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Stories like that link convinced a lot of people, including myself to take the pension as a lump sum. I wonder how much if any does that action affect the balance sheets of the plans?
Relying on another firm or your company to invest your pension money carries a risk these days. To them it's play money. For us it is a promise that was supposed to be kept.
Hi @Derf Thank you for the post and the link. The motivations for this are troublesome, IMO. More of big business versus the worker, it appears. I know there will always be those who will argue against the "old style" pension benefits; but the trade was for lower hourly wages for many over their working life. Not everyone having a pension benefit belonged to a union. Here are the linked sections of comments, so far; for this article.
Hi @JohnChisum I spoke with a few folks about 2 years ago regarding their lump sum amounts versus the standard monthly pension payments over their lifetime amounts. I recall about a 50% reduction of total cash amounts for the lump sum. The two folks were in professional postitions and their pensions were based upon their wages at retirement time with the normal calculators in place to provide the final numbers; as is normal for most businesses. My recall is this: about $4,100/month for their lifetime, which also was adjusted for a spousal benefit at 70% upon the death of the employee. The lump sum was about $435,000. I have the simple math somewhere in my paper pile of other things for the total amounts that would be received through age 85; with assumptions for inflation eroding the fixed monthly amounts; versus the lump sum invested with a simple return of 5% per year (these folks were going to use their advisor, so their would be fees for this as well as "loaded" funds for the investments). If I find the time during the holiday period, perhaps I can track down this paperwork.
@catch22, I wonder if that 50% number is due to the length of time one is in the pension plan? I don't have an exact number but I was with my plan for about 15 years and the numbers were much closer, say within 20-25%. Since I took the lump sum, I have made that up and then some.
@JohnChisum Both of these employees each had about 35 years of employment, with the same employer, never part of a union; and they had both attained management positions. The employer provided the full defined benefit pension, meaning the employee did not have to provide any of their monies to the pension plan; which is sometimes the situation. Well, this will drive me crazy now, until I find these papers.
A run on a pension fund (taking all of your savings out) might have the same negative effect as a run on a small bank. I will say, that when Delta went bankrupt the employees (the pilots) were given a lump sum of money plus the right to receive their PBGC (government pension insurance guarantee).
I can imagine this would make it harder for their pension fund or bank to meet the pension obligations and fiduciary responsibilities. This turns into a self fulfilling prophesy. Legislation that changes contracts retroactively, as this bill seems to, gets to the heart of how a financial system needs to operate...on trust.
I always ask myself, "In whose best interest is it to break promises, create panic and ignite irrational behavior?".
Usually not the little guy. They are usually late to the party, get stuck with the mess and are forced to deal with the clean up.
Also (from the article),
"The federal agency said its employer-funded insurance pool for the pension plans covered by the new law is now $42.4 billion in the hole, and likely to run out of money within 10 years."
My Take:
Federal agencies don't run out of money...they "get cut". Federal agencies either receive "federally printed money" or they don't. "Running out of money" is what we as individuals are capable of, not federal government...especially the least dirty shirt in the laundry.
Comments
Relying on another firm or your company to invest your pension money carries a risk these days. To them it's play money. For us it is a promise that was supposed to be kept.
Thank you for the post and the link. The motivations for this are troublesome, IMO. More of big business versus the worker, it appears. I know there will always be those who will argue against the "old style" pension benefits; but the trade was for lower hourly wages for many over their working life. Not everyone having a pension benefit belonged to a union.
Here are the linked sections of comments, so far; for this article.
Hi @JohnChisum
I spoke with a few folks about 2 years ago regarding their lump sum amounts versus the standard monthly pension payments over their lifetime amounts. I recall about a 50% reduction of total cash amounts for the lump sum.
The two folks were in professional postitions and their pensions were based upon their wages at retirement time with the normal calculators in place to provide the final numbers; as is normal for most businesses.
My recall is this: about $4,100/month for their lifetime, which also was adjusted for a spousal benefit at 70% upon the death of the employee.
The lump sum was about $435,000.
I have the simple math somewhere in my paper pile of other things for the total amounts that would be received through age 85; with assumptions for inflation eroding the fixed monthly amounts; versus the lump sum invested with a simple return of 5% per year (these folks were going to use their advisor, so their would be fees for this as well as "loaded" funds for the investments).
If I find the time during the holiday period, perhaps I can track down this paperwork.
Take care to both of you.
Catch
Both of these employees each had about 35 years of employment, with the same employer, never part of a union; and they had both attained management positions. The employer provided the full defined benefit pension, meaning the employee did not have to provide any of their monies to the pension plan; which is sometimes the situation.
Well, this will drive me crazy now, until I find these papers.
Delta's deal with PBGC and the Pilots Pension Plan (dry but interesting):
PBGC's Decision--Delta-Pilots-Retirement-Plan
I can imagine this would make it harder for their pension fund or bank to meet the pension obligations and fiduciary responsibilities. This turns into a self fulfilling prophesy. Legislation that changes contracts retroactively, as this bill seems to, gets to the heart of how a financial system needs to operate...on trust.
I always ask myself, "In whose best interest is it to break promises, create panic and ignite irrational behavior?".
Usually not the little guy. They are usually late to the party, get stuck with the mess and are forced to deal with the clean up.
Also (from the article),
"The federal agency said its employer-funded insurance pool for the pension plans covered by the new law is now $42.4 billion in the hole, and likely to run out of money within 10 years."
My Take:
Federal agencies don't run out of money...they "get cut". Federal agencies either receive "federally printed money" or they don't. "Running out of money" is what we as individuals are capable of, not federal government...especially the least dirty shirt in the laundry.