In this debate, I'm not entirely sure what the definition of the word "pension" is. I mean, when I used to work at an actuarial firm (in the UK), we used the word "pension" even in cases where a person has a private account much like a 401(k). It would be called something like a "personal pension plan", and when they retired, and used it to purchase an annuity, the benefits paid out would be referred as their "pension".
But anyway...
>I mean if you take this as proof that "pensions are better", does GM, Boeing, Ford, Chrysler, and plenty of other employers provide evidence otherwise?
I really not familiar with the overall situation in the US regarding retirement provision, but in the UK, it's like this: Over recent years, there's been a decisive shift away from defined-benefit (DB) occuptional pension plans - where pension amounts are worked out by a simple rule based on salary and length of service, and keeping the scheme 100% funded is like trying to balance a pin on its tip - towards defined contribution (DC) plans, where the contributions are fixed and the employees just get whatever random amount is in their personal pension 'pot' when they hit retirement.
It's very easy to see why an employer would prefer a defined contribution scheme over a defined benefit scheme that costs them the same on average - namely, the employer's contributions are stable and predictable. (Plus it's no longer a Complete Nightmare to sort out who pays what to whom when there's a merger or a split.)
A second reason is that due to the so-called "cohort effect", life expectancies have been increasing faster than was previously predicted, creating an overall tendency towards underfunding (but this is relatively mild in size as compared to the swings of the market).
A third reason is simply that employers wanted to spend less in total on retirement provision, and an excellent way to conceal a massive cut in benefits is by having it coincide with a switch between two radically different systems. (Of course, we can easily compare them just by looking at how much the employers are contributing as a percentage of workers' salaries. It typically went down from about 15-30% for DB schemes to about 6-12% for DC. But most workers don't really know anything about pensions and don't think about how much their employers are contributing on their behalf, behind the scenes.
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Date: 22/3/12 23:22 (UTC)But anyway...
>I mean if you take this as proof that "pensions are better", does GM, Boeing, Ford, Chrysler, and plenty of other employers provide evidence otherwise?
I really not familiar with the overall situation in the US regarding retirement provision, but in the UK, it's like this: Over recent years, there's been a decisive shift away from defined-benefit (DB) occuptional pension plans - where pension amounts are worked out by a simple rule based on salary and length of service, and keeping the scheme 100% funded is like trying to balance a pin on its tip - towards defined contribution (DC) plans, where the contributions are fixed and the employees just get whatever random amount is in their personal pension 'pot' when they hit retirement.
It's very easy to see why an employer would prefer a defined contribution scheme over a defined benefit scheme that costs them the same on average - namely, the employer's contributions are stable and predictable. (Plus it's no longer a Complete Nightmare to sort out who pays what to whom when there's a merger or a split.)
A second reason is that due to the so-called "cohort effect", life expectancies have been increasing faster than was previously predicted, creating an overall tendency towards underfunding (but this is relatively mild in size as compared to the swings of the market).
A third reason is simply that employers wanted to spend less in total on retirement provision, and an excellent way to conceal a massive cut in benefits is by having it coincide with a switch between two radically different systems. (Of course, we can easily compare them just by looking at how much the employers are contributing as a percentage of workers' salaries. It typically went down from about 15-30% for DB schemes to about 6-12% for DC. But most workers don't really know anything about pensions and don't think about how much their employers are contributing on their behalf, behind the scenes.