Bankrupt Trucker Yellow Loses Ruling over $6.5B in Pension Debts
bloomberg.com
bloomberg.com
Maybe, but pension funds (should, at least) invest in multiple asset classes and assets to diversify risk. Not only equities and bonds, but if in hedge funds, then multiple hedge funds. Further, hedge funds generally have multiple investments going as well. In both cases if one particular thing goes to zero, not all the money (should) be lost.
Whereas with workers it is hard diversify risk away from your employer and your retirement savings if you have a pension.
This is why, contrary to popular opinion, shareholders are not actually owners of a company, but 'just' another stakeholder: other stakeholders would include employees, suppliers, bond holders, retirees, etc.
Shareholders are often lowest priority, and for taking on that risk of losing more, they get typically get rewarded more (i.e., stock goes up).
Bond holders and pension employees don't have a seat to control power.
This, shareholders are true owners of the company. But laws prevent them taking other stakeholders for a ride.
There are laws and legal precedents in multiple countries that state the shareholders are not owners:
* https://edwardslaw.ca/blog/shareholders-agreements-in-canada...
* https://www.ippr.org/articles/who-owns-a-company
* https://www.cambridge.org/core/journals/journal-of-instituti...
Further, directors and such have a fiduciary to the corporation and not to the shareholders:
> This separation of ownership and control provides the basis for many of the fundamental principles of corporate law. One example is the principle that the directors and officers of a corporation owe a fiduciary duty to the corporation: see Canadian Aero Service Ltd. v. O'Malley, [1974] S.C.R. 592.
* https://decisions.scc-csc.ca/scc-csc/scc-csc/en/item/699/ind...
And that stakeholders must be considered as well:
> Under the CBCA, directors have a fiduciary duty to act honestly, in good faith and in the corporation’s best interest. 2 Until a few decades ago, the corporation’s shareholders were often considered its primary beneficiaries. This shareholder-centric form of corporate governance was known as the shareholder primacy model, a model that would, theoretically, obviate managerial self-dealings. 3
> However, at the end of the last century a shift to include non-shareholder interests began to emerge. Many attribute this shift to the hostile takeover wave of the 1980s, which increased shareholder wealth efficiently but left employees scrambling for work and government institutions struggling to respond.4 The shareholder primacy model came under further scrutiny, in both Canada and the US, after the burst of the tech bubble in 2002 and the 2008 financial crisis.5
* https://www.nortonrosefulbright.com/en-ca/knowledge/publicat...
The primacy of shareholders started to become in vogue in the 1970s, and so (because of recency bias) is what is best known now, but there is a history of other philosophies before that:
* https://scholarship.law.cornell.edu/facpub/865/
And the primacy of shareholders, being thought of as the most important stakeholder, did not change the legal precedents.
... right after hedge fund "costs" are limited to a microscopic amount.
If you're going to treat private financial service organizations as if they are organized for public good (i.e. paying employee pensions), then they need to operate as such, rather than as wealth generators for their officers.
And don't come at me with "that keeps the incentives aligned - if the managers/officers make money, the hedge fund is making more money". I don't buy that the only way to get effective investment growth is by making the officers wealthy beyond all belief. Vanguard agrees with me.
The ruling is just about where that money comes from, the money would be paid either way.
Also the "shareholders" are taxpayers, they are in general just ordinary people investing in businesses.
> About 162 million Americans, or 62% of U.S. adults, own stock. The top 1% holds 50% of stocks, worth $21 trillion. The bottom 50% of U.S. adults hold only 1% of stocks, worth $437 billion.
> Most Americans indirectly hold stocks through a mutual fund, an index fund, or a retirement account such as a 401(k). A smaller percentage directly holds stocks, meaning they purchase individual shares.
- Motley Foolhttps://www.axios.com/2024/01/10/wealthy-own-record-share-st...
> There is a statutory maximum benefit that PBGC can pay. Participants receive the lower of their benefit as calculated under the plan or the statutory maximum benefit. If a participant’s benefit is higher than the statutory maximum benefit, the participant’s benefit is reduced. Participants in single-employer plans that terminate in 2021 and are trusteed by PBGC may receive up to $72,409 per year if they begin taking their pension at the age of 65. The single-employer maximum benefit is adjusted depending on the age at which the participant begins taking the benefit and on the form of the benefit (e.g., the maximum benefit is lower for a joint-and-survivor annuity). The maximum benefit for participants in multiemployer plans that receive financial assistance depends on the number of years of service in the plan. For example, a participant with 30 years of service may receive up to $12,870 per year. Currently, most workers in singleemployer plans taken over by PBGC and multiemployer plans that receive financial assistance from PBGC receive the full pension benefit that they earned.
> However, among participants in multiemployer plans that were terminated and likely to need financial assistance in the future, 49% have a benefit below the PBGC maximum guarantee and 51% have a benefit larger than the PBGC maximum guarantee (and therefore, would see a benefit reduction). At the end of FY2020, PBGC had a total deficit of $48.2 billion, which consisted of a $15.5 billion surplus from the single-employer program and a $63.7 billion deficit from the multiemployer program. PBGC’s single-employer program has been on the Government Accountability Office’s (GAO’s) list of high-risk government programs since 2003. PBGC’s multiemployer program was added in 2009. PBGC projects the financial position of the singleemployer program is likely to continue to improve, but the financial position of the multiemployer program is expected to worsen considerably over the next 10 years.
The shortfall will eventually be made up from the general fund, funded by taxpayers. But, we are in the weeds unnecessarily. The PBGC should be a last resort, based on the above context.
> The funds asked Goldblatt to rule that billions of dollars in federal grant money they received from the US last year should be ignored when that liability is calculated.
The wording here is unclear. But the grant money mentioned here is the relief provided by the American Rescue Plan - the federal government dumped nearly a trillion dollars in guarantees that all qualifying pensions are going to pay out at 100%. So what the pensions lawyers are are arguing is that it doesn't matter that the pension is funded or not, they still have a senior claim on the debt.
> The Pension Benefit Guaranty Corp., which regulates retirements funds like those set up for Yellow’s union workers, argued that other companies with traditional pension plans would have an incentive to cancel their retirement benefits if Yellow won since shareholders wouldnt be forced to pay a hefty penalty.
More specifically, if every company made the same argument, they would all dump their pension funds and now they would all be the government's problem. It would not be a great precedent.
Debts held by favored and disfavored political groups have increasingly different values and this difference can only get so large before something has to break.
"and they all lived happily ever after"
Anyways this outcome sounds like good news. Employees get what they were due.
This could be solved by making contributions mandatory like Australia and Singapore. As long as you're putting money in, the rest is just math + time.
And most of your 401k is going to be the money you put in, not the match anyway. So it sucks when you aren't able to vest or your employer doesn't match well, but that doesn't kill the concept.
The formula is proven to work in other countries. My point is you can't refuse to use a defined contribution scheme and then complain it didn't work.
401ks require deliberate action which a lot of people won't do or at least put off and they may make poor investment decisions--like invest everything in their own company's stock if that's an option.
Wouldn't there have been some segment of the population with about 25 years of 401k by 2008? It should be possible to compare them retiring during the downturn to people living off their pensions.
https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/...
Unlikely, based on the data.
https://news.ycombinator.com/item?id=41488940 (citations from a previous comment I wrote)
Our public school system has failed. Full stop.
The financial markets are vastly complicated. If you have exposure simply to arithmetic and not how it is applied to financial instruments, you are ill equipped.
Better to teach the basic financial instruments (Checking accounts, fees, overdraft, Credit Cards, Home Mortgages, Retirement accounts, bond and index funds, and simple allocation), and just the math necessary to understand the fundamentals. You can go a lot farther I think with the 3 R's and a solid home economics class than even things like Algebra, or higher math.
And, if nothing else, teach these people that if your employer matches, fund AT least that much. That's just free money, and you can't get a better return on your money out of the gate than that unless you're lucky at the sports book (ill-advised...).
Vanguard should be publishing ready to go lesson plans for this and giving them gratis to every high school in the nation.
my wife, who is perfectly capable of basic math, would never have been able to do this task, nor would she have wanted to, and in the past she was exploited by financial advisers seeking to do it for her.
I have no doubt that some people with weak/average math skills can do this, mostly because the math skills have nothing to do with it, really. Confidence about how to invest and manage your life savings is an entirely different thing, and since we don't teach people anything about this, many, many people do not have it.
Social security for example only works because it's mandatory. I think having some percent of your check go into index funds automatically would work too.
There's nothing especially magical about 401ks. Yes, many companies match contributions up to some level. And there are some tax benefits but it's mostly about saving for retirement. It's not like defined benefit plans were anything like universal in the US--mostly big companies for employees with relatively long tenures.
I agree that SS by itself isn't really enough to live on for most people. But that's also just about what I get from my defined benefit pension--albeit for just about a third of my career. A nice bonus but just that.
'My plan would work, if it wasn't for that fact it involved human beings' actually just means your plan doesn't work.
It amounts to teaching kids how to be free vs. being trapped in debt. The mentality that money is not to be spent but to be invested and leveraged. All this shit is over the head of anyone trying to teach in our school system. They are just riding out the misery to get their pension.
They can’t “take it away”. They just ran out of money with the judge ruling that shareholders don’t get priority access to what’s left.
UA didn't fund the pension plan, then declared bankruptcy in 2005 primarily to get the $10B pension off it's books.
Now that UA is profitable again, it's under no obligation to fund the pension plan it discharged from it's 2005 bankruptcy.
https://www.pbgc.gov/wr/large/united/united-airlines-plan-re...
A 401(k) is theoretically better because you can pass the unspent amount to your heirs.
(I make this post to point out that it’s a tradeoff, not that one is dominant over the other for all people/situations.)
This is generally the popular move because pensions plans create huge liabilities over time because you’re promising a final outcome rather than a promised level of funding.
A ton of companies moved away from defined benefit plans. There's still on the hook (in general) for existing obligations; they can't just go "never mind" for the most part. They've just focused on different retirement benefits going forward.
And, even if an employer doesn't offer a 401(k) these days, there are generally other tax-advantaged savings mechanisms although they, of course, don't get employer contributions.
> Why isn’t the model just to pay employees more and let them save to a 401k that they control?
But a few key takeaways:
1) the 401k was never designed to be a general purpose retirement plan,
2) you would expect professional fund managers to be better at maximizing returns compared to a trucker selecting their own individual funds...,
3) if they even voluntarily invest in it in the first place.
Next time you're at a rest stop, take a sampling and see how financially literate they are and how much they know even about mutual fund selection.
[0] https://www.pbs.org/wgbh/frontline/documentary/retirement-ga..., https://www.pbs.org/wgbh/frontline/documentary/retirement-ga...
Why not just have something like SIMPLE+ and you get a matching percentage that has to be a major index and you can't move it out until retirement when you can roll to your own devices and whims. The employees and their families would see a net benefit of such a mechanism.
> Fair enough, but we also know that an index fund beats "professional investment managers" over any reasonable time horizon.
Pensions provide socioeconomic stability and predictability in a way that a 401k never can.
#1. 401ks weren't really designed. They fell out of some tax law changes.
#2. (Given #3.) Really isn't a big deal. You don't need to maximize returns. You can come up with a reasonable fire and (mostly) forget investment strategy without being a financial genius. I keep my eye on some of my portfolio but mostly leave it alone. It seems to infantilize working class people to assume they can't make the most rudimentary investment decisions on their own. Maybe we shouldn't let them buy houses either.
However, it is not economically possible to deliver defined benefits into an uncertain future.
The collision of the unstoppable force of law and the immovable rock of economic reality creates a great deal of excitement and uncertainty. Also rather a lot of those "heat and not much light" arguments, as people speaking in one of those two frames argue with someone else in the other and they end up talking right past each other.
Is that true?
I simply point out the common TV trope of police officers, essentially, "trapped" waiting to, I guess, vest and get their pensions. They seem to use it a lot as a discipline incentive, for example. "Don't do that Hank, or you'll lose your pension!" etc.
But I know my mother got a pension working for a company for only a few years, so I don't know how that all works. "It depends" I'm sure.
And it's not just legal. The solution to the US's debt problem isn't that you "just" stop paying Medicare and Social Security, because that causes its own problems. From a sufficiently cynical point of view, but one that still carries rather a lot of truth, Medicare and Social Security are payoffs for certain portions of the population to not riot, or induce other parts of the population to riot. The government can't "just" stop paying them.
"Government" should be understood as a general term, not just "The US government" or whatever Western country you may live in. How many governments have fallen in the past 20 years? Probably more than you may realize. How sure are you that "the government" you live under will be there in 30 years? There's an awful lot of stress in the world right now.
And I'm not even talking about governments providing pensions, I'm talking about the fact you can't even count on them to exist. They still can't provide the impossible after that and promise absolutely defined benefits. Although this is a non-trivial part of why defined benefit is impossible for any entity to provide, because no entity can provide 100% reassurance it's going to be there in 40-50 years. None. Not government, not an individual, not a foundation, not a company, none. There is no way to put an obligation on future humans that the future humans can not do some combination of repudiation or simply failing to be able to meet them.
It is already looking to me very likely that if the US does have continuity up until my retirement, still ~20 years away, that while it may nominally provide all the "dollars" it promises I will receive, that those dollars will be not worth very much. There's more than one way to fail to make good on promises and confusing people about "give me $20 today and I'll give you $50 in 40 years" is one that still gets almost everyone... that sounds fantastic to most people and it's actually terrible, if the government also controls what dollars are worth.
The government controls what the dollars are worth no matter what.
You provide no solution only doom and gloom. Maybe go for a hike in the woods. Either we figure something out or we go back to old people eating scraps out of trash cans like they did before we established social security. If a society can't progress and get rid of at the very least scarcity of food for old people during the most unprecedented growth of productivity in the history of the planet, what is the point of that society?
The "yell at anyone explaining that defined benefits plans are impossible and then give out defined benefits plans anyhow" is what is and will continue to hurt people. It's not people like me hurting people, it's people like you who insist on living in fantasy because my gosh isn't the fantasy nicer than the reality.
There is a conflict of interest here, but regular employees aren't able to evaluate that.
The argument is about the source of the money, not if they'll get paid.
> how it is legal to just take it away randomly
That's not what's happening. It's not random, the company has no money, so it can't pay. Instead the PBGC will pay in such a situation (companies pay an insurance premium to it, in case to go under).
This particular argument is about leftover money - how much should go to which company, it's not about the individual retiree.
I wonder if this can and will be appealed. If it hits the US Supreme Court, we can guess what will happen :(
1. It is not legal to just take it away, as this ruling kind of indicates.
2. Most people are absolutely at (a) putting aside money, and (b) investing it properly. See for example "Retirement Crisis: The Great 401(k) Experiment Has Failed for Many Americans":
* https://www.nbcnews.com/business/retirement/great-401-k-expe...
Doing a search for "401k experiment has failed" will give lots of results.
I actually think a government run program that taxes employees and puts it in the S&P 500 would be a better system. No need for these pension-runners to be earning fees.