[quote=XBoxBoy][quote=Parabolica]The problem with defined contributions plans as I see it is that the vast majority of working people lack the financial sophistication required to invest for their retirement. [/quote]
I have no idea who is right in this argument or what is fair, but I’d like to point out another issue that worries me about defined benefit vs 401k. That is that 401ks are generally optional, while defined benefit are not. I have well educated, professional friends working in high tech careers, in their late 50s who have never put any money into a 401 or any retirement plan (other than social security). Compare that to govt. workers or teachers who have no choice but to contribute. Not only are people not savvy enough to manage the financial waters, they aren’t savvy enough to figure out they need to save to have a retirement fund. Not sure how to fix that, but it seems to me to be a big issue lurking out there.[/quote]
there is indeed a BIG ISSUE LURKING
[modesty/sarcasm ON]
and FWIW IMHO I’m RIGHT and everyone ELSE is to blame for causing an economic mess…
[modesty/sarcasm OFF]
As it stands politicians/lawyers/public-employees-union-members think it would be fair for the taxpayers to make them whole (after all they are the one’s who did all the hard work of implementing the policies, writing the contracts and were in charge of the day in and day out operation of various pension fund accounts…)
“they” (politicians/lawyers/public-employees) using circular logic would argue, thus it is written (and ignoring “crucial evidence”) therefore we find its the LAW
this POV isn’t much different than the approach taken by leadership in the catholic church back in the day when the pope made a law that which said, the earth was at the center of the universe (and ignored all the math and science)
WRT the operation of the local pension fund – notice in press releases – on the side that supports the politicians/lawyers/public-employees position, stories ALL BUT IGNORE THE MATH because its an inconvenient truth
AND instead hide behind the convenient fiction that its possible to have a sustainable DB program for honest hard working muni “union” employees who will suffer otherwise
in the december 2015 (back pages news-paper story) that started me questioning the wisdom of existing fund management (yet again), the actuaries long ago calculated out that in order for the LOCAL pension portfolio to work, the investment vehicles (bonds, stocks, etc.) basically had to grow 8% over the long haul!!!
BUT as we know from year to year the market will vary…
so some years the total return of the portfolio will be much GREATER than the actuaries design target of 8%,… and some years the total return of the portfolio will be much LOWER than the the actuaries design target of 8%,… BUT OVERALL the idea was that pension portfolio was designed to AVERAGE OUT to 8%
its impossible to say exact DEBT figures w/out more data BUT think of the problem as being, for the past three decades the portfolio operators (i.e. politicians/lawyers/public-employees) said hey the portfolio is doing great and give themselves a pension bonus payment of say anything greater than the actuaries target of 8% (thinking this “EXTRA” is not needed)
for example, back in the 1980’s and 1990’s when the market was really booming (and the portfolio produced returns on average much greater than 8%)
THE HISTORICAL RATE OF RETURN FOR THE STOCK MARKET SINCE 1900
…
during the 1980s the market returned on average 17.57%
during the 1990s the market returned on average 18.17%
…
the portfolio operators (i.e. politicians/lawyers/public-employees) in the 1980’s said hey since we averaged 17.57% in the market, so we have an EXTRA of 9.57% to give our selves because of a simple formula we included in a contract (average market return – actuaries design target = EXTRA) or (17.57%-8% =9.57%)
the portfolio operators (i.e. politicians/lawyers/public-employees) in the 1990’s said hey since we averaged 18.17%, we have an EXTRA of 10.17% because (18.17%-8% =10.17.%)
a misunderstanding of how “averages” work explains why the portfolio is BILLIONS in DEBT
City pensioners get ’13th check’ bonus
More than $6.1 million has been distributed to retired San Diego city employees in the form of a “13th check” — beyond their usual 12 monthly payments — making this year’s holiday bonus the largest such payout in the history of the three-decade-old practice.
But it’s become a source of conflict as the city’s pension system faces a $2 billion shortfall in promised payments, which remains a taxpayer burden and has led to budget crises in the past at City Hall.
what the $hit for brains managers of the San Diego pension portfolio did, was in reality take/pocketed for themselves the “excess” profits back in boom decades of the 80’s and 90’s that were originally designed to be kept w/in the account so that the portfolio averaged out to 8% from the 1980’s to the present day…
Handbook of Frauds, Scams, and Swindles: Failures of Ethics in Leadership (edited by Serge Matulich, David M. Currie)
Though SDCERS investments were earning well above the 8 percent rate of return estimated by the system actuaries, under normal conditions investments surpluses are required to make up for below-average returns in other years to achieve the average rate of return. Therefore, unless the actuaries’ estimates are grossly incorrect, in the long run true “surplus earnings” are impossible. The use of surplus earnings for the purposes other than maintaining the pension system, such as to expand existing benefits should be viewed as a loan from the system THAT WILL REQUIRE REPAYMENT IN THE FUTURE.
the economic problem NOW (and into the foreseeable future) is further compounded with financial instruments like “swaps” (which really supercharges the amount of money that somehow needs to be accounted for w/in the system)
and IMHO makes an economic disaster all but unavoidable (all because politicians/lawyers in a position of power who were suppose to over see pension portfolio operations, never took a step back to look at the big picture and apply basic middle school math concepts WRT the financial instruments they were in charge of)!!
