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Comment by bko | Hacker News Reader

Pensions are outdated and are bad for both workers and employers. The idea that you get a guaranteed payout (defined benefit) creates conflicts when today's managers have to make decisions that affect the entire company over the next few decades. Considering that few managers believe that they will be in charge at the time the pension benefit are due, they are incentivized to push costs into the future through bloated pensions.The employee is then stuck holding the credit risk of their employer from long ago.

A much better system is a defined contribution, in which the employer makes a contribution to a retirement fund for the employee. The employee then has sole proprietorship of the funds, regardless what happens to the company.

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I agree with you, but your point seems to be irrelevant. Verizon isn't proposing to replace the workers' pension plans with a defined contribution of equal value, they're just cutting the pensions.

If I'm understanding you correctly, it seems like those conflicts could be mitigated by better regulations around company pension contributions. Plus, you could probably align the c-level manager's incentives by regulating that their pensions have less priority than those of regular employees, so if pension cuts have to be made, they'll feel the hit harder and faster. Power should come with responsibility.

Defined contribution is not "a much better system" for employees. It just moves risk from the company onto them. IIRC, there's not actually much "employer credit risk" to employees because pensions have to participate in a mandatory government insurance program.

Defined contribution plans are better positioned for today's employment reality in which people switch jobs much more frequently. Pensions give employers more power to keep employees when it would otherwise be beneficial for them to leave for better pay.

It should really be up to the workers whether they enjoy how golden the handcuffs are.

C-level managers aren't retiring on their pensions.

Pay of the problem with DB Sachems is a few years ago accountants pushed though changes that overstate the liabilities.

In the uk you have to account for pension liabilities as if tomorrow 100% of your scheme members became liabilities which is only likely to happen if there is a zombie Apocalypse.

One has to ask who benefits from this dodgy change to acounting rules.

Better still would be to divorce healthcare and retirement planning from employers altogether, and make it easier to move your retirement money between competitors.

From an actuarial standpoint, a defined benefit plan isn't any more complicated than just buying perpetuities from any companies or governments stable enough to offer them, until your benefit obligations are met.

The problems arise when current managers use the pensions as a means to game the accounting numbers or as a means to embezzle funds.

401ks are fairly mobile although many people simply forget about them. The sad truth is that many people would not allocate enough to their retirement and healthcare without guided direction or a minimal effort option.

But I agree with the problem of pensions but I would also add that today's managers don't want to fund them the way they should. Instead, they set aside some money and assume a very rosy growth rate that doesn't always materialize. Even with that inflated expected growth rate, pensions are often still underfunded. An employee should be free to contribute to such a perpetuity if he so chooses.

Underfunded pension liabilities will likely take down several large cities over the coming years.

> Underfunded pension liabilities will likely take down several large cities over the coming years.

No, they won't. As usual, the federal government will step in as the insurer of last resort, just as they do with the pension guarantee corp [1].

It's almost like HN gets off on people's retirement compensation being cut. Don't blame the people who were promised benefits, blame the politicians who did so, and the apathetic voters who allowed it. If your returns forecasts were wrong because of lack of growth, guess what, you get to make up the difference. That's how business works.

[1] http://www.pbgc.gov/

As far as I remember pension guarantee corp is underfunded it likely would fold with one large failure.

It'll just be back stopped by the general fund, just like Social Security.

I would think that the larger problem is "overfunding" pensions. The IRS has some pretty strong ideas about what constitutes an appropriate amount of funding for pensions because there were a few situations in which it could be used as a tax shelter (http://www.thedailybeast.com/articles/2013/05/09/how-the-irs...). Without the tax benefit, employers are discouraged from putting an appropriate amount of money in during good years.

> A much better system is a defined contribution, in which the employer makes a contribution to a retirement fund for the employee.

I agree, but the government has so many rules around this I wonder if pensions at one point were a better value and a way to work around these arcane rules. For example, the max an employer can add to a 401k is 35k. Another is if a family clears 200k, then you're not allowed to put money into an Roth IRA without huge penalties. Never mind that $5500 is already not very much to save for retirement, but we definitely cannot let everyone do the right thing and save money.

$5,500 per year, presumably for many years. And heaven forbid you should be so well off that you have to save for retirement with after-tax dollars and/or in taxable accounts! :P

Tax-advantaged savings accounts are to reward savers who might not otherwise save. They don't mean that everyone deserves tax-free saving.

While someone living in Dallas would see $200k as being very well off, think about a couple who lives in San Fran, or New York. 100k each is not truly 'well off' in those cities, so they are unfairly punished if they wanted to contribute what little money they have after living expenses to a roth.

Yes, another reason to move to taxing consumption rather than income.

However I don't care where you live, if you are earning $200K in a household you can afford to save.

We have to have a variety of tax bases (consumption, income, property.) Otherwise those with income/assets in excess of $500k can easily move money around to avoid paying a similar share to people who are less well-off.

Except that consumption based taxes encourage wealth hoarding, and are extremely regressive for families that spend most or all of their income. A better format would be a "average middle class household cost of living" adjustment.

>And heaven forbid you should be so well off that you have to save for retirement with after-tax dollars and/or in taxable accounts!

Well, this is where the distortion comes in. The employer uses pre-tax money when funding pensions. The employee doesn't have the ability to do this. It's the same situation with other benefits.

So it's optimal to take a lower salary and more benefits. But this is strictly worse than if the taxation regime was the same for both employees and employers.

The government hates savings. There is no need for it anymore, as loans and the products on which the banks make money appear to be entirely divorced from the deposits on-hand at this point. The Fed just prints more money if the banks overextend. Thus, there is no need for banks to give a meaningful interest rate on savings, and the only reason to put your money on deposit at the bank is that things are intentionally made more difficult and expensive if you don't.

We need to recognize that we live under a regime in which bankers have the entire populous by the throat. To live a decent life by American standards, nearly everyone has to take out loans for every major purchase and ends up paying 2-3x the nominal cost in interest. Let the massive scale of this sink in for a moment and you'll get some concept of just how powerful, all-consuming, and critical the banks are in this country.

Savings is anathema to this loan-based society that's been concocted. If someone has substantial savings, they may not need a loan, and that's very bad for the powers that be (because they won't get 2-3x the cost of the item over some years). Keynesian economics has been taken to its logical conclusion of sub-zero interest rates and practically everyone is indentured to their lienholders and employers. "The Road to Serfdom" indeed.

I agree that the government hates savings, but I'm confused about two of your points. If rates are at or near zero it does not cost 2-3x to buy an item with loan. The indentured part is certainly true though. The government has helped tie everyone to their company. Health insurance and max retirement savings are two of the biggest items that are almost impossible to do outside of your employer.

Otherwise known as putting all of the risk entirely on the employee. Which is in no way whatsoever good for the worker.

Its only better for the company

Yes but on the other hand: twenty billion united states fiat dollars worth of profit.

What's a fiat dollar?

Something that only has value because you can buy things with it. Contrast with gold-backed dollar or silver-backed dollar, which have value because they may be redeemed for a fixed quantity of a commodity good.

It's money you can use to pay your taxes, and who's value doesn't crash every 3 weeks.

A term used by the bitcoin and goldbug communities to mean "real money".

Money not subject to massive inflation and deflation as its value is not tied to the amount of gold coming out of the ground, but rather to the economy.

Gold-backed current sucks. When new gold is discovered it's value swings wildly. When no gold is being discovered but the economy is going great there is a shortage of it so deflation sets in, causing loans to balloon in real terms.

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