has unfortunately allowed employers to care very little about employees retirement.


Many (perhaps not most? I haven’t researched broadly) large companies offer 100% match for 401k contributions, up to 6% of your salary.

If you say the denizens of the companies I’ve worked at are all very lucky, I won’t disagree, but it’s surprising to hear this is uncommon.

EDIT: Or perhaps your percentages are (unusually, for US conversations about 401k contributions) referring to total outlay, by which standard a 100% match is a company covering 50% of the total outlay? But in that case the limit is no where near $9500, perhaps you were missing a 1 in front? The max employee contribution to a 401k was $18,500 in 2018...


The max employee contribution in 2019 is $19000 so given a 50% match the employer would pay $9500. I know a number of large tech companies offer this. But it still way under what they COULD contribute. And you are right most companies are way under that 50% match up to the individual limit example.

EDIT: Sorry just reread your comment, yes that’s another way companies will structure it x% match up to y% of your salary. The x and y differ wildly. Also some will add a up to z total match. Which kind of formula works out best for you highly depends on your salary. But the average employer contribution for someone maxing out their personal contribution is $3000.


Highly compensated employees in Amazon can't contribute the total yearly amount to their 401ks.

>In the simplest terms, contributions made by HCE’s can’t be excessive when compared to those of non-HCE’s. For example, if the average plan contribution by non-HCE’s is 4%, then the most an HCE can contribute is 6%.

Not that I hear much complaining about the compensation, they're rolling in after-tax dollars and RSUs.


Pensions are very strange. IBM abolished its pension program some decade ago, replaced with a 401K funded to 25% or some such. Saved IBM billions; pissed off a generation of employees.

So no, not really a contract.


And six or so years ago IBM changed their 401k match to only provide the matching funds if you were still employed on December 15th instead of every pay period.

They really are the worst.


> replaced with a 401K funded to 25% or some such.

25% employer contribution match? That seems very high. I've never worked at a company with higher than 5% match.


Don't know how to verify what it was, but their current match is 100% up to 5% of pay, plus a free 1% of pay. It's good compared to most tech companies but not outrageously good.

No, funded to up to 25% of pay. The pension terms were much much better than that.

I don't know what kind of match they had.


Microsoft does a 50% unlimited match up to the irs cap FYI.

IRS cap is $19k/yr, meaning Microsoft does up at $9.5k/yr. That is about in line with what I have seen. Most companies will give you about $5k - $8k/yr.

What is a common yearly bonus/raise like at Microsoft, including stock options/grants?


There's typically a minimum limit set out by a set of laws. So if you have $100k yearly pension, they may have to pay at least $25k.

Reality is, 401k is much better for all parties as company and employee can part ways at any time. Employee has more control over their funds, but risk they will lose it all (not companies problem).


Do pension funds rely on a growing population in order to sustain themselves? I wonder whether they'll see a resurgence as the baby boomers die off and the age distribution in the U.S. becomes more uniform, or if these sorts of plans are a thing of the past.

Pension funds (and retirement savings in general) depend on low-risk investments returning significantly above inflation. These no longer exist, for a variety of reasons, demographics being one of many.

People have been assuming that negative interest rates are a temporary thing but people are beginning to think that this may actually be the natural state of affairs.

Historically, protecting your wealth cost real money: banks had to hire guards to protect the gold in their vault. Fractional reserve banking flipped this so that the banks started paying interest.

But now the world is awash in capital so low risk investments now return interest less than the inflation rate. Even the nominal rate is now sometimes below 0. (https://news.ycombinator.com/item?id=20696343)

There is no longer such a thing as a "safe investment". The only way to grow your money is to take risks with it, and the level of risk required to get returns significantly above inflation is growing.


Piketty would claim that wealth accumulation has reached a maxima. Return on investment is, after all, wealth being concentrated into fewer and fewer richer and richer individuals. If wealth can't be concentrated further then return on investment can't happen either. We might have reached such a state in which the rich, relatively speaking, can't get richer and the masses of poor, relatively speaking, can't get poorer. You can't squeeze water out of a stone.

This is good for Bitcoin.

Can you explain further? I’m curious how Bitcoin benefits from it?

People are taking crazy risks with their money to get a significant return from it. One of those crazy risks is investing in Bitcoin.

Basically it's a meme that any news can be spun to be good for bitcoin.

https://knowyourmeme.com/memes/this-is-good-for-bitcoin


The comment I replied to said "There is no longer such a thing as a "safe investment". The only way to grow your money is to take risks with it".

Bitcoin is seen as a risky investment by most people. To those of us that understand what it actually is and how it works, it's the best kind of money/store of value ever invented.

The only other options I see for storing wealth are things like precious metals, real estate, or stocks and bonds.

I think precious metals are kind of useless as money and over hyped as a store of value. Asteroid mining could flood the market in the future.

Real estate is a lame investment. People need homes. When people buy up real estate to park wealth, it drives up the cost of homes for new home buyers.

Stocks are a maybe, but I would only buy stocks like apple and tesla. I don't really like most corporations.

Bonds are a joke, with negative interest rates.

In the grand scheme of things, Bitcoin looks like the most sane place to store wealth.


> Bitcoin is seen as a risky investment by most people. To those of us that understand what it actually is and how it works, it's the best kind of money/store of value ever invented.

Why? Just because the other options have downsides, what makes Bitcoin good? There was a rush in 2018 - are you assuming it's going to happen again? Bitcoin seems to be super unstable, more so than anything else I'm aware of - why would I want my retirement savings to be able to fluctuate that much every year? What stops a new cypotcoin from coming along and being dubbed superior, removing the value of Bitcoin overnight?


Bitcoin is good because there is a fixed supply. The scarcity of it means basic supply and demand market mechanics are in play. It’s price is volatile because people with a lot of money can move the price easily by simply buying and selling large amounts of it. The value has steadily increased year over year though, and eventually there will be sufficient market depth which will help stabilize prices. It’s also good because banks can easily prevent you from accessing your own money. When your money is in bitcoin, no one can confiscate it, or charge you negative interest rates on it.

Lots of new coins claim to be the next bitcoin, but the truth is, bitcoin is the next bitcoin. Look up the user aantonop on YouTube for why this is the case.


Growing populations help mask the underlying issues with pensions, which are mainly, 1) they are almost always underfunded, and 2) they have unrealistic expectations for growth.

I doubt we will every see pensions come back because they become less appealing the more realistic they have to be. Of course pensions sound awesome if you're a firefighter that receives $97,000 a year for life after 25 years of service. Such a person may have received only $1.7MM in total compensation over 25 years, yet, because of how public pensions are calculated (and a bit of graft), they earn an income that would take investments worth $2.4MM to maintain. This is not including health insurance, which is likely another significant amount.

When I take the same firefighter's wages over the years, and calculate the return of a 12% of earnings contribution annually, and a 12% annual return on investments, that same person has only contributed a little over $1MM.

Meaning their sustainable pension withdraw is roughly $41,000/yr.

\* I made these numbers up in an excel spreadsheet, assuming they made $38k in 95 with a 3% raise each year, and a 10% promotion raise every 10 years, along with the typical inflated wages in the last 3 years to maximize pension benefits. So they ended making $107k/yr.

Edit: After some playing around, I've determined that pension contributions would need to be roughly 30% of wages in order to be properly funded with a 12% annual return. Using S&P500 rates of return, contributions need to be closer to 50% of wages.


Most public (i.e. government) "pension funds" are not pension funds, they are welfare benefits programs for retired people. That is, they are not primarily funded through individual savings or investments but through current taxes. The US Social Security system, for example, works this way. While excesses are "invested" in US government treasuries, this is really just a delayed tax obligation. And while the SSA may provide you with a report about your "account" -- complete with contributions, balances and anticipated payouts -- it's mostly meaningless as your benefits are not contractually tied to past contributions. They are instead only related by regulation, but those regulations can be changed at any time.

The article is about GE's pension fund, which is separate and distinct from the US government "pension fund" (the social security system). It is also not a 401(k) or similar fund, those are tied to individuals and managed by a third party. Many larger and more established companies and organizations in the US have pension funds similar to GE. They are typically defined benefit funds, as opposed to defined contribution funds. Defined benefit means that the amount of the pension is defined up front and does not depend on investment returns during the lifetime of contributions. This obviously creates problems if returns are not as good as projected and provides a temptation for companies to put less into the fund, hoping that future company growth will make up the difference. Many companies have succumbed to this temptation, GE among them it seems.

Without even looking at the details of the GE plan, I strongly suspect there will be multiple lawsuits over this action. On the other hand, it's a bit surprising that GE could unilaterally take this action without the buy-in from various unions, so maybe they pre-negotiated it ahead of time.


In the corporate world, probably not. Pensions obligations just look like debt on the balance sheet... but they have high administrative overhead. Further, there is the risk that life expectancy will continue to grow... thus making those liabilities much larger.

In government... I don't think pensions ever went out of fashion. Why bother when you can always just print more money?


> In government... I don't think pensions ever went out of fashion.

There are a lot of different pension schemes out there as the feds, states, and localities do not use uniform plans. What I've seen, though, is that there are now "two tiers" - one for older employees and another for younger ones. You can guess which plan is more generous...

A lot of localities and states see the writing on the wall - that their perpetual 9% growth rates and population increases won't keep up, and are thus moving new employees into 401K plans, no different than the rest of us in the private sector.

Honestly, I don't think I'd be able to tolerate being a teacher or state employee, and knowing that my manager, 20 years older than me, has a retirement worth 3x as much, and it will be funded by increasingly shorting me on salary and benefits (along with tax increases) as the pension liabilities become harder to pay. Look at certain cities like Chicago and Baltimore and states like New Jersey for a current example.


Not all governments can just print more money, which is why many state and local pension programs are in major trouble.

Good point. I'll amend my statement with "or raise taxes!"

Or, more accurately: issue more traffic citations.

In Europe, yes. In US, there are some good answers here.

And while they cut pension benefits, this is what the CEO makes:

https://www.cnbc.com/2018/10/05/new-ge-ceo-larry-culp-inks-s...


Was just about to link the same article. It's sickening how much these CEO's make.

For those who want the stats from the SEC[0]:

  (1) a base salary of $2,500,000 per year.

  (2) a target annual bonus opportunity at 150% of base salary ($3,750,000).

  (3) annual equity awards in the form of performance share units (“PSUs”) 
      that will have grant date fair values of $15,000,000, beginning in 2019.

  (4) a one-time inducement award of PSUs that will pay out [...] as a number of 
      GE shares ranging from 2.5 million to 7.5 million shares, based on a GE stock 
      price appreciation target ranging from 50% to 150% using the highest average 
      closing price over 30 consecutive trading days during the four-year period from 
      October 1, 2018 to September 30, 2022, with no payout for stock price appreciation 
      of less than 50% (This could net him $47,000,000 - $233,000,000!).

  (5) cash severance in an amount equal to two times the sum of Mr. Culp’s base salary 
      and target annual bonus opportunity, in the event that his employment is terminated 
      by the Company without cause or by Mr. Culp for good reason.
[0] https://www.sec.gov/Archives/edgar/data/40545/00000405451800...

It says his compensation is largely tied to company stock performance. He is not guaranteed all of that money. He and the company have to perform.

And shares rose on the news of the pension cuts.

It's not hard to play this game, if your incentive is to make the stock price go up.

Slash and burn.


Stock is up 3% on this news, and no doubt will be up on future news of cuts to headcount, benefits, etc. So there's a conflict of interest here.

>Stock is up 3% on this news

What? According to google finance, the stock closed $8.57 last Friday, opened $8.55 today, reached an intra-day high of $8.65, and closed at $8.56. There's no way you can say that it was up 3%.


Literally what it says in the article.

Conflict of interest? Isn’t the interest of a business survival and profit?

Those are examples of business interests, but if any business that doesn't care about the physical and financial wellbeing of its workers is a business we are better off without.

"We made a profit" is never an excuse for unethical/immoral business dealings.


> doesn't care about the physical and financial wellbeing of its workers is a business we are better off without

I think this is a very simplistic view.

I don't know enough about this particular case with GE, but sometimes layoffs are absolutely required for a business to continue existing, especially when the economic cycle dips a bit low. This is almost an absolute for smaller businesses.

For these cases, what do you suggest? Close the doors, laying off all workers, or lay off some, allowing the rest of the workers to continue their employment?

Something like "Sorry, you're all out of work because we don't want to lay off some of you" seems a bit self destructive, with a much more negative result.


I believe the "conflict" is called class warfare.

You know how you raise the stock price when you're a CEO? You get a tax cut from 35% down to 21% with the nominal purpose being so your company can hire more workers (to handle the business that was previously not profitable enough to cover their wages?), then you use that money for stock buybacks.

Less supply of your stock plus a deep pocketed purchaser? It's bonus time!


Okay look, I get that it’s fun to be angry the high salaries of CEOs but it’s one of those things that just doesn’t matter and does nothing but distract from the actual problems. That 2.5 million dollars distributed to the 20k pensioners amounts to $125/person/year. If you distribute it to all $300k GE employees they get a $6/yr raise.

That $2.5M isn't even half of their compensation. Why did you pick the lowest figure in the article to make this argument?

So double it or even triple it. You could redistribute it all among the 20k people impacted and we are till only talking about $20 - $30 per month. That would certainly help people, but it isn't going to by life changing money.

CEO pay seems like a constant red herring. If we care about inequality, we are probably better off focusing our attention on our tax system (this story [1] is also on the front page of HN at the moment) which has a much bigger impact than CEO pay.

[1] - https://news.ycombinator.com/item?id=21181664


Why double or triple it? His actual guaranteed package is closer to $68MM[1], which is closer to 20x or 30x.

[1] with the potential to hit $250MM.


What's even worse is how much dividends they've paid out to shareholders. $394 million this year and $3.23 billion last year, if my math is right. Before that they paid out $4 billion a year, but they reduced it in December, 2018.

A rounding error compared to the billions owed to pensioners.

... and this is why pension schemes should be managed by the government or at least tightly regulated.

Just imagine GE going bankrupt - who's gonna pay the pension, then? The government in a bailout or what?


Do people not understand this is how pensions work.

If your company isn't there when you retire, you don't get a pension.

I find it incredibly risky to rely on pensions. I don't quite understand why employees are so excited about non cash benefits.


> If your company isn't there when you retire, you don't get a pension.

https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corpo...


https://www.ai-cio.com/news/multiemployer-pension-lifeboat-s...

It's mostly for show, and at the end of the day, if the pensioners have enough political clout (like those of GM in 2008/2009), then they will get bailed out for real by Congress.


>I don't quite understand why employees are so excited about non cash benefits.

They might not be aware that automation has done away with the role of pension fund managers. In the old days, you couldn't just go out and buy a total stock market or bond market ETF. Nowadays, you don't even have to think about asset allocation with target date funds. And since all investments are going towards the fewer and fewer remaining companies, a bailout for one is a bailout for all.


Why do you think that?

httpss://en.m.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corporation


PBGC only insures some part of a pension, has many exclusions, and is definitely not "funded" enough itself to protect against the number of pension funds that are running out of funds.

https://www.ai-cio.com/news/multiemployer-pension-lifeboat-s...


Note that certain non-profits are not obligated to be federally insured. The most notable example of this is hospital staff, as a significant number of hospitals are run by religious organizations.

In Germany, the pension (Rentenversicherung) follows you during your employment life, the mandatory contributions are automatically paid by your employer and it does not matter if the employer goes belly-up at some time between now and your eventual death.

The idea that someone could lose their retirement and depend on social security or nothing at all simply because the company one has dedicated his life to goes bankrupt is just... horrible.


It is a horrible idea, which is why it’s not true for defined benefit retirement funds in the US.

Unless one happens to work for a religious organization, in which case, yes, I agree, we should remove the religious exemption from needing to contribute to the common insurance fund for defined benefit plans.


> It is a horrible idea, which is why it’s not true for defined benefit retirement funds in the US.

What exactly about this idea is horrible? Of course it sounds like socialism but what's the concrete things that are "bad"?


You asserted that people in the US can lose their pensions if the company goes out of business. This isn’t true. If it were true, that would be horrible.

There’s a government supported backstop for pension funds if the company goes out of business.


What is the difference between Rentenversicherung and Social Security? They sound like the same thing.

Leaving aside government guarantees or other forms of pension insurance that may or may not be effective...

>If your company isn't there when you retire, you don't get a pension.

It depends. My pension has gone through a couple of different acquisitions but it still exists.


Employees are excited about non-cash benefits because they were told by their employers that they are worth getting excited about.

Employers are excited about non-cash benefits because it cuts risk by reducing their overall obligation to their employees.


The pension is separate to the company is it not, or is the US more lax.

In the UK pensions are independent of the company due mostly to some scandals in the past Robert Maxwell for example.


At least in the US, what you describe is reality. Pensions are regulated heavily (you may disagree with the few legal flexibilities though).

And they are at least partially insured:

https://www.pbgc.gov/

Maybe the PBGC will go under? Who knows.


Non taxpayer funded defined benefit pensions are regulated.

Taxpayer funded defined benefit pensions have zero regulation. Because they have the power to tax.

And there is a bill currently worming it's way through congress to bailout PBGC (although they don't say it directly):

https://www.govtrack.us/congress/bills/116/hr397

https://burypensions.wordpress.com/2019/01/09/butch-lewis-ac...


In a bankruptcy proceeding, the courts try to balance the needs of retirement benefits along with the company's creditors. GE has enormous assets so it's not a safe assumption that the pension obligation just disappears in a bankruptcy.

Just wait until your own trusty government is running low on funds...

Ultimately however you have to trust some third party - to some degree - not to waste or misuse your money.


Lol. I remember Chomsky saying GE is not about manufacturing much as it ought to be, but rather about moving money in very complicated ways.Who foresees its collapse in the next 5 years?

Most (if not all) pensions do not contractually guarantee future contributions or cost of living adjustments. You can't claw back existing obligations, or promised future obligations.

Pension systems are just a big scam on everyone.


Didn't they just get a massive tax cut?


More signs of debt crisis and global liquidity risk. Now wait until California capitulates...

Lol downvoted? Why?

I inherited the desire to buy American cars to support America workers from my Uncle would was a WWII vet. He didn't like Japanese products (he was in the Pacific theatre). I've been buying American cars for the last 20+ years and currently own a GM. I think the next one I buy will be Japanese or German and it's ironic. While I spent my money on American cars to support American workers, the American companies offshore their manufacturing / assembly to Mexico while foreign companies who sell cars in the US use domestic labor for manufacture / assembly.

So it seems like if you want to support American workers, you should buy foreign cars that manufacture / assemble in the US. That's certainly unintuitive.


Are you conflating GM with GE?

I read it that way too, at first, mostly because of GM's recent strike & health benefit cut headlines.

That's pretty incredible that you read this article so fast that you managed to misread the ~30 instances of "GE" and "General Electric" as "GM" and "General Motors", and never noticed the giant "GE" logo at the top of the article, or the "General Electric" stock ticker on the sidebar.

It's almost like you only read the headline and nothing else, because the article itself screams "General Electric" in a way that nobody who actually visited the page would ever have been confused.


Yes. I guess it's because GM is in the news too.



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