Anyways this outcome sounds like good news. Employees get what they were due.
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.
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.
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 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.
https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/...
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.
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...
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.
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.)
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.
"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.
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.
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.