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Comment by nradov | Hacker News Reader

Defined benefit pension plans create a huge moral hazard and are just too risky for employees, employers, and taxpayers alike. As a society we should be aggressively phasing out pensions and replacing them with defined contribution plans like 401(k) and 403(b). That way each employee's retirement funds are in an individual named account held by a brokerage and can't be taken away. Even if your employer goes bankrupt, everything already deposited in your account is still yours.

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No.

The real risk is not in the present, the real risk is outliving your retirement savings.

You can predict how long a population will live, you cannot predict whether a single person will need 5 or 40 years of retirement savings. Collective defined benefit plans mitigate this risk and are the only thing that really make sense.

They also end up cheaper because instead of each person needing to save the amount needed until the end of retirement, the group only needs to save the amount that the average person will need.

In the UK you can buy an annuity with the proceeds of your pension fund at retirement. Is the same not true of a 401(k) in the US?

There's always a risk an annuity provider will go bust.

There's also a risk of a meteor hitting the earth. The likelihood is very low.

Yes, a variety of products exist in the U.S. But when I did limited research in the past, I found high fees and low returns.

Low returns are inevitable for low-risk investments in a ZIRP environment. This is not an argument in favor of pensions.

Yes, they're available. They're are also used to compare how much a fixed pension would cost in present dollars.

What happens when there isn't enough money to pay the benefit? As you say, due to increasing life expectancy.

Both social security and employer held pensions have to cut their payouts, but only one of them is democratic and has even a chance of being run in the interests of the beneficiaries.

"The group only needs to save the amount the average person will need" - the same is true if you buy an annuity. Or, give people preferential tax treatment for keeping money in their pension post retirement, don't let their family inherit it.

A defined-benefit pension is a math product. The same product could theoretically be sold as an individual account.

You're X years old? Statistically likely to retire at Y and live to Z? If we assume N% average rate of return, this is how much you have to pay every month until then to get a given payout at retirement. The risk theoretically belongs to the issuer, who has to eat the difference if they underestimated any of these numbers, and their reward comes from pricing conservatively and keeping gains beyond the promised return.

What has gone wrong were yeas of assumptions that weren't just inaccurate, but consistently inaccurate in over-optimistic directions. "We'll average 16% per year when 7 is more realistic." "Everyone will drop dead within 36 months of retirement." and seemingly "Nobody will plunder or slash contribution that were negotiated long ago."

So, we had something like that in NL for self employed people that have their own holding company ("pensioen in eigen beheer"). That got axed because 'reasons' and your options to save your pension for the future got changed into 'deal with these large corporations', or pay your higher bracket income tax today and hope the money you save will be worth something by the time you need it.

I'm doing the latter and dumping it all into real estate, that seems to be the best bet at the moment.

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