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McClatchy files bankruptcy (mcclatchydc.com)
120 points by Jerry2 15 days ago | hide | past | web | favorite | 151 comments

I discovered the concept of pensions managed by corporations when Sears Canada went under and a ton of people lost their pensions. I guess it's a pretty common thing. But it seems absolutely insane to me.

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

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

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

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

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

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

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

Also, 401(k) plans were not even possible until a tax law change in 1978 and an IRS ruling in 1981. So there was a lot of time in the pre-401(k) world for things like pensions to evolve. And now that 401(k) plans exist, pensions have gotten way less popular.

I would guess it's mostly old companies who have them. One factor may be that it's tough to transition a company to not having a pension plan once one has been established. At the very least, you create two classes of employees, old employees who have pensions and new employees who don't. It's a form of compensation, so you have to figure out a way to achieve parity in a way that makes everyone feel they're being treated fairly.

Well yeah it's much better for the company, especially since that 401k match is a fraction of what they used to put into pensions. More then anything it shows the decreasing power of labor.

> Back then companies didn't really go under like this.

The mean time between job transitions was less. That's partially because pensions created job loyalty even if was through golden handcuffs. If people had to work another 5 years for another 15-20% in your pension, people would do it.

It fell down because:

1. Corporate raiders would buy companies to take the money out of the pension plan. Pensions are by and large unregulated. And pensions are just a bunch of money sitting in an account of which payouts are largely determined by corporate policy instead of by contractual obligation.

2. Companies would fail to pay into their own pension fund based upon overly rosy economic projections that wouldn't come through. This forced companies to declare bankruptcy just to get out of the burden of paying a pension that was promised as part of the salary years ago, even if it was a contractually obligated pension.

3. 401k's became the norm. Because companies now no longer have a separate account they have to manage, and it's only x% (3 or 4 usually) of your paycheck.

In the end it comes down to, how well you trust people to manage your future. Back in the 50's it worked largely well, because people weren't willing to break societal norms.

>Pensions are by and large unregulated.

Defined benefit pensions have been heavily regulated since ERISA (1974) and PPA (2006).

>Back in the 50's it worked largely well, because people weren't willing to break societal norms.

Back in the 50s, people were barely even getting paid from the pensions. And the population was young, everyone was paying into the funds, instead of receiving from them. And their lives were much shorter. There are consequences to future growth when people start having fewer and fewer children and living more and more years.

> Defined benefit pensions have been heavily regulated since ERISA (1974) and PPA (2006).

To the point of guaranteeing that people got the pensions promised to them? No.

Some pensions are guaranteed (see: https://www.pbgc.gov/), meaning American citizens are on the hook for them. Joy.

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

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

2. that amount goes into CPP investment

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

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

That's called Social Security in the US but many people have additional retirement savings because it doesn't pay much.

It is in addition to social security in Canada. We call that OAS. Social security (OAS) gets clawed back if ur over like $70k/year in retirement or so. CPP does not, IIRC.

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

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

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

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

For comparison's sake, Canada Pension Plan (CPP) is provided across the country except in Quebec (because ofc Quebec has its own thing).

The current contribution rate is 10.2% of your gross pay, it's been 9.9% for at least the past few years but it's being bumped slightly over the next few). If you're an employee, the employer will pay half. That rate is only applicable on income between $3500 and the earnings ceiling of $57,400 (adjusted yearly based on inflation), so this year's maximum total contribution is $5497.80 - again if you're an employee you'll only see half of that deducted.

The Government keeps track of your total contributions, and you can opt to start receiving pension payments back at age 60, 65, or 70 - the later you wait the larger the payment. Generally speaking, you look back at all your contribution years, average your income compared to the earnings ceiling, and then scale it up to the average applicable income over the past 5 years, and the baseline is 25% of that. So if you retire in 2 years, and the average applicable happens to be this year's value, and on average over your working career you earned 75% of the applicable amount, your pension would be (57400-3500)0.750.25, or about $10k/year. Your income this year would have been about $43k, so that's reasonably close to 25%.

Funding is a little weird. The baseline plan is funded so as to supposedly not require increased contributions (but require that contributions do continue perpetually), but they're also adding an enhancement in 2023-2024 of 8% of income earned over the standard earnings ceiling, to a limit of 14% of the earnings ceiling, which is supposed to be a fully-funded benefit.

Social Security contributions in the US are 6.2% for the employee and 6.2% for the employer. There is a yearly max contribution income threshold which slowly is adjusted every year.

I think you need about 10 years on contribution to get the maximum benefits possible though you can get some of it earlier for permament disabilities. At retirement age the the average of you top 35 years income is used to calculate how much benefits your earned. Those in the lower income bracket get a higher percent and the curve flattens out at higher income.

It doesn't make sense when thought of as a pension. You are right to point out that it doesn't function as an investment fund. Money is transferred directly from the young to the old.

When Social Security is envisioned simply as a welfare program for people who are too old to support themselves, its structure becomes entirely reasonable.

"Steal" isn't quite the right word. The Federal Government does collect more Social Security than they require, and uses it to fund current projects. In theory, those projects are all about growing the overall economy, which means more tax revenue later on.

That was something the Baby Boomers inflicted on themselves. They knew that there were fewer children behind them, so they needed to do something to ensure that they didn't run out of money immediately. So they raised their Social Security tax rates to collect more than they needed. And they had to put it somewhere. Long-term federal bonds were a pretty good place to put it, since they pay a bit more than inflation. There was talk about putting it into the stock market, but that would have been a pretty heavy thumb on the economy.

That was in the 80s. That started coming due about a decade ago, and now is in full swing. We always expected that "trust fund" to come down... but for a variety of reasons it came down faster than they bargained for. And for a variety of reasons, the government took that demand for its bonds as a sign that it should grow, a lot -- and somehow managed to borrow yet more money, even though it had a captive audience of bond buyers.

Maybe "steal" isn't the wrongest word. But it's helpful to understand just what they were thinking. (As a Gen Xer, I'd say what they were "thinking" was that their goal was to screw us and our children, which they've done a great job of.)

Thanks so much for sharing this detail.

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

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

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

I agree that "it should work perpetually so long as a nation doesn't see massive population decline and employment remains reasonably consistent".

But the same thing is true for a ponzi scheme, right? The idea is a never-ending growth from which new people pay the existing. The requirement that the US population must continue to grow - not just stagnate and contain the same number of people, but grow, indicates a ponzi-esque scheme to me. There is a finite amount of resources on the planet. Therefore there is a finite number of people that can be living on this planet. But such systems mathematically require that the number of new people constantly goes up over time. This is indicative of an unsustainable system.

If it were altered in a way such that, for example, there was a 1:1 (payers:recipients) relationship (or less) between the number of payers and the number of recipients, than I'd say that's sustainable because it doesn't require growth. Currently we have ~130M payers and 64M recipients, which means there's a roughly 2:1 ratio. On the surface it looks fine because you think hey people work for 40-45 years and then retire for 20 so 2:1 sounds about right. And it is, but only if you can continue to produce that larger base forever.

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



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

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

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

wrong.. there is a legal trust setup as the funds cannot be used for any other gov purpose say for Trump's wall for example.

We do, but our law makers have been looting social security for decades so it's basically unrealistic to expect most people in the country to see any benefits

How have lawmakers been looting social security? As far as I know, taxes collected for social security are either paid out as benefits or invested by purchasing US debt. But I don't see any other option of what to do with them (keeping them as cash seems imprudent as they would just lose value due to inflation).

It's "looting" in that from the outside looking in, when social security has a surplus, the federal government takes that money and spends it on non-related things. Internally, one part of the government is writing an IOU to another part to make it seem like the money is "invested". So from some super technical and pedantic sense, the surplus is invested, but it is only ever invested in internal IOUs from the same entity to which it belongs, it's not like social security is buying up equity or real estate for the long term.

Are you suggesting that the US government use social security taxes to purchase equities and real estate?

The purpose of the current system is to make the benefits one receives sort of proportional to the income they earn. Of course it's the government taking in money and spending it, and it's all one government if you zoom out, but it's still useful to categorize certain funds.

Well, I could live with either taking the surplus from that specific program and investing it in the best possible way to cover for well-known coming shortfalls, or saying that it is a generic tax like any other tax. Then at least people would know where it stands.

Instead we have a weird situation where the tax specifically calls out social security, but in reality gets spent on a bunch of unrelated things, with a thin veneer of technicality to make it all hold together.

It's a tax, so they can take part of the money and do other things with it. And they have from time to time. They are not remitting the full tax receipts to the Social Security Administration for disbursement. Which instead of having them buy US debt, actually creates the need to create more US debt because they have obligations to meet and the SSA is locked into certain debt instruments that can't be exited on large scale easily.

EDIT: This is not correct. It appears they have borrowed against the SS fund using treasuries, which will have to be back. Or phrased another way - the SS system chose to invest in US debt.

Any sources? These reports don't support your statements:



And I don't know of a debt instrument that can be exited more easily than US Treasuries:


This interview with a prominent actuary who worked in the Social Security admin is also very helpful to clarify the workings of SS:


Thank you for this. It appears I was lied to. The person that told me this is not someone who usually neglects to do their research and verify things, so by extension I did not. I have edited my response above accordingly. Much appreciated.

Pensions have two other, incredibly important benefits.

1. They mitigate risk, by pooling it, because some participants die sooner than others, and stop receiving benefits. This helps fund the few people who happen to live longer than expected.

2. They mitigate risk, because they mitigate inflation, because they are, in part, funded by current contributions. The value of money drops as time goes on. If you retired 15 years ago, it is less risky to be receiving 10% of a salary today, then it is to have saved up that 10% 15 years ago.

Obviously, a mismanaged pension, that relies on incredibly optimistic rates of return, is going to have you taking a haircut. Even so, having a pension, in addition to your personal retirement savings is a way to mitigate your financial risk.

This is obsoleted nowadays by index funds. You can do the same thing your pension fund does with a 0.04% expense ratio and no agency risk of the pension fund board members being corrupt and "investing" the money for their own benefit.

You did not address either point.

An index fund doesn't mitigate the risk of living until you're 92, when life expectancy tables say that you should have died at 84.

Group funds pool this risk. Because when life expectancy is 84, for every person that lives to 92, eight people die at 83.

Outliving your savings is a catastrophic event in your old age. Group funds act as insurance for this catastrophe.

Weird, was comment edited? I thought I had responded to a comment about pensions providing diversification. Although I find point # 2 about inflation is mitigated by investing in equity index funds, as I believe the government will prop up equity values as long as it can. And if it can't, then the country has bigger problems to worry about.

Anyway, the best thing to mitigate risk of living until 92 and running out of funds is raising kids with the right values or another form of support network. I wouldn't trust any counterparty enough to pay me back decades in the future. Worst comes worst, have some form of suicide accessible.

> Weird, was comment edited?

Yes, I removed part of it, because the arguments about point #2 are, in my opinion, more nuanced than "low cost index funds solve all our problems". There's advantages and disadvantages to non-fully-funded pensions, because of the time value of money, and it depends on the economic climate in which it operates, and on the worker pool that participates. It can work just fine on a national level, but is a mistake for smaller pensions.

> Anyway, the best thing to mitigate risk of living until 92 and running out of funds is raising kids with the right values or another form of support network.

So, you'd burden your retirement-age children with supporting you in your old age? That's going to do great for their own retirements...

The point is that the money is there - but instead of pooling risk between people who can afford it (Other people in your pension cohort, who die earlier), you pool it with people who can't (your aging children), with a backup plan of suicide.

... Or we could just mitigate the risk, with a more diverse pool. With a group fund.

You don't self-insure your car[1], you don't self-insure your house, and you don't self-insure your health. That's because the costs of statistically unlikely events are catastrophic in all three of those cases. Don't self-insure your retirement.

[1] I actually do self-insure my car, but that's because it's worth less than what I make in a paycheque. I don't self-insure liability insurance, though, and I wouldn't want to, even if I could.

I self insure my car and my house. I have spare versions of both. I don't self insure my health since I'm not that rich yet. I would self insure myself for liability if I was rich enough to have a staff of lawyers, especially since auto insurance liability only goes so far anyway. Or maybe not if they say it's too complicated, but I can't afford that right now anyway so it's a moot point.

Good point about being 92 and having children who are also retirement age. But in my family right now, we have 3 great-great grandparents in 90s being supported by grand children and great grandchildren. It really depends what kind of family you have, and perhaps it's simply not realistic for many, and I'm just super lucky to be in one.

However, I have seen nursing home care and other non family provided care for super old people, and I would rather kill myself if I had to depend on that (I support assisted suicide). I also don't plan on keeping myself alive to get into a state where I have to depend on someone else for basic needs, but who knows, talk is cheap. I haven't seen what kind of care tens of millions of dollars or more can buy at that age, and maybe it's worth it then, but I almost feel like you can't pay someone enough to take care of you the way family would.

>... Or we could just mitigate the risk, with a more diverse pool. With a group fund.

If this is the goal, then isn't the whole country the best pool? AKA Social Security?

> I self insure my car and my house.

You have liability insurance for anyone you may hurt with your car. It's a low probability, catastrophic life event, that makes more sense to insure, than to save for. Yes, liability insurance only goes so far in truly catastrophic events, and yes, you can do things with lawyers, but insurance covers most of the serious unlikely problems you may have.

> I have spare versions of both.

Self-insuring a house by owning a second one is not a good plan for the overwhelming majority of human beings.

> However, I have seen nursing home care and other non family provided care for super old people, and I would rather kill myself if I had to depend on that (I support assisted suicide).

Okay - that's an entirely other story. When I am talking about support, I am talking about truly basic life needs. Food, shelter, transportation. None of these are prohibitively expensive, when you have a small income.

A pension can't really afford intensive-end-of-life care, or long-term medium-intensity care. Hardly any kind of savings that you can scrape together can.

> If this is the goal, then isn't the whole country the best pool? AKA Social Security?

Yes, social security is a pension program. I wish I could invest more than 5% of my retirement savings into it, for the reasons I outlined above.

We are somewhat in agreement then. I was responding from the perspective that simply being a nonagenarian (or even octogenarian) means there is a very high probability you will require assistance from someone (especially in US with driving distance everything), so planning for just basic life needs at those ages is insufficient.

Yeah, just staying in index funds until you die is risky. A more standard strategy would be to invest in index funds until you retire, then switch to an annuity that pays you for life. This has the same pooling of risk as a pension.

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

Additionally, why do we let employers be involved in choosing our healthcare companies and plans at all?

Employer managed retirement accounts and healthcare need to go away. They just need to pay more to the employee to do those things on their own.

Healthcare disconnected from the employer is pro-business and it will lead to a better consumer healthcare market with less fixed pricing, more like auto, home, life insurance which people get on their own. Imagine when you change jobs if you had to also change your home, auto and life insurance policies in addition to your health insurance policies, it is silly.

Requiring companies to provide healthcare is also a competitive disadvantage globally when other countries offer it as public or private separate from the job and the businesses, who don't want to deal with it nor do they care about your health beyond your production, don't have to. Starting a business changing jobs are also more difficult with employer bound healthcare.

Healthcare bound to the job is a legacy system that needs to be updated along with retirement disconnected from employers. Employers just need to pay that in salary or that goes to the employee to manage. Safety nets and public retirement systems like Social Security + Medicare make up the rest.

This risk is supposedly managed in the US by the Patient Benefit Garanty Corporation, but it may itself need a federal bail-out...


Employees, through their unions, /demanded/ and obtained defined-benefit pension plans from large employers in the 60s and 70s.

One problem, in the United States, is that Ronald Reagan passed a law that allowed companies to fall behind on their pension liabilities--i.e. shortchange their employees' pension plans. Add 20 years, and suddenly GM, among others, had a bankruptcy-inducing pension shortfall in 2008.

Banks being CIDC-backed just protects the first $100K of one's holdings, so far from the full retirement savings...

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

When pensions were invented, there wasn't any choice. In fact modern employers in the US use almost exclusively 401k's instead, for exactly the reason you argue.

But employers with pension programs that predate modern retirement regimes still have them. And they can't just "roll them all over" to employee-owned securities in any practical (or even legal!) way, there just isn't a scheme to do that. And you can't just cut them off and start using 401k's instead, because the pensions are are being funded by the contributions of the active employees!

It's basically an addiction. And it's not going to be fixed absent very extensive government involvement and probably more than a few bailouts. Until then we'll suffer along and sigh when companies go under like this, leaving their pension recipients destitute.

Pension plans don’t really make economic sense. Fortunately, private pensions will soon become a thing of the past. Of course, the only reason they ever were a thing was due to tax breaks, but that’s a different story.

They don’t make economic sense when the only economic concern is to generate private wealth for the owner of the company and it shareholders at a consistent year-over-year rate.

If your economic concern includes growing a middle class that is motivated to spend money and to take business risks then they make a lot of sense.

They don't make sense because calculations for pension liabilities require knowing economic conditions decades into the future. I have yet to come across someone that prescient.

This is true for any way of providing for retirement, though. Eliminating pensions just transfers the risk from companies to individuals. It's clear why companies would want this, but not clear it's societally beneficial.

The best model I've seen is to raise families that stick together, and support each other. As parents age, children and cousins support them, and they age, so on and so forth.

Unfortunately, this requires a lot of compromise, and I see that once financial independence is achieved, it is difficult for families to continue this way of life. There's also other facets of modern life that may not be conducive to this lifestyle.

generational wealth is how real wealth is built: nearly all riches are inherited.

the main thing i have learned with age is how incredibly important having a very very strong support system is, whether thats family, friends, a club, school, spouse, children, or whatever. you can. not. survive. without this. Its disconcerting how completely i overlooked this in my youth. independence in the context you describe is not something that should be lauded in our society and specifically parents that drive their children away should, in the great majority of cases, be vilified along with the typical narrative of celebrating the child's victory at overcome adverse conditions.

> how incredibly important having a very very strong support system is

Agreed. Try recovering from surgery alone sometime to find out!

this is a great refutation of the current status quo where people are required to plan decades into the future for their own retirements. indeed no one is capable of this.

The unfortunate part about this is there now needs to be some relatively easy system laid out for people to plan their retirement. I don't know the exact numbers, but a quick google[1] told me 35% of American's don't have access to 401k's - it's probably those people who also need help planning to retire the most. And of those people, I'm not sure how many are actually on track to ever retire.

I understand there's a general bootstrap mentality, but it's hard to see how 100,000,000 people not having retirement savings is going to work out well.


Private pensions don't solve this, in that they were still only available to those whose employers offered them. For the most part pensions were replaced with 401ks, so there was no significant loss of access to retirement product.

To your concern about lack of access, the solution is simple: raise the cap on IRAs. This still doesn't solve the nudge problem, where people are less likely to sign up withou HR emailing an enrolment form every year.

There is also probably a correlation between people without 401k access, and those who would not be reaching the current IRA cap anyway.

Well, there are:

1. IRAs

2. Savings that aren't tax-advantaged

So it's not like not having access to 401k's keeps people from retirement savings. That said, 401k's are nice from a tax perspective and, even though they're still usually opt-in, are at least as straightforward as anything that requires affirmatively making a choice can be.

But, yes, although they have downsides defined-benefit plans were effectively a form of forced savings for long-term employees in large organizations.

They're good for people who have trouble saving themselves, which is a huge proportion of the population.

Just look at all of the people who are excited to get a huge tax refund, then immediately spend it all.

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

1. Many times the "corporation" is actually a government with the power to tax, so the benefits are very well protected -- basically citizens are on the hook to pay these benefits. In the case of small cities, bankruptcies do happen, but it would be a good bet (IMHO) to say, bet on a pension w/ the City of NY, or with the US Federal government.

2. Many pensions are guaranteed by US tax dollars: see https://www.pbgc.gov/

3. Traditional Pensions were defined benefit plans and very very good deals you often got cost of living adjustments, you could never deplete the funds, you got to start drawing down early and could draw down as long as you live. Modern plans are defined contribution. The only thing guaranteed is what you put in, not what you can get out. What you get out is based on luck on the market, some statistics, and some government policy (e.g., ask retirees living off interest income how live has been for the past 15yrs)

Given how puny my 401k outcomes are compared to traditional pensions, it may almost make sense to roll the dice on a pension, but it is a bet on the company for sure.

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

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

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

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

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

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

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

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

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

You can't build an economy on consumption alone.

Why not work somewhere high income for most of your life and then finish up somewhere with a nice pension?

Pensions depend on years worked and often don't pay out at all until typically quite a few years of service have been accrued.

I meant more along the lines of a country that has a good pension for everyone like in Scandinavian countries.

I imagine that, unless you have money that makes the question mostly irrelevant, you can't just breeze into a Nordic country around retirement age and expect to settle in and collect nice retirement benefits.

Well, they are divorced from the employer these days, because most jobs just don’t offer a pension program at all. Social security is all most people will have at retirement from the comming generations.


And 401ks, for those that have decent incomes to save $19k/year + match at least. So not almost all will depend on SS, but many surely will.

But most 401ks have ridiculously low balances, with the median for people 50-59 at 150k: https://www.financialsamurai.com/median401k-retirement-balan...

Those surveys are misleading though. I have a relatively small amount in my 401k because I have not been in my current job for long. Every time I change jobs I roll over the 401k balances into an IRA. So... unless someone's been in their job for 5+ years, their 401k balance may be very low.

48 percent of American households over the age of 55 still have no retirement savings. [1] [2] None. Zero. 401ks were a legislative hack for high income earners [3], and were used to con the middle class out of their additional pension comp. Those funds instead ended up in shareholder pockets, with a small amount provided as 401k matches.

[1] https://www.cnbc.com/2019/04/05/these-people-are-on-the-verg...

[2] https://www.gao.gov/assets/680/670153.pdf (GAO report)

[3] https://news.ycombinator.com/item?id=21827154

So it's interesting, for both of these the explosion in their popularity actually happened in WW2, although both existed before WW2.

During WW2 there was a labour shortage as the wartime economy was booming. President Roosevelt signed into law the Stabilization Act of 1942, which froze direct compensation and bonuses, but exempt to the freeze were benefits like health insurance and pensions. So that's what employers started using to attract employees.


It did so by kicking the can down the road. When many of these were set up in the post-WWII economy the population was growing dramatically. As with most infrastructure, policy is often scoped to the needs of the current day and gets stale after a few years.

they aren't. private pensions like this are rare and generally pay a few hundred dollars a month [1] while social security, run by the government, pays much more [2] and is what most people exclusively rely on.

1. http://www.pensionrights.org/publications/statistic/income-p... 2. https://www.cbpp.org/research/social-security/social-securit...

Unless I'm misunderstanding you, that first link shows that, for people who get pensions, the pension is in the same ballpark as Social Security. (Private pensions tend to be on the lower side but they're still close to $1,000 month which is about 2/3 of the Social Security payment in that table.)

Technically they had social security. It's pretty clear that that's not enough to fund the average retirement, but the company chose to offer better to stay competitive.

>with 10 pensioners for every single active employee

This shouldn't be an issue if the pension was pre-funded, which I thought was supposed to be the case in the US.

They pre-funded it assuming a given life expectancy and per-year healthcare costs. People started living past that life expectancy and healthcare costs rose much more quickly than expected...

What do per-year healthcare costs have to do with an underfunded pension?

Was one of the benefits of the pension a healthcare plan?

The article doesn't say that it was.

If it was, though, that is pants-on-head stupid. A pension is supposed to be a fixed payment investment, not a variable-payment one.

They're separate benefits and don't have to do with one another. Retiree healthcare is a rare benefit in the non government world, and is usually classified as OPEB (other post employment benefit).

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

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

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

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

[1] https://www.nytimes.com/2006/06/08/business/media/mcclatchy-...

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

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

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

Mostly just public sector of some sort--though that's a lot of people. There are also some number of legacy plans at private employers even if they don't apply to new employees. I'll get one from a long ago employer who was purchased. The plan was discontinued when the sale happened but the existing pensions will still pay out from the current owner (Dell) who bought the acquiring company.

Even defined contribution pensions [in the US apparently called "401(k)"] require that young people work so that the retired investors can take a share of that productive output. It may not manifest itself directly as those pensions "imploding", but something will happen such as incredibly poor returns or low interest rate that will make them worth less than we think.

That has already started happening in Chile, which afaik was one of the first countries that started implementing the defined contribution system.

> require that young people work so that the retired investors can take a share of that productive output.

Higher productivity, on which all economic growth is ultimately based, requires fewer and fewer people to produce the same amount.

Just as well productivity gains haven't stalled then. Oh wait ..

More seriously, it might happen that we get massive automation which means we no longer need humans to create the things that pensioners consume. A "care robot" (see the film "Robot and Frank") would be a game changer here. It's not clear that this is actually going to happen in the next 30 years though.

How? I thought the money was actually banked?

It's typically invested in securities such as the stock market. If the market value of those securities takes a nose dive, so, too, will the cash value of one's life savings.

Market value is driven by supply and demand. If, for example, you get a sudden glut of people looking to sell their securities - say, because all the baby boomers start dipping into their retirement savings at about the same time - that isn't matched by a sudden glut of people looking to buy those securities, then a lot of retirees are going to suddenly discover that their life savings is basically just evaporating at the very moment when they started to rely on it.

Some Gen Xers and Millennials might remember having seen a small version of this play out a decade or two ago, when everyone tried cashing out of their comic book collection at about the same time.

Stuff pensioners need today, beyond non-depreciating physical assets, needs to be supplied out of stuff which is produced today.

If the economy is growing at a faster rate than pensioners are increasing their consumption, anything they've "banked" can proportionally hold & increase its value (unless it was very poorly invested).

But if pensioner consumption grows faster than the economy, then there's less stuff to go around. Either pensions are worth less, or a bigger slice of the pie goes to pensioners (e.g. propping up asset prices with cheap money) and young people are screwed over (since they don't have many assets).

The weird politics we're seeing these days is driven by a mix of the latter effects, I believe, amongst other things (like loss aversion in older people with less productive capacity, and cohort effects in communication media choice leading to information bubbles).

the biggest abuse of the system is public employee pension systems which are a super big time bomb. My favorite example is Illinois[0] but they are not the state in the worst condition.

Politicians bend over to the public employee unions to keep their political support and in turn make very generous pension and health retirement plans that truly are not affordable. Worse, many at the top of the food chain pull down pensions well North of 100k and some hit 250k +. Imagine that, receiving a pension higher than the average salary of a working member of society. However this is what politicians and government employees have engineered behind the scenes. There are two bets being placed here, first being courts will force the states and cities to tax their way back to compliance, the second is a Federal bail out at full $


That is a particularly deceptive way to describe the situation, but at least you are not hiding your bias. The reality is that the public demands more and more from public service employees but then throws a complete hissy-fit when it comes time to raise taxes to keep government salaries even vaguely competitive with private salaries so that they can fill those jobs with more than the bottom of the barrel. The way the government hides the ongoing pay increases is by offering those employees more generous pensions. Now this cycle of holding down above the line payroll costs by padding pensions is starting to break down and so people are starting to notice.

It doesn't matter how common they are today, it matters how common they were 20 - 40 years ago, particularly for state/govt workers. And the answer then was "very".

I'm thinking 20-40 years in the future. Will this pension problem be reduced? Perhaps the aftereffects of the current crop of problems will still be felt, but how long will he have new pensioners "contributing" to the problem?

It's still way too common for government employees, although some have had success in cutting benefits for current employees. Although, no reason to assume politicians will defer costs into the future even for the reduced benefits, so it will still be the same problem.

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

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

I get a pension at my large young tech company.

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

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


> A pension guarantees a certain amount at specified dates

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

According to le Wik, IRAs and 401k plans are indeed defined-contribution pensions.


At least in the US, the term "pension" is not usually used for defined-contribution plans. If you say "pension" most people assume you mean defined-benefit. It may not be technically incorrect but people will misunderstand you.

In the US, pension means defined benefit pension. At least in the UK, pension can mean either defined benefit pension or defined contribution retirement fund.

401k is a retirement plan. A self-funded retirement plan.

It shifts the burden from employers to employees. As a positive, it means employees are more free to change employers while retaining their retirement / "pension" accounts.

Traditional defined benefit plans were almost always oriented around long term employment (like a decade or more) at a single company/organization. If you moved around every few years, you'd basically not get a pension paid out by anyone.

On the other hand, as you suggest, defined benefit was one traditional source of income in retirement that didn't require any action/saving discipline on the employee's part. But that's mostly gone in the private sector now.

It also means that employees can make their own investment decisions rather than being literally at the mercy of pension administrators and their investment decisions. You can also pass on your funds to your family, while defined benefit pensions generally end when you die.

No, a pension is an immense obligation on future revenue/earnings. Unless a company has meticulously planned for and adequately funded it, and the market doesn't tank it's investments, it can all colapse. The obligations of a 401k could be abandoned almost immediately. Companies need not plan beyond paying their immediate contributions into an employee's fund, after which it is that employee's problem to deal with market fluctuations.

That is the distinction that makes a 401k not a pension, in the traditional sense. The term "pension" implies something that is paid our after a worker leaves the company, rather than during their tenure.

The problem here is pensions that require future payout over an indeterminate length of time.

401k's aren't pensions. They're attached to the employee rather than the employer. Even if your employer goes bust, you still have an account with Vanguard/Fidelity etc that has your money.

> They're attached to the employee rather than the employer. Even if your employer goes bust, you still have an account with Vanguard/Fidelity etc that has your money

Yes that's the way my pension works. It's still a 'pension'!

> Yes that's the way my pension works. It's still a 'pension'!

That's technically correct (for example, you'll see 401(k) accounts referred to as "pension" accounts on their wikipedia page) but people are so used to referring only to defined-benefit accounts as pensions in the United states that they will look at you funny if you call your 401(k) or IRA a "pension." As is virtually happening here.

As the number of actual taxpayers declines (which is why "pensions are going to cause enormous issues in the coming decades") politicians will happily take up more debt to pay for it all. You know, Medicare.

Taxpayers don't have a choice, it all depends on how influential the defined benefit pension recipients are. Most don't have sway for a federal government bailout, but some do. Recent example is the coal miners in West Virginia, which coincidentally happens to be a swing state for the presidential elections:


>Recent example is the coal miners in West Virginia, which coincidentally happens to be a swing state for the presidential elections


WV was R+40 in 2016, there's no way it's a swing state .

Oops, my bad. They do have a Democrat senator, and they do have some pull with the current presidential administration, so they must have some way to leverage their political power. Perhaps it was a reward and incentive to continue for voting Republican.

But the point is that whether or not you get bailed out depends on how much influence you have.

Taxpayers will. The PBGC will be backstopping these pensions as well (as mentioned in the article). The country can always general fund transfer and QE its way out of it anyway.


When the PBGC gets it, usually benefits are cut to more sustainable levels and can actually be paid based on the pool of available funds.

There's no reason as-is benefits couldn't have been sustainable if properly managed by the plan sponsor. It is not the pension participant's fault public policy failed them and did not properly account for the ability of the corp to default on its contract using BK law, nor required adequately funding the plan.

There is no limit to available funds in an economy not on the gold standard. These aren't trillions of dollars in obligations (in the case of these smaller pension plans, not speaking about public pensions such as those in Illinois), and we've burned up a greater sum on air conditioning and lost cash payments in the middle east alone during conflicts. As long as you can get past the "moral hazard" folks and not impact the macro too much (ie inflation), you can get away with a lot when working with funny fiat money.

This is part of what government exists to do, providing security to its citizens. A contract was made, and it should be kept (with pensioners coming first ahead of all other creditors).

>public policy failed them and did not properly account for the ability of the corp to default on its contract using BK law.

Public policy did account for it (ERISA and PPA), and provided for the PBGC to provide a limited backstop, although it's not possible to backstop so many failing pension plans due to erroneous investment return and population growth rate and mortality assumptions.

>A contract was made, and it should be kept (with pensioners coming first ahead of all other creditors).

They are ahead, but there's usually nothing left, and definitely nothing that could satisfy the requirements of a pension. Compounding is a hell of a force, and PPA 2006 didn't come into effect until too late.

And anytime you enter into a transaction with someone, you are subject to counterparty risk, even the government. The US is lucky it has more capacity to print its way out than most countries.

> Public policy did account for it (ERISA and PPA), and provided for the PBGC to provide a limited backstop, although it's not possible to backstop so many failing pension plans due to erroneous investment return and population growth rate and mortality assumptions.

Then public policy did not account for it.

> And anytime you enter into a transaction with someone, you are subject to counterparty risk, even the government. The US is lucky it has more capacity to print its way out than most countries.

Print dollars, transfer from the general fund, or have the Fed start buying up equities and using the cashflow to fund any necessary benefits payments (a somewhat more adventurous twist on the Bank of Japan's role in that country's economy). It's the government's job to be the guarantor of last resort, and they have the tools available to do so.

>Print dollars, transfer from the general fund, or have the Fed start buying up equities and using the cashflow to fund any necessary benefits payments (a somewhat more adventurous twist on the Bank of Japan's role in that country's economy). It's the government's job to be the guarantor of last resort, and they have the tools available to do so.

This is already happening. Defined benefit pension funds and defined contribution pension funds (401k/IRAs) are all invested in the same place: the public stock market and real estate. That's why I think bailouts of public stock market values are basically guaranteed, as long as the US dollar remains relatively desirable.

Individuals may or may not be bailed out, depending on their political power. As I mentioned in another comment, these pension recipients got bailed out because their members are important in elections:


> This is already happening. Defined benefit pension funds and defined contribution pension funds (401k/IRAs) are all invested in the same place: the public stock market and real estate. That's why I think bailouts of public stock market values are basically guaranteed, as long as the US dollar remains relatively desirable.

Keep in mind that half of Americans have no 401k savings. Agree with your point that QE has been beneficial for those who have retirement arrangements that are invested in the asset classes you mention. My concern is that is insufficient to keep a lot of retirees out of poverty and the associated suffering, and a whole lot of political will is going to be required down the road to stomach more drastic measures than the country has traditionally considered.

This is why France is rioting right now.

> Almost certainly taxpayers won't stomach paying for them, as happened in Detroit and smaller jurisdictions.

I mean we've been dealing with this for thousands of years already. A pension is basically just a loan from an employee to an employer. Back when jews had a monopoly on money lending in Europe, every year the townspeople had to decide whether they were going to pay back their loans or just kill all the jews in their town, or at least take their land and send them elsewhere. Most years they just paid back their loans as agreed, but then every few decades when the debt service got too high things tended to go sideways.

The basic issue is that even after thousands of years, we still haven't really figured out what's equitable in terms of how debt should work.

C.f.: https://youtu.be/AX7vyycyRCs?t=2908

I feel to urge to add a little color to this statement. Let’s recall that, beyond whatever assertions the poster is making here, the countries in question didn’t allow Jewish people to practice other trades.

“ The result of those occupational restrictions was to push Jews into marginal roles, considered socially inferior, such as tax and rent collecting and moneylending, which were tolerated as a "necessary evil".”


But yeah our current system of debt - especially student debt - is messed up.

There are financial costs to not having good local news:


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

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

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

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

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

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

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


Just to hijack this comment for a moment -- we're a startup looking to make local news more profitable and sustainable -- and hopefully reaching a new audience that might not watch local TV news or subscribe to their local newspaper.

If anyone is interested in helping the cause, please email me -- jared AT nillium DOT com . I would love to talk more.

> I would hope this means we end up with more LOCAL news

Large and mid-sized news companies consolidating and folding is part of a trend that does not involve growth of local newspapers. Those are failing too.

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

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

Stanford Public Pension tracker


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

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

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

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

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

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

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

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

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

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

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

Please do some more research on this topic before making policy demands that are already current law. Pension obligations are what took the company down-- they were behind on paying into the pension fund.

I think the commenter was pretty explicit about their lack of knowledge on the subject. Their viewpoint is logical from first principles, but it seems like it's off-base in the facts.

Would you mind elaborating a bit more on the 'current law' aspects? I think that would be more constructive than: 'do some more research on this topic before [commenting].'

I also know nothing about this, but from reading the article and your comment, I'm confused how they arrived at this point of being $805 million behind in their pension obligations if current law is solid on this point. Maybe it took them down in the end, but shouldn't the intervention have happened far sooner?

Not OP but to a certain extent this is an inescapable part of finance and economics. If inflation or interest rates shift the payee might not have enough money to increase their contributions. The rule of thumb is usually that when the stock market is up the bond market is down. Well, the stock market is in the midst of the longest expansion in US history. Nobody knows when it will shift in the other direction.

Here's more info on US pension law, the fight in the Senate was over whether to give the newspaper more time to "catch up" their payments to the pension fund.


You are assuming these are defined-contribution plans. These by definition self-fund, as what gets paid out is directly related to what gets put in and the fund's performance.

Problem pensions are defined-benefit, where regardless of the amount of inputs and fund performance, the payments are guaranteed. Even worse, most pensions in America assume 8% average annual return, which is absurd. The whole thing is a house of cards.

It's basically a way for a company to take out a loan and default on it with no liability. See GM, where they hooked employees with really fantastic deals and tore them up once they tried to cash them in

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

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

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

Financially it should have been a wash: either the company saves $X on your behalf in its pension plan or the company pays you $X extra salary for you to save. The benefit of the pension is the built-in discipline. Then we discovered that the financial aspect doesn't work.

pensions are a form of agreed upon compensation, what you agreed to doesn't change just because it becomes inconvenient for you.

You are deriding how these people should have been "personally responsible", what about the responsibility of the corporate side of the equation?

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