Hacker News Reader

Comment by frgtpsswrdlame | Hacker News Reader

80% of the value of stocks are held by the top 10%. The fact that 401ks which were initially retirement plans for executives have permeated labor is an indictment of the system. Capital owners have removed defined benefit plans forcing labor to jump into the same boat. But make no mistake about who really benefits from that convergence and who forced it in the first place.

View on HN

For my money I would much, much rather own shares of stock in my retirement plan than have a state- or corporate-backed pension.

Have you seen the movie Casino? That actually happened, the Teamsters pension fund came under control of the mob.

What about Illinois, which is facing a $120 billion pension shortfall due to decades of accounting gimmicks?

What about the UAW guys, who were counting on pensions from the big 3?

All I'm saying is, look at how it _actually_ works, in practice, vs. how it _could_ work, in theory. The reality is, DB plans are getting phased out because they're too expensive to service, and too risky for employees.

You can make the argument that people aren't getting compensated enough, and maybe that's true, but that's not an argument about DB vs. DC.

The point is, there are no certainties in this world, and if someone tells you there are, they're lying.

And I vastly prefer the reverse. Pensions avoid the classic hopping you die before you run out of money.

Further, money enough to cover the basics is vastly more important than 'extra'.

Pensions aren't portable - in the modern labor market where people are expected to have multiple emplyers and possibly even career arcs, that's a pretty limiting. Personally, I feel that too many pensions plans (private and state) are at financial risk and have seen too many companies go under (wiping out pensions), or severely cut back (changing their payouts and coverage). Really, I'd prefer something more portable than even a 401k. Rolling over to an IRA after you change companies is ok, but I'd really rather have savings separated from employers to a greater degree even when it's accumulating.

  > Pensions aren't portable - in the modern labor market   
  > where people are expected to have multiple emplyers and 
  > possibly even career arcs, that's a pretty limiting.

Which is the cause and which is the effect? Do workers want to have multiple employers and career arcs?

I don't think they necessarily want to, but I think it's often needed for reasons mostly tangential from pensions. But if you accept that multiple jobs/careers are a reality, then pensions plans, as traditionally constructed, don't do much for workers.

I think it's often needed for reasons mostly tangential from pensions

Such as?

Companies used to provide pensions as an incentive to stay at the company long term and not change employers, but really most of them don't care to plan for employees to stay and be developed long term.. so accordingly no pension plan is offered either.

Even ones that still offer pensions, if the support isn't there then it's in conflict with how a pension matures it's benefits. Many companies treat workers as interchangable cogs and don't provide/encourage for any exceptional wage or career growth or training. So to move upward one has to change companies - dropping (or at best pausing) the pension.

Not all companies are like this, but many (most) are. I thought this all was pretty widely understood?

So...it's not that people have to change jobs because pensions don't really exist anymore, it's that there aren't really pensions because companies don't give a shit about employees anymore?

I guess that's a reason other than pensions, technically.

Moving companies is the only way to get a promotion or a substantial raise in the current business climate. Had I stayed at the same company I'd be the highest paid developer but making 40-50% less than what a competitor has paid for my skillset.

To be clear, you're talking about direct cash, right?

Yes - this doesn't apply to big4, who realize this and tend to do a better job of stringing you along with big stock grants.

Portability is nice. I’ve seen so many people in government just trying to ride it out until they qualify for the pension. They don’t really care about the job and are just trying to avoid having to do anything until it’s time to retire. Long-standing structural problems just get covered up and ignored for the next chump to deal with.

It also represents a huge tax on people who want to be able to change jobs. I would prefer a world where people feel more free to leave jobs that suck or aren’t good fits for them. Locking them down with pensions, options plans, or 401k matching programs that vest over time are all mechanisms for employers to recapture what would have been paid out as wages from employees who leave early (who often tend to be younger).

A UBI that puts you somewhere above the poverty line supplemented with a forced savings program seems like the best move. It gives you portability, simplifies the system and administrative burden, and offers a hedge against the vagaries of the market.

Fractional pensions are a thing, the minimum can be a low as 3 years.

That's why pensions should be provided by the government, as one of the things paid for by all those taxes you paid over the years.

Which is why I get really mad when the current Australian government tries to spin it that retirees are 'bludgers' and are a drain on the system when they draw their (paltry) pensions. No, these people paid 40 years' worth of taxes to the government, and being supported by the government after they retired was part of that deal.

You can't offer to pay me tomorrow for a hamburger today, and then when I ask for my money tomorrow, call me a beggar.

How about lowering taxes and let people be adults and plan for their own retirement? With those 40 years of taxes invested in an index mutual fund, I’d be a millionaire many times over rather than hoping for a paltry check each month.

Any retirement plan dependent on government means that you will get less value out than you put in. Think about “management fees” on an index fund – a fraction of a percent generally. Think about the de facto management fee taken by government – orders of magnitude more. Not to mention your return on “investment” is rather low and you can’t pass on a government pension to your children. So if you die at 50, the government keeps all that excess you “paid in.” That isn’t fair. People ought to have the freedom to opt-out.

A compromise might be to require paying in to a system, but you get to direct where that money is invested. Somewhat like a mandatory IRA. In the US, you are forced to pay into social security – why not “force” people to have an IRA instead? However I think the real reason that doesn’t work is that it would make people less dependent on particular political parties – because the government no longer has as much power over your survival. “Vote for us or else <the other party> will cut your benefits and make you starve.

Unfortunately, with all the talk of freedom, it’s mostly just talk. Actual freedom means being able to make your own decisions as well as living with the good or bad consequences of those decisions.

Sure, if you're starting on that basis. But it's a different thing entirely if you start out with an explicit deal saying "you pay 30% of your income to the government, and you get a pension when you retire" and then after you fulfill your part of the bargain, the government says "oh uh, that money you paid, we spent it."

We now have mandatory superannuation contributions which work pretty much how you're suggesting, and the government is pushing towards getting rid of pensions in future.

There's multiple issues there:

1) there's spartan explicit connection between the taxes paid then and the pensions paid now: most governments did not put that money in an explicit infrastructure or investment fund, the revenue from which explicitly pays for pensions. Additionally, we generally do not (in Australia) connect how much you paid in with how much your taking out, so we have no way to even ethically or materially judge whether someone really is our isn't "taking out more than they put in"

2) in the real economy, pensions are not paid for by your past taxes, but from future income derived from the level of capital investment and infrastructure and the labor force at the time of your retirement. The Australian pension system contracts a population of post boomer children to pay a debt they were never party to agreeing to pay: and chicken the general demographic numbers, aren't liable to be able to pay it given the relative size of the two populations.

3) from a normative point if view, the Australian system is quite generous (not as generous as some of the European ones). It is, dare I say it, unsustainable. Not only do you have to adjust for the pensioner discounts and additional payments offered to get it's true value, but it is much greater in volume compared to all other dole payments. With no means testing for your primary property, it's both a subsidy to the rich, encourages over investment in property, and has basically set us up to escalate inter generational war fare.

My advice to everyone is to assume it won't be there for anyone not already collecting it.

Don't get me wrong, I have some sympathy for the boomers who thought it would be available. But, they got to effectively overconsume by not putting sufficient away to invest for it, and in a competition between economic reality vs "what I'm supposed to get on my defined benefit pension", reality will win every time. Government isn't god.

Your first two points relate to what the government actually did with those payments, and not with the social contract between taxpayer and government.

I'm not sure I follow your third point. The pension system is far from generous - it's ~72% of after-tax minimum wage. Pensioners generally live in the same house they've lived in for decades, if they haven't downsized, and it's only the primary property that's not means tested so it's not like they're hoarding investment properties.

And they didn't get to 'overconsume by not putting sufficient away' - they did put that amount away, as part of their tax payments. What the government did with the enforced payments is a different matter.

Late response: I assume you've done the calculations right regarding the minimum wage, and that you've taken into account the additional payments not included under the label of pension.

To get an accurate view of the value of the pension though, you have to take the dollar face value and apply both pensioner discounts (practically everywhere in Aus, you will get discounts on your rates and utilities at the very least, in practice substantially more such as transport and consumables). In addition most also get to consume their imputed rent.

Don't get me wrong, I'm not saying all pensioners are "living it large". It is miserable to be a pensioner that doesn't own their home. But their true consumption possibilities are several multiples in practice of all our other social security payments, say for the unemployed or people on minimum wage for example, who don't own their own homes.

Given the demographic boom of the boomers, we are effectively paying living wages to the group that statistically hold the most wealth of any age group, and that we don't means test against the primary store of that wealth, I predict this system cannot last.

The government can enter into a defined pension scheme that proclaims it will be summer forever, and people can complain that they were promised that it would be summer forever, but a wise man knows that winter is coming...

Actually, you mean "pensions are defined in the US" aren't portable.

Employer and pension are not tied together in a great deal of countries - for example: state-controlled. So even if you switch jobs, the plan remains the same. (Also relevant is that most countries have a single state, so state-controlled means you can actually move anywhere inside the country and keep the same plan).

Annuities do exist and you can buy them with IRA/401k savings.

While true, they generally don't have government backing and can thus fail fairly easily.

You can buy an immediate annuity that has guaranteed income until you die with different options:

A) guaranteed life

B) guaranteed life of you or your spouse

C) guaranteed life with a return of the unused amount

D) guaranteed life with a guaranteed x year certain

Of course the different options you choose affect your monthly payout.

And effectively all guarantees (be they government or private) are probably better understood as guarantees conditional on institutional survival risk.

Sure but if you look at how 401ks and IRAs _actually_ work you'll see people being broke in retirement as well and the idea that DB is more risky than DC for employees is just totally backward. The fix here is more transparent DB, not shoving people into DC plans which were never meant for them.

"The fact that 401ks which were initially retirement plans for executives have permeated labor is an indictment of the system."

Reference please. The Revenue Act of 1978 created a provision, section 401(k), for employees to defer income as future compensation.

Reply on news.ycombinator.com