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Comment by throwaway5752 | Hacker News Reader

Maybe. Pensions, like social security, are better understood as longevity insurance.

Pensions are complicated by lump sum payouts, survivor benefits for spouses, and a bunch of other things. But you collect them for life. If you live a short time, the 401k might be a better outcome and the beneficiaries of your will can inherit the wealth (or your spouse, if you outlive them, vs reduce survivor benefits). If you live a long time, it's overwhelmingly likely you have not saved up enough for it, and short of letting the elderly eat cat food and die on the street, the costs of that outcome are socialized to the rest of us.

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A defined-benefit pension is a bet that your employer will remain both solvent and completely honest for the rest of your life. This is an enormous risk compared to just having your own personal retirement account.

If you as an individual still want proper longevity insurance and the predictability of a defined-benefit-plan without this risk, just use the personal retirement savings to buy an annuity.

No it isn't. PBGC, and it's various analogs. Yes, you get a haircut, but pensions are generally insured for that. 401 plans are administered by companies and are funds of funds, at any rate, and you're still just reliant on 1) a different set of companies 2) market values to line up with your liquidity needs.

Also, how are you just ignoring have to rely on the honesty/fiscal stability of the company backing your hypothetical annuity in the space of two paragraphs?

Pensions are disappearing anyway so I feel like we're arguing the nutritional value of eating yangtze river dolphins, but that is because 401 plans are cheaper for employers and there is a lucrative fee structure in administering them, not because of an intrinsic flaw of pensions.

There is no lucrative fee structure if the employer goes with a Vanguard and prob Schwann/Fidelity 401k. In fact, it’s far cheaper than the investment fees charged by pension fund managers and has greater performance. Absolutely no reason to pay all those actuaries and investors when an index funds with zero expenses do a better job over decades long timeframes.

And PBGC is woefully underfunded. It’s already needing a bailout with just a few failing multi employer funds. It’s mostly for show I presume, since this isn’t even the first time it’s getting bailed out.

https://www.bloomberg.com/news/articles/2019-07-25/house-pas...

In the UK at least, defined benefit pensions are almost always funded (unless you work for the government) meaning there is a pot of money big enough to meet actuarial estimates of the present value of the obligation.

My grandfather had almost 40 years of care-free finances thanks to his sheet metal workers pension.

Bittersweet, isn't it? Most of us don't want to see anybody else suffer, but it also sucks to see a previous generation get a better deal than the next one.

I think an annuity (as opposed to a 401K) would be the private version of a pension, right?

Approximately. Not all annuities have the protections of a pension, such as inflation adjustment.

I guess the risk pooling is the part that I didn't fully appreciate. still AFAIK, most pensions are not inflation adjusted, so if you live for a long time, you risk "running out of money" anyway.

In the UK these pension schemes, known as 'defined benefit', legally have to be inflation adjusted.

There is still loads of risk to the employer as they are on the hook for any future shortfall. Shortfalls are common as there is huge correlation of risk, such as actuaries systematically under estimating gains in life expectancy. That's why most such schemes are in deficit.

Ah Lies dam Lies and pension fund valuations.

One of the problems that caused the decline of DB pensions is the accounting industry decided on such a unlikely scenario that inflated the cost to the employer immensely.

One pension trustee commented that the scenario came true you'd be more concerned about your stockpile of tined goods and shotgun shells than a pension.

So who pays the accountants and who now has a nice excuse to shut down its scheme :-)

Some pensions (mine at least) have periodic cost of living adjustments (COLAs) that hypothetically takes care of that.

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