Nov 19 2012
06:36 pm

It looks like some forms of "defined benefit" pensions may make a comeback.

From Yahoo News ...

When 401(k)s were first introduced in the late 1970s, most workers still had “defined benefit” pensions — retirement plans where employers made all the decisions about what to invest where. Back then, 401(k)s were intended as mere supplements to those plans

The aggregate retirement income deficit for all Baby Boomers and Gen Xers — that is, the amount by which their savings, plus Social Security, fall short of what they’ll need — is $4.3 trillion, according to the Employee Benefit Research Institute.


A worker who makes $75,000 per year and saves 8% of that annually in a 401(k)would lose 2.8 years’ worth of savings in a target-date fund with a 0.2% fee and 11.6 years in one with a 1% fee, over the course of a career, according to an analysis by Towers Watson.

10 Things 401(k) Plans Won’t Tell You

Holler Dweller's picture

Defined Benefit pensions

Our current lack-of-system is broken, but I seriously doubt many corporations (except Knox County) will go back to DB plan designs. It's the volatility, man.

fischbobber's picture

It's the volatility, man.

It's not the volatility. It's a lack of fundamental respect from an employer to an employee.

When an employer cuts back on pension obligations when the market is good instead of diversifying and strengthening the pension, that is a pay cut. If a pension plan is part of a benefits package and those pension obligations are unfulfilled, then it is stealing.

We've about reached the point in the "You're lucky to have a job" line of reasoning where we're going to start hearing reasons why employees should pay employers for the privilege of working.

holler-dweller's picture

underfunded DB versus DC only

There's a difference between not funding your DB plan, and not having one.

Even companies with fully funded DB plans are freezing them to new entrants, and new start-ups aren't offering DB.

Somebody's picture

You know, this debate

You know, this debate wouldn't be nearly so important if Wall Street banks hadn't stolen all the money out of all the pension funds via the grift that culminated in the collapse of 2008. While everyone is pummeling public employees and their defined benefits pensions, the people who ran off with all the money are still giving themselves generous bonuses and lighting their cigars with burning hundred-dollar bills.

It's the same thing as blaming the rape victim because "she was asking for it," and congratulating the rapist for doing what comes naturally.

bizgrrl's picture

Pension funds (defined

Pension funds (defined benefit plans) were dying prior to 2008.

Check out the Pension Benefit Guaranty Corporation, A U.S. Government Agency (a federal agency created by the Employee Retirement Income Security Act of 1974 (ERISA) to protect pension benefits in private-sector defined benefit plans ).

PBGC has been managing pensions for Eastern Airlines since 1990. They also manage pensions for Delta, United, Pan Am, US Airways, Circuit City, Bethlehem Steel, etc., etc., etc.

R. Neal's picture

I was just coming to post

I was just coming to post about the PBGC. This is another huge taxpayer bailout waiting in the wings.

R. Neal's picture

The problem right now with

The problem right now with all pension plans, defined benefit or otherwise, is the "new normal" of zero percent interest rates and volatility in the financial markets. The problem is compounded by downward pressure on wages from foreign sweat shops and too many pension plans managed by "professionals" and 401Ks managed by amateurs with better things to do like put food on the table that have been and still are based on unrealistic expectations of returns based on past history that no longer applies. (I'd like to know where I can get in on the City of Knoxville's projected 7% return.)

Depending on where you get on the business cycle merry-go-round, unforeseen circumstances such as foreign wars, exposure to global markets and economies, booms and busts in domestic market segments, etc. etc. you could be a big winner or a big loser. That's gambling, not retirement investing. And nobody has perfect information on which to act, except Wall Street Masters of the Universe who can manipulate reality to benefit themselves and screw the rest of us.

When you get closer to retirement age (which has become a moving goal post for a lot of people), you want to be in safer investments, but those are paying zero interest and in effect losing value.

I'm not sure what the answer is. Some people are fortunate to have made enough to live off the principal. Not sure what everyone else is supposed to do. Social Security will provide cat food, but not much else. It could be that the whole idea of retirement is obsolete.

bizgrrl's picture

So true. Depressing, but

So true. Depressing, but true.

bizgrrl's picture

Is the City of Knoxville's

Is the City of Knoxville's projected 7% return based on some sort of US Treasuries?

R. Neal's picture

Don't think so. But if you

Don't think so. But if you know where one could get one of these mythical 7% U.S. Treasuries, why haven't you put our money in one?

jcgrim's picture

7% is junk bond territory

I hope Knoxville didn't get tangled in a swindle like Jefferson CO., AL:


holler-dweller's picture

"It could be that the whole

"It could be that the whole idea of retirement is obsolete."

Sadly, this.

How old is the idea of retirement anyway, at 55, 60, 62, or the SSA's "normal" retirement age, which grows with life expectancy?

Up Goose Creek's picture

Time machine

I have some of those mystical I-bonds that pay inflation + 3.5%. They do really well in years that the gov. is honest about the inflation rate. I borrowed money at 6.25% to buy them so maybe I'm breaking even? :-L.

But not enough to retire on. Too bad I can't borrow money at 3% and go back in a time machine to buy some more.

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