http://www.washingtonpost.com/wp-dyn/articles/A5423-2002Jul26.html

OTOH if there's a trend in unfunded liabilities, then next year we would see it be $444 billion.

The other place to look would be under

Enrolled Actuaries since the latter group does nothing except pension work. I did find a number of links re the question but they all tend to be very narrow technical interpretations of specific rules.

Unfortunately the question is incredibly complex since, even for the simplest plan, the answer involves "little things" like the increase in the amount of vested benefit, actual asset values (as per the appropriate model), and finally, exactly how much the individual employer contributes during the year.

You might be suprised to know there is actually a somewhat limited market in "guarantees" that essentially say that if at some point in time a plan is underfunded AND the employer is unable to top the fund up to the required level the guarantor will step in and top up the fund.

And the defined contribution plans make a mockery of the social contract that existed during the Keynesian Compact era of the 1950s and 1960s - which was that if you put in your 25 years for a business, gave it your time and your labor for its profits, you would be taken care of in return for having helped take care of the company in times past.

quote:

---

Yeah, but even the defined contribution plans can be scammed, fucked up, messed with and pillaged by CEOs.

---

Bullshit. By definition a defined contribution plan is a tax deferred savings plan, nothing more, nothing less. Once the funds are deposited they cannot be withdrawn, except under the terms of the various pension documents. To be honest, I'd be much more worried about a heavy duty tax and spend government deciding that those "rich" retirees are getting pretty old and don't really need all that money

but of course you'd never support any sort of increase in tax rates.

quote:

---

And the defined contribution plans make a mockery of the social contract that existed during the Keynesian Compact era of the 1950s and 1960s - which was that if you put in your 25 years for a business, gave it your time and your labor for its profits, you would be taken care of in return for having helped take care of the company in times past.

---

Interesting comment. If this was still the 1950's (or if I'd actually been working then as opposed to biting my parents' ankles) this might be applicable. Instead I didn't start a "real" job until years later. With the exception of the first job I had after university I've never had that contract with any employer and I've never asked for it. The majority of my friends didn't either. Instead, I've always been employed under terms that required my employer to contribute a fixed percentage of my salary to a trust (it's generally been set up as a Rabbi Trust for a number of reasons - as academics are want to say "The proof is left as an exercise for the reader") and the plans have generally been designed to encourage employees to make additional contributions on their own. The only difference between those various plans is the way investments have been directed. At present my plan is totally self directed but one of my options is to dump everything into the "standard" funds available to all employees.

An additional point. Portability of pensions is an serious issue. It's actually easy if plans are defined contribution, but it's not exactly easy (possible??) if the plans are defined benefit.

quote:

---

Bullshit. By definition a defined contribution plan is a tax deferred savings plan, nothing more, nothing less. Once the funds are deposited they cannot be withdrawn, except under the terms of the various pension documents.

---

I refer you to numerous instances of pension funds being raided by CEOs. Since the trend is towards defined contribution instead of defined benefit, I leave it as an exercise for YOU to determine if actuarial soundness rules are actually being followed.

quote:

---

With the exception of the first job I had after university I've never had that contract with any employer and I've never asked for it.

---

You were taught not to ask because corporations and rich people who own them decided that workers should no longer demand something back for giving a good portion of their lives to a company.

It is a truism that workers' paychecks are at best equal to the marginal product of their labor, which means that under the best conditions possible their wages exactly equal value added to the company.

Of course, in practice a lot more value gets added than paid out in payroll. Else it would, by definition, be a cooperative in which the value added (and profit deriving therefrom) were evenly distributed to all who worked in the enterprise and thus be a non-profit from an accounting standpoint.

Of course, I wouldn't expect YOU to support the notion of corporate citizenship as opposed to corporate pillaging.

[ August 18, 2002: Message edited by: DrConway ]

How can defined contribution plans be better for workers if corporations are racing with one another to abandon defined benefit plans to switch to one?

[ August 18, 2002: Message edited by: josh ]

quote:

---

... I leave it as an exercise for YOU to determine if actuarial soundness rules are actually being followed.

---

The answer to this one is easy. Since a defined contribution plans is a tax deferred savings plan there is no question of "actuarial soundness" rules. The liabilities of the fund are exactly equal to its assets. I don't know what form an actuary's opinion has to take in either the US or Canada [I assume the prescribed US format is on one of the sites I listed previously and the Canadian requirements would be somewhare on
this site].

quote:

---

I refer you to numerous instances of pension funds being raided by CEOs.

---

I'm not sure exactly what you are refering to here although I can guess. In the past, when interest rates went balistic, a number (actually a lot) of pension funds discovered they were grossly overfunded simply because they could either significantly ramp up investment returns and/or liquidate their assets and purchase life annuities for a fraction of the value of the assets currently under their control. This had the effect of freeing up a boatload of cash and, as you can expect, there were a number of lawsuits floating around as to who this cash actually belonged to. In those cases where the pension had been non-contributory (i.e., all contributions were 100% paid by the company with no payroll deduction) many, but not all, companies took the position that their social contract with the employee was simply to provide a pension equal to X% of final salary after certain vesting requirements had been met and therefore surplus funds belonged to the company not the employee. I don't think there was ever a single generic court ruling that applied to every case. As a matter of equity it would only seem reasonable that surpluses and shortfalls should be allocated to the same group.

In those cases where the company wanted to give the surplus to their employees the question of how to allocate the funds is not easy. How exactly do you distribute it? Should you increase retirement pay, increase other benefits, etc. and, if so, for which group? For that matter, what about those individuals that are already retired that elected a lump sum payout at retirement in lieu of a pension (I don't know what percentage of plans allow this but it's not unheard of).

As a point of fact, in Canada it is no longer possible to extract any surplus funds from a pension plan. The last time this happened was several years ago (by Conrad Black I believe) but I do know the rules have been changed to prevent that. The most that a company can do is to take a holiday from contributions. That is, the company only has to make those contributions necessary to ensure that the plan is properly funded so, in the event of overfunding, the surplus is simply deducted from next year's contributions so that total assets come back in line with requirements sometime in the future.

By the way, if you want to see something really scary try digging through the footnotes of various major companies looking for references to
pensions. Not good reading.

While I'm sure that a lot of readers will find the "plight" of the evil corporations humorous ("Serves them right for following the accounting rules!") the question that comes to my mind is what happens to those retirees (or current employees for that matter) whose employer cannot top up the pension fund either because they are insolvent (or will be after making these adjustments) or because they are simply out of business.

quote:

---

quote:
--------------------------------------------------------------------------------
With the exception of the first job I had after university I've never had that contract with any employer and I've never asked for it.
--------------------------------------------------------------------------------

You were taught not to ask because corporations and rich people who own them decided that workers should no longer demand something back for giving a good portion of their lives to a company.

---

Hate to disappoint you but I wasn't taught anything. I simply have no desire to find myself in a situation where I'm trapped with my current employer because moving will do horrible things to my pension.

I've interviewed too many people who are open that the reason they are looking to change jobs is to get their pension contributions back before they vest (i.e., they've been contributing 5% of their salary to a pension plan with matching contributions from their employer and both sets of contributions will be locked in at the end of 10 years say - if they leave before that point in time they get their contributions back with a very low interest rate but do no receive the employer's contributions. If they leave after the 10 years is up they are entitled to both at retirement). This is worrysome since this sort of thinking almost guarantees that they will have no retirement income.

[ August 19, 2002: Message edited by: abnormal ]

quote:

---

How can defined contribution plans be better for workers if corporations are racing with one another to abandon defined benefit plans to switch to one?

---

I owe you a response. It took me longer to find on line sources than I'd expected but to be honest I started an answer a week and a half ago and I've been on the road for most of the interim.

In any case you are right when you say that companies are lining up to move to Defined Contribution ("DC") plans from Defined Benefit Plans ("DB") - note there is a middle road that called Cash Balance plans. These have their own accounting issues but financially sit somewhere in the middle of the road. Note that the link is to a public statement by the American Academy of Actuaries who take their professional standards very seriously.

Turning to the question of DB vs DC plans, I found two recent articles. However I wasn't expecting quite the answer I found:

this

and

this.

I also found a couple of other articles. According to the Institute of Actuaries in the UK something like 30% of DB plans in the UK are closed to new members (i.e., that means those people in the plan are in the plan, all new employees are in some sort of CB or DC plan). In part they blame a new accounting rule calles FRS 17 [seems to be tied into SSAP 24 if that helps in any way]. Reading between the lines (I don't have a copy of either pronouncement) it seems that companies are running for the hills because they don't want to have to show the same sort of horrendous results re their pension plans that
American companies have (this is the same link I posted above) for exactly the same reasons. Personally I don't understand this attitude since these same companies are responsible, the only question seems to be how it appears on their financial statements.

I also found a quote by a senior consultant at Mercer. According to that individual they have seen client companies start to lay off people in order to allow the company to fund it's obligations under a DB plan (see the link in my earlier post re underfunding of DB plans). I can't find the link on that one.