Skip to main content

View Diary: Study: Shift from pensions to 401(K)s increasing inequality (48 comments)

Comment Preferences

  •  That's hard to say without particulars. (0+ / 0-)

    If your benefits under the defined benefit plan is not cost of living adjusted, it's not really "defined benefit" - it's a pawn in the game of inflation. Higher inflation would tend favor those who switched to a 401(k), lower inflation would tend to favor those who did not.

    Of course, with the 401(k), nothing insures you against investment risk. The defined benefit plan is, presumably, guaranteed by the PBGC even if the company goes under.

    •  One of the issues in hanging in with defined (0+ / 0-)

      benefit plans is that companies have learned that they can do Chapter 11 bankruptcy plans whose sole purpose is to eliminate such plans, and leave the mess to the PBGIC, thus eliminating all benefit of trying to plan for retirement by any of their workers. Remember that planning Rs want to punish ordinary Americans for not doing?  How on earth can anyone plan when at the point where the plans have to be invoked, chunks of it are pulled away by bankruptcy courts, or Rs trying to eliminate SS, or prefering bond creditors to pensioners who used to be vested in this city and that state. It seems that what they really want is to pull all of that saved-for-retirement money away from those who saved it or worked the years and years to be vested, and then . . . . they have no plans whatever for what is supposed to happen to those whose decades of work are gone.

      •  Certainly regulators... (0+ / 0-)

        ...have failed in both private and public pension oversight.

        They still allow unrealistic ROI assumptions which results in plans that are substantially underfunded in spite of meeting the "requirements".

        Preferring pensioners over bondholders may be a good idea. However, doing so would make it somewhat more costly for municipalities, especially those with large pension overhangs, to fund public projects and hence they could do less with the same money. It would also mean that corporations with pension overhang (generally the "old line" companies, not the younger companies who never had a pension plan) would find it more expensive to raise money through bonds - if this should impact a decision to treat pensioners as senior to other debtors is, of course, a matter of viewpoint. Almost certainly, doing so would result in more corporate bankruptcies ending in liquidation instead of restructuring which is likely not good for job growth in the mid term.

        The obvious answer is for each employee to select if their employer's pension contributions each year go into their personal self-directed 401(k) (or similar) or into a pension fund -- but any such pension fund is maintained by a third party completely unrelated and unconnected from the employer. In the case of unionized employees, the union is the obvious manager. Union members elect their leaders and vote on contracts so they should be fully competent to make similar shared democratic decisions on fund management. Thus, at the end of each year, the company or government entity no longer has any control over the money or ability to expose it to bankruptcy risk through mismanagement. The true cost is known to all and paid each year - transparency that doesn't exist today.

        The economic tensions and long term conflict of interests and changes in corporate strategies and public opinion that companies and governments have with respect to pensions is just too great to trust them to act in the long term best interests of pensioners.

        In reality, no one, even the Federal government, can guarantee a pension with zero risk - especially one with COLAs. The closest one can come today (which may be untrue if the US debt gets too high with respect to GDP) is to invest in treasuries (perhaps TIPS given the purposes of these investments) - a low yield, but quite safe investment. Restricting investments to very safe investments will, on the average, reduce the benefits available to pensioners for every dollar of employer contributions.

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site