/Tinfoilhat = on
Yea, pensions.
Back in the day, people would sock away cash into their, well, stuff. The problem with that is that their stuff doesn't do much for the economy. At least, that's the way it is sold by Wall Street types.
The real truth is that Wall Street doesn't make money unless money churns. Buying and selling, money changing hands, and the house always gets it's cut. They don't get bubbkis unless you do something with your cash.
Once they figured that out, we saw an absolutely unbelievable extraction of equity from the middle class.
Lets look at your house. You got a mortgage, probably at a fairly decent rate, plus a little tax break to make it a little better. Bank makes a little cash on the interest. You sink your money in your home as you pay off the principal. That money, to Wall Street, is absolutely SUNK. They can't touch it, and it drives them nuts...I mean it's a huge untapped market. So what do they do? Hey home equity loans. Now they get to double dip you to blow your saved principal on...well, stuff!
Credit cards and checks. On cards you get 30 days net (well, 28). You pay it off, the card companies don't charge you any interest. They have to make it on the front end with the merchants. You write a check, it takes 3-5 working days for it to clear. Why does that drive them nuts? Because they just floated you money for free for 3-5 days for checks and 30 days for cards. So, how do they eliminate that? DEBIT CARDS and EFT...they get their cash RIGHT AWAY. You don't think they went through all that trouble to make it convenient for you, did you? The elimination of that float is colossal.
So, that brings us to defined benefit plans. The rules, as we saw them in the late 1990s, were almost set in opposition to trigger terminations. In good times, businesses were prohibited from contributing more than a certain amount to DB plans. Why? Because those contributions were seen as tax shelters, and the government wanted their money. So there was simply NO WAY DB plans could be over funded for a rainy day.
On the other end, when the market takes a crap-o-la, like 2001, the system was setup to put those plans into almost immediate distress, which triggered huge funding requirements....which, if the funds took a hit from investments, it probably meant the entire economy is in the tank, and so obviously it was the perfect time to require a business to fork over an insane amount of cash.
Think of it like this: You have a mortgage, you have a job, and 5 years worth of expenses in savings. You lose your job, and the bank immediately calls the note on your house. You say "hey, I got some money saved and I can get another job", but the bank says "we don't care, you're unemployed NOW".
The insane irony of the DB plans is that in good investment years, company's could get away with very little (and sometimes no) funding. And here's the best part....back when some smart guys figured that pilot pensions were REALLY exposed, they went to the company to see if they could be annuitized to a third party (IE get your slice in your name) and transition away from a DB plan to a defined contribution plan....the company said "NO WAY, DB PLANS ARE FREE, DC PLANS COST REAL MONEY LOLZ!!!"
By the way, this is all assuming a "typical" single employer plan. Multiemployer plans get into a huge trainwreck because over time as companies leave the plan (went out of business), the rest of the participants have to make up the shortfall, even for those employees at the defunct companies. Can you say "graveyard spiral"?
So why the push to get rid of DB plans anyway? Well, lots of laws for one. They require very conservative investment portfolios. That means a huge pile of cash sitting and not churning....and remember the top of the post? Wall Street HATES it when money isn't churning. The 401k, practically government mandated, is the king of churning money. It's like all the people in the US give free money to Wall Street every two weeks to do as they please. Just imagine what the stock market would look like without the insane amount of funding the US Taxpayer makes every paycheck. 800 points? 1000 points maybe on the NYSE.
If you are a 401k techie, and like to work it, there is no doubt that you can do OK. You'd better do a lot of research and hope that your timing is right to come out of the other end OK.
The absolute unstated beautiful thing about having a DB plan was the total lack of worry it required (other than, of course, termination). You had to do absolutely zippo. You didn't have to adjust your contributions or investments, you didn't have to give one iota of thought to the financial markets or worry about if you would outlive your money. If you kept on ticking, you got yer monthly check...FOR LIFE. Your widow/widower got a nice taste with a survivors benefit as well.
These days people absolutely obsess of their retirement. And it is making people VERY weary. You can see it in their faces. The other unstated part is that "here, you can make more money with this new plan" sales job when we were transitioned away from DB plans very rarely worked out when the employers threw the whole burden on the employees when you figured the "all in". Add in the burden from health care, also recently (relatively) deposited on the middle class, and it's no wonder people are all kinds of crabby. Throw in some "new expenses" like cable TV, cell phones, insane activities for kids, and it's absolutely no wonder why two parents need to work these days (ooops, forgot to add in child care, also).
But hey, I'm just Frozen Caveman Pilot. Dayball burn Grog eyes.
/tinfoil hat = off
Richman
