[onlyrealcuzzo]

Companies shouldn't be allowed to offer pensions. They also should be forced to fund government mandated liabilities.

Companies don't have a good track record of lasting more than 60 years. It's only a matter of time before they go bankrupt. And when bankruptcy is a way of shedding your pension obligations, they'll go out of their way to go bankrupt to shed it.

[wahern]

Unlike government entities, private companies are legally obligated to keep pensions fully funded at all times. And they're also required to pay a fee into a federal agency designed to cover the costs of the federal government bailing-out failed pension funds.

There are ways that companies can and do game the system. For example, during a merger the company might claim that the combined pension fund is overfunded and then stop making payments until the supposed net liability returns to 0. The "excess" funds often find their way into executives' pockets as bonuses, compensation for the several quarters where the company's ledger miraculously showed unexpected profits.

There are problems that need to be resolved, but they're resolvable. Private pensions can work, and have worked. Don't believe the rhetoric about pensions--it's largely driven by executives trying to raid pension funds. Executives don't like them because as compared to 401(k)s the ratio of executive compensation to worker compensation is lower. There are federal rules that require workers receive the same benefits as executives, and for various reasons executives will come out ahead with 401(k) packages.

The book Retirement Heist by then WSJ investigative journalist Ellen Schultz explains all the gory details.

Municipal pensions are irreparably broken, though, precisely because the federal rules regarding funding don't apply to them.

[dreamcompiler]

Most private companies don't offer pensions anymore (for new employees) because companies don't like them. One reason is that pensions incur risk to the employer, while a 401k shifts the risk to the employee.

[lotsofpulp]

Until the cash is in the employee’s accounts, the employee is still at risk of not getting paid due to bad investment returns or the employer going under. And it’s not like the pension fund is doing any better than any other index fund the employee can invest in.

[Scoundreller]

Pension plans may not be able to get better returns, but they can specifically balance their assets and liabilities better by picking specific investments and/or buying/operating private companies.

An index fund will underdiversify by only selecting public companies, and over-represent companies with short-term interests (the total opposite of a pension plan!).

The underdiversification or index funds is a particular issue ex-US where stock markets only represent a few sectors.

Pension plans can sure screw up, but they can also be unbeatable.

[lotsofpulp]

They all have short term interests, since the people doing the investing aren’t going to be around for the whole ride. In theory, defined benefit pensions are great, but in practice I haven’t seen any evidence that they have sufficiently superior performance to make up for the possibilities of bad investments, corruption, etc.

[Scoundreller]

Here are two major Canadian ones that seem to be doing a good job:

https://www.otpp.com/ https://hoopp.com/

They’re actually overfunded and have been (carefully) increasing benefits.

[lotsofpulp]

That is atypical from what I see in the US. In the US, if the pension fund is doing well, that means the politicians offer the government employees unions better benefits, and so all the union members vote for them and since not enough other taxpayers vote against them, we just end up with inflated benefits.

[bluGill]

Pensions are a great thing if you work for the same company from 23 (right out of collage) until you retire at 65. How many reading this will work at the same company for 42 years though? For many the company you worked for is no more, others were laid off through no fault of their own. Most of the rest could stay at that first company in theory but there was a better opportunity that you had to not take (even if it turns out worse in hindsight). That doesn't leave very many to make it to retirement working for one company.

Then there is inflation. $5000/month for retirement sounds good now, but will it be when you actually get to retirement?

[robocat]

Except most counties also use a variety of techniques to avoid promised pension payments.

The techniques are just very different methods than how companies in many countries have defrauded their employees on pension liabilities.

[maxxxxx]

I guess it would be better if there were independent pension funds that are regulated accordingly.

[dev_dull]

Such as an employee sponsored 401k?

[maxxxxx]

I wouldn't mind a defined pension. It's easier to plan for and also I think more efficient. With a 401k you have to save up a boatload of money just in case. If you live too long you may run out of money, if you don't live long, then you have a lot of money left. So it seems to me that it would be better to average it out over a lot of people. Pretty much the same as with health insurance where one people will need more, some people will need less so it's better to average out out over a large number of people.

[kortilla]

you just described an annuity. If you want an annuity buy one, don’t force it on everyone else.

[Scoundreller]

The problem with opt-in annuities is that the seller charges a boatload to account for the risk of your longevity. I guess you would advise buying an annuity and stock in the annuity seller?

My chief complaint about semi-forced annuity purchases is that those that opt-out and retire without savings get back-stopped by the state anyway.

[bluGill]

I tell everyone to figure out how much they need to live and put just enough in an annuity to give you that (rent, heat, food, insurance). The rest of your 401k (if anything!) is fun money.

Don't forget that you should have long term care insurance that covers a good nursing home (get this as soon as you retire when it is still cheap because odds are you will never need it).

With this plan you can outlive your savings and still have an okay life.

[maxxxxx]

Are annuities regulated? It seems a pretty straightforward business model to take in payments for a few years and then declaring bankruptcy.

[dev_dull]

Just because something is regulated doesn’t mean it’s safe and definitely doesn’t mean it’s guaranteed. For example, US social security funds are solvent until 2035 according to our own government accounting[1].

1. https://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html

[seanmcdirmid]

Public pensions like the ones in Canada would be nice. From both the worker and government perspectives, they provide a lot of stability and can be planned for. Of course, it won't happen in the USA, I think, sounds too socialist for many people on the right.

[refurb]

What public pensions? Canada has the same setup as the US, and in fact, the US Social Security is a larger program per capita than Canada’s (I.e. high payouts).

[Consultant32452]

I'm not familiar with Canada's public pensions. Do you know the difference between them and US social security?

[a-priori]

We have basically three programs to provide income to retirees:

1) Canada Pension Plan, a worker-funded defined benefit pension managed by the government via an arms-length investment board.

2) Old Age Security, a guaranteed income program for everyone 65 and older.

3) Registered Retirement Savings Plan, an income tax sheltering program where you can contribute up to 18% of your income into registered accounts and have the contributions deducted from your taxable income. This gets drawn down during retirement for income.

[Scoundreller]

I’m not sure what he’s talking about. We have a social security equivalent, and then you may have an employer pension.

Private companies have mostly stopped their pensions. Government employees usually have pensions, and they’re very well managed.

[PretzelFisch]

There are unions that offer their members pensions. These pensions are regulated.