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Old 12-20-2013, 10:34 AM   #1 (permalink)
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Join Date: Jun 2009
Location: West Michigan

Defined benefit packages and protecting them

This does not really pertain to me and is more of a curiosity thing.

What protects a defined benefit package? Without being political about it we have witnessed companies declare bankruptcy in order to adjust pensions, governments to adjust pension amounts and percentages of healthcare expenses, and even the military discuss the possibility of adjusting retirement benefits.

Now this would be no big deal if they were adjusting these for people just starting out, not hired, or even with very minimal seniority. However these things seem to, often, effect those who have already retired. My opinion of this, if I am free to give it without sounding political, is this is tremendously unethical. When people take jobs with defined benefit packages (or even loosely defined ones) they often take less pay now for a promise represented by those defined benefits. A further consideration is the idea that a defined benefit plan may not keep up with inflation. Even when there are calculated increases due to inflation these often do not consider real cost of living numbers.

So for those of you who have them and are familiar with them: how do you protect your defined benefits? How do you plan for there existence and there ability to sustain (or help sustain) your living expenses in retirement?
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Old 12-20-2013, 11:12 AM   #2 (permalink)
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Join Date: Oct 2010
Location: LA

I'm pretty sure there is no law (if there is there are probably more than a few loopholes around it). The company I work at has already done something like that once. People that once had half a million in their retirement suddenly had less than 20k overnight, It's taken them another 10 years to build it back up to where it was 10 years ago. They havent changed anything in my 401k but we also have a second supplimentary "money purchace plan" which they've already changed, and from what I hear are changing it again next year.

I've learned now to only put money towards retirement/401k of what they'll match you and put the rest that I can afford elsewhere. I believe here we get matched up to 6% so that's what I put, the other 14% I put in savings which I intend on possibly doing something with later.

(I'm asuming you mean retirement? If it's healthcare then I'm really not sure on that)

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Old 12-20-2013, 12:18 PM   #3 (permalink)
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Living in Michigan, I suspect you have been hearing much about public pensions and their protection in the state constitution vs. the fact that they are defined as a contract (both in the state constitution and in federal law) and would be treated as an unsecured debt under federal bankruptcy law. (I'm not a lawyer nor involved, so this is just my understanding of what I've read)

That said, how do you protect a contractual obligation? You fight it out in court if you need to. There is nothing unethical about renegotiating a contract. It may be viewed as unethical to discharge debts in a bankruptcy proceeding, but that's the law and makes a lot of sense in many cases. When considering the ethical ramifications of cutting people's retirement benefits, you must also consider the other side of the fence. In the Detroit example, is it ethical to continue extracting the highest tax rates in the state from the citizens within the city while not providing services? Who pays for the streetlights, fire trucks and the snow plow if all the tax dollars are sent to retirement communities in Florida? Neither side is blameless here and I don't think either side can claim ethical high ground.

To answer your original question, you should save for your own retirement and realize that a pension guarantee is only good until the entity providing it ceases to grow. It seems all pensions depend on continued revenue stream if not all out growth and will fail if there is any contraction. Counting on that not to happen seems foolish. It seems to me akin of investing your life savings in company stock of the corp you work for, like Enron for instance. Yes, I know the actual pension funds are supposed to be invested and partially diversified, but we often see that the fox is guarding the henhouse and the actual security of those funds is very much in questions despite the health of the underlying entity.
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