Economics and Pensions

[Doug]

From the link that Gary sent:

"Each employee does not have a separate account in these programs, as the money to support the pensions is generally administered through a trust established by the employer. In a defined contribution plan the employer makes regular deposits into an account established for each employee. The employee is not guaranteed to receive a given amount during retirement but only the amount in the account."

Remember that Social Security was supposed to go to an independent trust company but for some reason the Government still has control of it? I feel this is the same with my companies pension. I am in the Telecom industry, which has been hurting for some time now. OVer the last 5 years, MANY changes have happened. Those employees that have less than 20 yrs of service lost all medical coverage after retirement.(this was for management only) I only have 8 years of service, just a young un. I am right now accruing a pension, but I am not counting on that being there, since the company has tapped it just like the Government has tapped Social Security.

I guess as someone who is younger, with a long time left until retirement, I am being pessimistic (or realistic) and saying it won't be there for me when I am older. I can foresee the need to tap into it many times until it's gone dry. What keeps a company paying into it? Can't they just stop if they wish?

 

[GROUCHO MARX]

What generally keeps a company in the defined benefit business is one of two things:

1. The benefit plan is a part of a collective bargaining agreement.

2. It is offered to be competitive with other employers. This is no different from offering medical benefits. If they are not collectively bargained for, the benefit may be discontinued at the whim of the organization.

 

[Gary Allan]

Some defined benefit programs have fallen short of their obligations. Many union contracts included lifetime medical benefits for retiring workers. They also had mulitpliers for "years of service". That is, a retiring Firestone worker may retire with a "30 and out" pension at the rate of $30 for all years of service, or effectively $900/month for life. As the current contract climbs to $40, his pension climbed to $1200. This wasn't a problem when the contracts were negotiated. The average age of the worker and the number of active workers vs. retired workers was at such a high ratio ...it didn't matter. Now many of those companies are "belly up" and the workers are finding it hard to collect benefits ..especially medical benefits. There are also certain clauses in the ERISA laws that prohibit suing for malpractice. The laws were designed to assure continued benefits ..but ended up allowing substandard care to be unchecked. the most convenient link I could find