https://www.barrons.com/articles/ge-insurance-fraud-madoff-w...
They piled up massive losses in their insurance division (long term care) and guess who gets slammed because of it?
The workers.
http://web.archive.org/web/20190929121126/https://www.gefrau...
So basically, there was some media orchestration, GE stock dipped somewhat, potentially the hedge fund paying Markopolos made some benefits and there was not really any follow up (so far) from the SEC. And the website disappeared a month later.
I felt that the reactions from analysts were that most long term care insurances are problematic, GE possibly a bit more but not spectacularly worse than competition, and that the "fraud" part was a bit overblown.
We'll see if the SEC will open an investigation, but so far not a lot happened.
Still even without being a fraud, this might be an issue in the years to come for GE to be able to generate enough cash to pay for its long term care business...
Maybe the SEC is starting the case and asked the tipsters to remove all relevant documents online to prevent prejury?
And much of the pension fund investments are going to the same place as 401k money anyway. Why not directly invest in VTI and skip paying all the pension fund managers and staff? It's not like they have some secret investment return recipe, and it shows in their performance.
I have a defined benefit pension from a previous employer and frankly I count it as zero in my financial planning since I have no idea if it’s actually coming or not.
I understand the dynamics have changed, but my boomer parents and in-laws are both enjoying retirement with the fruits of a defined benefit pension, and both are quite comfortable.
The only reason your elders are enjoying the fruits of a defined benefit pension is because the costs of their pensions was hidden by an assumption of ever growing populations and economic growth.
Additionally, why give control of your retirement funds to someone else when you can have control of your money? They're investing it in the same place as you would, and not getting any better returns.
Yes, the plan can have problems, but I'm just saying why I think people still like it, and it does have definite advantages over your own savings.
Lol you hope.
The article below mentions how poorly things can go, with private equity groups buying a company, things go poorly, it gets liquidated (pension gets dissolved), then the same private equity group buying it out of bankruptcy. Funny enough, with Marsh, the executive pension plan got a good payout relative to the thousands of store and warehouse employees.
The pension isn't free to offer. I'd much rather they increase my base pay or give a more generous 401k match.
https://www.washingtonpost.com/business/economy/as-a-grocery...
Guess which one of those two is happier? Sure, you may say the first group was foolish, but we are talking your average American workers here not an investor-savvy class.
Perhaps make it an option, if you want to gamble go for it, if you lose don't come crying for your retirement checks.
Having some savings as defined benefit does give you predictability. Even if you don't have a defined benefit plan through a company, it may make sense to convert some savings into an annuity of some sort.
The PBGC is just for show. They can't even guarantee the pensions of the multi employer defined pension plans that are about to fail, so there is a bill in congress to bail them out currently:
https://burypensions.wordpress.com/2019/01/09/butch-lewis-ac...
Look at the transfer values of some DB pensions they can be worth multiple millions and no way would an individual be able to build up an equivalent amount in a DC scheame
Well if you put millions in you get millions out.
Your DB pension is funded by those that came before you and those coming after.
Its phrasing in that sense would be similar to "Dude your making a big mistake"
At 65, you do not know if you are going to live to 70 or 101, so you need to plan your 401k accordingly, pessimistic.
Couple that with the fact that many many americans could not save enough to last to 101, but could last until 72. So they are left with the choice of living more poorly than they should or running out of money.
Defined benefit makes way more sense, some people "win" by living longer, others lose. But there is much less stress in the meantime.
On an employer level, it does not make sense as they have no idea if they will exist in the next 10, 20, 30 years, especially with automation and globalization changing the economic environment very quickly. Which is exactly what real life shows, as companies are jettisoning defined benefit pensions to stay competitive.
On an individual level, a pension plan also doesn't make sense, as you can do what pension fund managers do via target date funds and save the money spent on paying the pension fund managers. And avoiding the corruption risk of employers underfunding and fund managers malinvesting.
If you want protection that you will have income until you die, one should purchase an annuity. However, a much cheaper and better idea in my opinion, is raising a family that will support you in your old age, because it's prohibitively expensive to purchase the kind of care that comes from loving relationships in your old age.
There are annuities, but my research into those has come up with very high costs with lots of fees.
Yes, as most non taxpayer funded employers have found out, and reduced their offering of defined benefit pensions accordingly.
My point is that no one has the ability to protect and afford against the kind of long term risk that you are talking about, and the best model I've seen to address it is when children and grandchildren take care of their elders.
If your pool is the whole country then it’s very manageable sans the human problems that any large government / financial institutions run into at scale.
Pretty much every developed nation is raising retirement ages and reducing benefits to grapple with the fact that there is less wealth being created in their countries. No one can "manage" automation and labor from China/India/etc taking out a huge portion of your middle class.
Annuities can certainly make sense, including ones that, for example, you can get by donating appreciated assets.
This worked out pretty well for me [added: it's been through 2 changes in ownership but it's still available for payout] but, if instead you look on 2-5 year job tenure being far more common today, a lot of people would end up with little or no pension under typical defined benefit pension terms.
Assuming a birth costs $5k to $10k, and the kid costs $20k per year for first 5 years for daycare, and then $3k per year, ballpark $200k, not adjusted for inflation, plus tons of time spent teaching and raising them, should buy you a relationship worth much more. But you also have to be surrounded by the right people and culture, so it's super complicated to calculate.
But most successful families I know are successful because they can rely on each other to help each other out, and there are exponential benefits to knowing someone who knows someone, so as their networks expand, so do yours.
Defined contribution allows for the transfer of wealth to heirs at death, which many people find a preferable and more fair-feeling way to deal with the fruits of one's labor than to have it revert to the annuity provider (private or public).
2 Pensions funds are different to investing for individuals (with small portfolios)
DB schemes have very long lifetimes and have to invest for multiple generations and cant just invest in a tracker - they have to have a suitable investments in bonds and guilts for example./
There's more politics involved - like the automotive unions giving up numerous raises for better pensions, companies refusing to fully fund pensions in good years leading to them being woefully underfunded in bad, etc.
Personally I'm glad to not have a pension hanging over my head. I could leave tomorrow and have the full value of my 401k. I know people who are miserable and hate their jobs, but if they leave before hitting 30 years, they get barely anything. At my company, leaving at 29 years would yield less than half the monthly payout compared to 30 years. The pension and social security is the retirement plan for those who live paycheck to paycheck.
I do really wish everyone had the same access to tax advantaged accounts. The administration costs of 401k's make it more challenging for small companies to offer. All else equal, having a 401k available versus unavailable is with a few thousand dollars per year to me because of the tax deferral.
This is the inherent agency risk in defined benefits. The people at the beginning can make off like bandits while screwing those down the line, whether intentionally or not (due to global economic environmental changes).
>I do really wish everyone had the same access to tax advantaged accounts. The administration costs of 401k's make it more challenging for small companies to offer. All else equal, having a 401k available versus unavailable is with a few thousand dollars per year to me because of the tax deferral.
401k are extremely easy to administer, or at least much, much easier than defined benefit pensions. However, it would be ideal if the US government stopped giving large companies subsidies (via the 401k tax deduction), and simply gave an IRA deduction to everyone, regardless of employer or whatnot. There is no need for employers to be involved.
Definitely so! They require filing the Form 5500 annually with severe penalties for not doing so, and if safe harbor criteria aren't met, I believe an actuary may be required. I helped setup a small business 401k a few years ago and found Human Interest to be about the cheapest option overall at {employer: $120/month + $4/user/month} + {employee: 0.5% AUM management fee + fund expense ratios (good funds available, coming in around 0.07%.)}.
The direct employer cost is still $1,500/year for 2 employees before any match. Simple IRA's are an option, but have much lower contribution limits.
>However it would be ideal if the US government stopped giving large companies subsidies (via the 401k tax deduction)
Do you mean the administrative expenses and employer contributions being tax deductible, or a more specific nuance to the tax code?
The intent of the 401k safe harbor rules is to ensure they don't only benefit the highest compensated employees. For someone earning 30k/year, saving for the future is a legitimately tough proposition. I haven't fully fleshed out how I'd best handle ensuring all groups can reasonably be able to retire.
If the government wants to then incentivize retirement or healthcare savings via tax deductions, it should offer that to everyone, regardless of employer or where the income came from. However, I'm also against using tax deductions as it allows for price obfuscation.
I would be okay with government providing incentives such as matching contributions. That would allow for clear accounting of government expenditures.
It's not at all clear to me that 401Ks need to exist when we already have IRAs. Why not just increase the contribution limits on traditional IRAs to 401K levels? It gives everyone access to the same savings options, employees aren't tied to a single 401K provider that can gouge them on fees, employers don't have to administer anything.
This is what happens when a business underperforms.
The UV Blacklight they advertise at 7W - you think that's getting 7W of UVLED. Nope, instead you get a single 1W UV LED surrounded by 4 1.5W LEDs. And you pay almost $20 for this rip-off of false advertising.