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Comment by stochastastic | Hacker News Reader

In the US a “pension” typically means a fixed benefit regardless of investment performance. Many pension sponsors reduced contributions to their plans when markets were up and have had large shortfalls when markets have gone down, which has contributed to the “pension funding crisis”.

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In Canada, pensions contributions are never ever adjusted depending on market performance. Instead, payouts are typically indexed to inflation. When markets are down, funds usually have a shortfall, so they cut the inflation indexing. When markets are up and the pension fund is overfunded, they restore the inflation adjustment. This slightly harms the pensioners, but not by much to have a critical effect on their well-being.

This is a reasonable approach, but means you don’t really ever have any idea how much you’ll have when you retire. Honestly that’s probably the only approach that will ever work longer term, but it’s not an easy thing to sell or plan for.

The US Postal System has essentially this exact problem every year - they aren’t making enough to cover their pension obligations so they keep raising stamp prices (and let’s not get started on the absurdly short-term solution of “forever” stamps). Since they’re a government agency but independent and unable to accept funding from any other method it’s a great example of the problem.

You have an idea of the minimum you will get. Your pension will never go down, just that you don't know whether your pension will go up.

inflation means that your pension goes down by default.

They also are obligated to cover all future obligations today, which is pretty unrealistic.

The real issue for the postal service is that the law was changed so that the USPS would start funding their retirement health care costs since they are promised to the workers and the projected costs had exploded:

>...Although retiree health benefits are often unfunded or poorly funded, two considerations suggested the Service’s retiree health care obligations should be funded: they are as firm a commitment as the Service’s pensions, and they had become enormous (about $75 billion by 2006). In 2003, the presidential commission suggested establishing a reserve fund for these obligations, and the Postal Service itself sent Congress a proposal for creating such a fund.

>Prior to 2006, the Service simply paid retirees’ health benefit premiums when they came due. The Service put aside no money when it promised the future benefits. Paying benefits when they come due rather than funding them in advance is known as the pay-as-you-go or unfunded approach.

>Early this century, Congress, the Administration, the U.S. General Accounting Office (GAO), and a bipartisan presidential commission expressed concern about the lack of funding. Although retiree health benefits are often unfunded or poorly funded, two considerations suggested the Service’s retiree health care obligations should be funded: they are as firm a commitment as the Service’s pensions, and they had become enormous (about $75 billion by 2006). In 2003, the presidential commission suggested establishing a reserve fund for these obligations, and the Postal Service itself sent Congress a proposal for creating such a fund.

>In 2002-2003, it was discovered that the Service was contributing far more than necessary to fully fund its pensions, and Congress allowed the Service to contribute less. Congress decided the pension “savings” could help patch the retiree health benefit underfunding. In 2006, as part of the Postal Accountability and Enhancement Act (PAEA), the Postal Service Retirement Health Benefits Fund (RHBF) was established. Most of the Service’s contributions to the new fund could be paid using the pension “savings.” PAEA was bipartisan legislation with broad support.

https://taxfoundation.org/primer-postal-service-retiree-heal...

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