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Thu Sep 14, 2017, 11:14 PM

Welfare For Wall Street: Fees On Retirement Accounts

Reprinted with permission from AlterNet.

Most of us are willing to help out those who are less well off. Whether it comes from religious belief or a sense of basic decency we feel are an obligation to provide the basic necessities of life for the poor. But how would we feel about being taxed $1,000 a year to provide six figure salaries to people in the financial sector? Although no candidate to my knowledge has ever run on this platform, this is the nature of the retirement system the federal government has constructed for us.

Twenty or thirty years ago, most middle-class workers had defined benefit pensions. This meant that they could count on a fixed benefit that was some fraction of their average salary during their working years. For example, a person who spent thirty years at a company may be entitled to a pension that was equal to 60 percent of their average salary over their final five years of work.

With a defined benefit pension system, most of the risk was born by the employer. The worker did not have to worry about the stock market being down when she chose to retire. Nor did it matter to her if the pension made bad investment choices; the employer was liable for the promised benefits, unless it went bankrupt.

The virtues of the defined pension system can be exaggerated, although recent research indicates it provided more retirement income than we had recognized. Workers who changed jobs frequently or worked part-time rarely qualified for pension coverage. This excluded many women, African American, and Hispanic workers. But for those who were eligible the defined benefit system provided a substantial degree of retirement security.

http://www.nationalmemo.com/welfare-wall-street-fees-retirement-accounts/

I am so happy that I have "defined benefits accounts" instead of 401k worthless pension plans




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Arrow 8 replies Author Time Post
Reply Welfare For Wall Street: Fees On Retirement Accounts (Original post)
turbinetree Sep 2017 OP
MichMan Sep 2017 #1
wasupaloopa Sep 2017 #2
PoindexterOglethorpe Sep 2017 #3
SharonAnn Sep 2017 #5
PoindexterOglethorpe Sep 2017 #6
leftofcool Sep 2017 #4
Yupster Sep 2017 #7
MichMan Sep 2017 #8

Response to turbinetree (Original post)

Thu Sep 14, 2017, 11:22 PM

1. My 401k is far from "worthless" nm

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Response to turbinetree (Original post)

Thu Sep 14, 2017, 11:24 PM

2. Most defined benefit plans have huge unfunded

 

liabilities. In 2013 a two tiered system was put in place in CA. Those hired after 2013 have a different formula which results in less in benefits.

It takes years for all the legacy employees to die off when things can level off but until then employers will have to find a way to pay the unfunded liability. That results in layoffs with other cuts in expenses.

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Response to turbinetree (Original post)

Thu Sep 14, 2017, 11:29 PM

3. The sad reality is that many defined pensions

have been gutted. Employees who worked thirty or more years expecting to retire on a decent pension suddenly were advised that they'd get half or less of what had been promised. The employers who were supposed to take on the risk of funding often didn't bother to do so properly. Or they declared bankruptcy and got out from under any pension obligations.

A 401k, properly invested, isn't subject to such whims.

I've experienced the gutting of my pension. I'm getting a third of what I was originally promised. meanwhile, my 401k (different company) has done quite nicely. It's worth more to me than the failed promise of the pension.

The other thing that is frustrating in all this praise of pensions is that at best fewer than half of employees were in jobs that promised a pension. Social Security came about in no small part because relatively few workers could look forward to a pension.

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Response to PoindexterOglethorpe (Reply #3)

Fri Sep 15, 2017, 12:18 AM

5. My companyretirement plan was way overfunded, so they restructured the plan

and took all the cash out that they could. When they restructured, the redefined the plan so that it was less generous in the future.

Of course the cash went to executive bonuses, stock options, and stock buybacks. None of which benefited the regular employees.

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Response to SharonAnn (Reply #5)

Fri Sep 15, 2017, 12:37 AM

6. Good grief!

How totally crappy of them.

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Response to turbinetree (Original post)

Fri Sep 15, 2017, 12:00 AM

4. My 401K is definitely not worthless.

Far from it.

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Response to turbinetree (Original post)

Fri Sep 15, 2017, 02:46 AM

7. Defined benefit plans are better for the employees (in general)

but they don't make much sense for the employers.

GM sends out some ridiculous amount of checks each month to employees who are retired, sometimes 40 years ago. They have thousands of problem checks each month due to deaths, divorces or simply changed addresses.

A company may have to radically downsize. Sending checks out each month to people you don't even know just doesn't make sense.

Better to have a 401k. When the employee leaves you shake their hand and transfer their 401k into an IRA and you're done with them.
Sadly pretty much the only places which still have defined benefit plans are governmental agencies like school districts where they don't have stockholders to answer to.

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Response to turbinetree (Original post)

Fri Sep 15, 2017, 11:39 AM

8. Defined benefit plans were great at one time

They were great when people would work for one company for 30 yrs. That very seldom occurs now. If you change jobs and never work in one long enough to be vested, under a defined benefit, you would get nothing.

At least with a 401k it is portable and accumulates assets immediately

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