question about pensions, both private and public

[onethatcares]

I am under the impression that pension funds are mol like savings accounts that generate interest by combining the deposits of both employee and employer. How then do funds go broke or do the funds proise more than they can possibly generate?

I don't have and won't have a pension plan in my future and just wonder how they work. My folks are both retired union members and both collect pensions from where they spent their 30 years working along with benefits like medical/eyeglasses/dental care.

[Taverner]

1. Because the corporations themselves raid the pension funds every so often

To pay for general services. And that is still legal in the US.

[toastbutter]

2. pensions are "defined benefit"

vs. defined contribution, so thus they must make enough off their investments, etc. to meet that "defined benefit" they offer. Personally, as a public sector employee I have a great pension plan, but you can be damn sure I invest on my own, because I am not going to count on it.

[JDPriestly]

9. The value of a pension lies in the future of the economy.

Whether your pension is defined contribution or defined benefit, how much you will receive at the end of your working life depends on a number of factors including how much is in the pension fund, in how much of that amount you have a vested interest (meaning it's really yours because you have worked long enough to have a vested interest in you), the kinds of investments that your money has been in and is in (how much the money has earned), whether your pension can be lost in a takeover of your company, and other things.

But the most important thing to remember about pensions or any other retirement plan is that whether you have money or equity in a house or stocks or a business that you plan to sell, the value of whatever it is will not be determined until the time that you need to use the money.

That is why the crash of 2008 and the current economic situation in the US are so utterly dangerous. The baby boomers are retiring. The baby boomers is a huge generation. All or close to all the money they saved in the 401(K)s, invested in their homes, savings and pension funds, they will need to cash out just to stay alive. Yet everything, our money, stocks, everything in our economy is now becoming less valuable and it is hard to know where to invest because the economy right now is very unpredictable.

The Fed and the financial sector are really fixing baby boomers and the generations that will follow the baby boomers -- impoverishing us. The banks are grabbing not only our homes but our money before we can claim it and retire in peace.

It is an ugly scene. Don't think just because you have been promised a pension and have also saved money that your pension and savings are guaranteed to be worth anything in the future.

Social Security is the most secure portion of a retirement plan. We need to make sure that it will be there for all of us. It is a cash flow, and probably the only one that can be relied upon because it is paid out of a portion of the earned income of the country without passing through the hands of greedy bankers.

I'm sorry for government employees who will be relying on the investment decisions of their employers for their retirement income. Their money is in the hands of the greedy bankers as is the money in the banks and the 401(K)s.

[toastbutter]

10. to some extent

the defined benefit plan does rely on the organization to meet goals ot have enought o meet that defined benefit.

with self-directed (how i run my deferred comp), it's up to me. even in a bad economy or bad market, i CAN (not necessarily) make money. i had a fair portion in gold since 1998, which has gone up more than 500%! So, it's dependant on your investing expertise. If you dollar cost average into index funds, then it is solely dependant on the market.

I prefer to self invest, because I do much better than the managers. However, I have the option of micro caps, etc. where I can get an edge.

[JDPriestly]

11. Do you think you will still prefer to self-invest when you are 95?

Managing even your checking account can be a real drain when you reach your 90s. Self-investing is not a realistic option for seniors.

[toastbutter]

12. nor should they

because the older you get, the less active investing you want, and the more cash equivalents you want.
that;'s basic investing theory. a person 10 yrs from retirement, should have far less eqities exposure than somebody 25 yrs away

[JDPriestly]

13. You see, that is the problem. Cash in bank accounts, which

are the safest investments for seniors are paying next to no interest. Seniors who have saved quite a bit of money are not getting any cash flow from their savings. And those of us who have saved far less are getting nothing also. That means that more seniors than ever are totally dependent on Social Security for real cash flow.

The media are pretty silent on this issue, but it is huge. Now, when Social Security is being attacked from all sides, the very investments that seniors rely on for income pay nothing. The seniors who are doing well are those who were always very wealthy and able to save and those who have government or union pensions. The rest of us are being impoverished. It is just a matter of the speed at which the impoverishment is occurring. If you enjoy good health, it is slower than if you happen to have some disability. And 50% of people over 65 have a disability that makes life difficult.

[SoCalDem]

3. Because there are people in charge of doiing the longterm investments

and sometimes they invested the money in stupid ways, in scams, or just "borrowed" from it.

Also there was a time when pension money was considered a liability (since it was money owed to people ..owed by the company).. It was money held aside from the other company money.. Then creative accounting schemes made it possible for them to account for that money as an asset.

During the advent of merger-mania of the 80's many companies were taken over BECAUSE they had pension money.. The vultures swooped in, took over the companies, sold off the parts & pieces & pocketed the pension money.. The pensions were then taken over by the PBGB, which then paid out (our tax money) for cents-on-the-dollar.

Companies also just changed the formula.. defined benefit ($xx per month paid out) to defined contribution ($xx paid IN per pay period & what ends up in it is all you get)..and when that was not beneficial to the companies they hawked the almighty 401-k..

It's been a 45 year scam...Boomers' numbers made the whole system ripe for the pickings..and we all got picked..

[iamtechus]

4. Whoa! stop spreading right-wing lies. PBGC costs taxpayers nothing.

You wrote: "The pensions were then taken over by the PBGB, which then paid out (our tax money) for cents-on-the-dollar.

Money PBGC takes in and pays out

The PBGC is not funded by general tax revenues. Its funds come from four sources:

* Insurance premiums paid by sponsors of defined benefit pension plans;
* Assets held by the pension plans it takes over;
* Recoveries of unfunded pension liabilities from plan sponsors' bankruptcy estates; and
* Investment income.

Currently PBGC pays monthly retirement benefits to approximately 631,000 retirees of 3,800 terminated defined benefit pension plans. Including those who have not yet retired and participants in multiemployer plans receiving financial assistance, the PBGC is responsible for the current and future pensions of about 1.3 million people.

The PBGC regularly updates its investment strategy. In 2004, it chose to invest heavily in bonds. Under new leadership, the agency shifted a substantial portion of its assets into stocks. Because of the market decline, PBGC's equity investments lost 23% during the year ending September 30, 2008.

http://en.wikipedia.org/wiki/PBGC

[doc03]

5. I am happy you caught that, you are absolutely right. I receive

a PBGC pension myself. I also receive two small defined benefit pensions that are insured by the PBGC, so my retirement security may depend on the solvency of the PBGC. The PBGC may require a taxpayer bailout eventually though.

[SoCalDem]

7. Whoa!..point taken... but

one of many issues with PBGC

http://www.cbsnews.com/8301-31727_162-20003992-10391695.html

The Pension Benefit Guaranty Corporation is one of those weird birds: a "federal corporation" that receives no general tax revenue.

Instead, according to its Web site, "operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusted by PBGC, and recoveries from the companies formerly responsible for the plans."

While you may not know much about it, PBGC is extremely important to the 44 million Americans whose pensions it protects. For example, when Lehman Brothers defaulted on pensions of 22,000 employees in December of 2008, PBGC assumed the responsibility. A record number of pension plans have gone belly-up in recent years stressing the assets of the PBGC to the max. Now comes word that the PBGC has lots of its own troubles. A new investigation by the Center for Public Integrity exposes startling weaknesses in PBGC's operations. The Center examined hundreds of internal memos, audits and documents and found questionable practices such as: PBGC hiring contractors without knowing that services paid for were actually provided; repeatedly promising corrective actions for problems -- only to have the Inspector General find none had been taken, and more.

The Inspector General also recently criticized PBGC's ex-chief executive for inserting himself in negotiations for lucrative contracts with big name Wall Street bidders looking to manage billions in pension funds. According to the Inspector General, the executive even sought help from a senior Goldman Sachs executive in trying to get a new job in the financial services industry. This after Goldman Sachs received a contract to manage some $700 million in PBGC funds. And that's not all. There's evidence of a serious privacy breach, in which basic measures to prevent release of pensioners' personal information were not taken.

Check out the report.

PBGC tells the Center for Public Integrity, and CBS News that it takes the critiques seriously and is fixing, or has already fixed, all the problems flagged by CPI and the Inspector General. Taxpayers should be glad to hear that. PBGC doesn't need to add internal stress to its already troubling financial situation: it's running a $12.9 billion dollar deficit. If PBGC can't get out of the hole, Congress could one day decide to step in with a giant taxpayer bail-out to protect all those millions of pensions.

[doc03]

8. The $12.9 billion deficit is a substantial improvement over

mid 2009 when it was $35 billion. Their deficit could be a big problem in the future, especially with a Republican Congress and worse yet a Republican President.

[doc03]

6. I had a DU member tell me a few weeks ago that SS should

be means tested. I get a small pension that I went on strike for over a year to protect and worked to fund for almost 40 years. This DU member thinks for evrevy dollar we get from a pension a dollar should be subtracted from our SS.

[Omaha Steve]

14. Social Security was never meant to be your only means in your old age

I sure don't care for that other DUers idea. I pay more into my pension than I I do for SS.