Companies controlled by PE firms use bankruptcy to shed pension obligations • Hacker News Board

Re: Companies controlled by PE firms use bankruptcy to shed pension obligations

#31

Post by mlthoughts2018 » Mon, Dec 31, 2018, 4:18 PM UTC

lefstathiou wrote: post #27

To me the bigger culprit is the unfunded pension as a tool of retirement planning. Unfunded pensions are failing or on the brink of failing almost everywhere they are tried. It's a huge scandal and deeply immoral IMO. I read the other day that NYC alone has over $100bn in unfunded pension liabilities. There is simply no budget to pay that down. Unfunded pensions taking down numerous economies in Europe. There is a co…

I don’t think it’s as simple as this, because alternative instruments for retirement, like 401(k) or “higher wages now” have a lot of severe problems too and typically have no legal recourse for affected people when those instruments experience failures.

My grandparents had 401(k) retirement savings and were basically wiped out by the 2008 financial crisis. I think it would be no exaggeration to say that the crisis directly caused her death when she likely would have had many more good quality years of life had they not been forced to live in a deeply meager way after the value of their retirement fund plummeted at a moment when they needed it severely.

Asking average citizens to understand market volatility and diversification and to rely on the total abject falsehood that “markets just go up in value” is equally immoral.

The aspect of pensions, to me, that satisfies the primary moral constraint of the situation is that you are guaranteed income of a certain level, so that the organization granting the pension has to bear the risk of volatility in whatever funding instruments are used to back it.

The problem is more about determining why pensions became unfunded, what insurance products would be required to ensure that cannot happen (or at least cannot drop below some minimum insured level), and why government entities failed to budget and save accordingly, in an actuarial sense, to meet pension costs.

In my view, we are part of an unbelievably huge quality of life theft right now, a generational heist, pulling wool over everyone’s eyes to think that defined contribution retirement vehicles are somehow an acceptable alternative to defined benefit retirement vehicles.

Re: Companies controlled by PE firms use bankruptcy to shed pension obligations

#32

Post by sct202 » Mon, Dec 31, 2018, 4:19 PM UTC

lefstathiou wrote: post #27

To me the bigger culprit is the unfunded pension as a tool of retirement planning. Unfunded pensions are failing or on the brink of failing almost everywhere they are tried. It's a huge scandal and deeply immoral IMO. I read the other day that NYC alone has over $100bn in unfunded pension liabilities. There is simply no budget to pay that down. Unfunded pensions taking down numerous economies in Europe. There is a co…

Interesting that you bring up Sears and Kmart, considering they are mostly owned by a PE firm that did almost the exact same thing as Sun did to Marsh; lease-backs, selling off divisions/brands, pension under funding, etc.

Re: Companies controlled by PE firms use bankruptcy to shed pension obligations

#33

Post by kenmicklas » Mon, Dec 31, 2018, 4:21 PM UTC

bsbechtel wrote: post #19

olliej wrote: post #4

Still amazing to me that owners and equity firms get money before pension funds. The literal theft - a pension is part of your income, and being able to sell off a company without paying off pension debts literally means retroactively stealing wages from workers. Remember that banks, etc all have insurance on their debt, apparently that doesn’t matter - companies are simply stealing from money that is not theirs, and…

The government does the same thing with SS. If you pass away before collecting benefits, those benefits aren't passed on to those who inherit your estate.

That's not wage theft though. You can't be paid after you're dead. Inheritance is just legalized aristocracy.

Re: Companies controlled by PE firms use bankruptcy to shed pension obligations

#34

Post by rileymat2 » Mon, Dec 31, 2018, 4:25 PM UTC

nradov wrote: post #20

Defined benefit pension plans create a huge moral hazard and are just too risky for employees, employers, and taxpayers alike. As a society we should be aggressively phasing out pensions and replacing them with defined contribution plans like 401(k) and 403(b). That way each employee's retirement funds are in an individual named account held by a brokerage and can't be taken away. Even if your employer goes bankrupt,…

No.

The real risk is not in the present, the real risk is outliving your retirement savings.

You can predict how long a population will live, you cannot predict whether a single person will need 5 or 40 years of retirement savings. Collective defined benefit plans mitigate this risk and are the only thing that really make sense.

They also end up cheaper because instead of each person needing to save the amount needed until the end of retirement, the group only needs to save the amount that the average person will need.

Re: Companies controlled by PE firms use bankruptcy to shed pension obligations

#35

Post by bsbechtel » Mon, Dec 31, 2018, 4:31 PM UTC

kenmicklas wrote: post #33

bsbechtel wrote: post #19

Earlier quoted context omitted.

The government does the same thing with SS. If you pass away before collecting benefits, those benefits aren't passed on to those who inherit your estate.

That's not wage theft though. You can't be paid after you're dead. Inheritance is just legalized aristocracy.

You also lose your benefits if you move to another country and give up your citizenship. What do you call it then?

Re: Companies controlled by PE firms use bankruptcy to shed pension obligations

#36

Post by toasterlovin » Mon, Dec 31, 2018, 4:32 PM UTC

mlthoughts2018 wrote: post #31

lefstathiou wrote: post #27

To me the bigger culprit is the unfunded pension as a tool of retirement planning. Unfunded pensions are failing or on the brink of failing almost everywhere they are tried. It's a huge scandal and deeply immoral IMO. I read the other day that NYC alone has over $100bn in unfunded pension liabilities. There is simply no budget to pay that down. Unfunded pensions taking down numerous economies in Europe. There is a co…

I don’t think it’s as simple as this, because alternative instruments for retirement, like 401(k) or “higher wages now” have a lot of severe problems too and typically have no legal recourse for affected people when those instruments experience failures. My grandparents had 401(k) retirement savings and were basically wiped out by the 2008 financial crisis. I think it would be no exaggeration to say that the crisis d…

> In my view, we are part of an unbelievably huge quality of life theft right now, a generational heist, pulling wool over everyone’s eyes to think that defined contribution retirement vehicles are somehow an acceptable alternative to defined benefit retirement vehicles.

At the end of the day, it's all a defined contribution vehicle, because the future is unknowable. The question is whether you choose to deal with that reality up front or kick the can down the road.

Re: Companies controlled by PE firms use bankruptcy to shed pension obligations

#37

Post by rubidium » Mon, Dec 31, 2018, 4:36 PM UTC

mlthoughts2018 wrote: post #31

lefstathiou wrote: post #27

To me the bigger culprit is the unfunded pension as a tool of retirement planning. Unfunded pensions are failing or on the brink of failing almost everywhere they are tried. It's a huge scandal and deeply immoral IMO. I read the other day that NYC alone has over $100bn in unfunded pension liabilities. There is simply no budget to pay that down. Unfunded pensions taking down numerous economies in Europe. There is a co…

I don’t think it’s as simple as this, because alternative instruments for retirement, like 401(k) or “higher wages now” have a lot of severe problems too and typically have no legal recourse for affected people when those instruments experience failures. My grandparents had 401(k) retirement savings and were basically wiped out by the 2008 financial crisis. I think it would be no exaggeration to say that the crisis d…

If people want to set up annuities that is totally welcome. But they shouldn't be tied to the employer. It should be a separate company that exists solely for the purpose of paying the benefits at retirement.

Depending on an employer for your retirement is, in the modern market, a proven bad idea.

It's terrible what happened to your grandparents (to anyone else nearing retirement, take this as a cautionary tale and get your money in something safe). But hearkening back to the "glory" days of employer-paid pensions is not a viable solution.

Re: Companies controlled by PE firms use bankruptcy to shed pension obligations

#38

Post by fatbird » Mon, Dec 31, 2018, 4:42 PM UTC

lefstathiou wrote: post #27

To me the bigger culprit is the unfunded pension as a tool of retirement planning. Unfunded pensions are failing or on the brink of failing almost everywhere they are tried. It's a huge scandal and deeply immoral IMO. I read the other day that NYC alone has over $100bn in unfunded pension liabilities. There is simply no budget to pay that down. Unfunded pensions taking down numerous economies in Europe. There is a co…

Why isn't it a solution to simply require pension funds to be fully funded, perhaps under a separate legal entity that's protected from raiding by PE firms?

Why is it that the "unfunded pension" crisis always makes people question the second term in the phrase instead of the first?

Re: Companies controlled by PE firms use bankruptcy to shed pension obligations

#39

Post by ChrisLomont » Mon, Dec 31, 2018, 4:45 PM UTC

olliej wrote: post #4

Still amazing to me that owners and equity firms get money before pension funds. The literal theft - a pension is part of your income, and being able to sell off a company without paying off pension debts literally means retroactively stealing wages from workers. Remember that banks, etc all have insurance on their debt, apparently that doesn’t matter - companies are simply stealing from money that is not theirs, and…

>a pension is part of your income

It's usually part of a future worker's income. That is how they are underfunded. If the employee paid into a fund then these problems would happen less.

The problem is it's a promise to pay future money to today workers in the future, and when future money does not pan out, there is no reason one debt holder (pensioner) should have absolute precedence over another (lender, who sometimes lends enough to get the company past bad times).

For example, putting a pensioner absolutely first would make lenders stay away, and any companies that have a chance of being saved by lenders would then die, causing more pain.

Re: Companies controlled by PE firms use bankruptcy to shed pension obligations

#40

Post by kurthr » Mon, Dec 31, 2018, 4:45 PM UTC

sct202 wrote: post #32

lefstathiou wrote: post #27

To me the bigger culprit is the unfunded pension as a tool of retirement planning. Unfunded pensions are failing or on the brink of failing almost everywhere they are tried. It's a huge scandal and deeply immoral IMO. I read the other day that NYC alone has over $100bn in unfunded pension liabilities. There is simply no budget to pay that down. Unfunded pensions taking down numerous economies in Europe. There is a co…

Interesting that you bring up Sears and Kmart, considering they are mostly owned by a PE firm that did almost the exact same thing as Sun did to Marsh; lease-backs, selling off divisions/brands, pension under funding, etc.

I read that as, the purpose of PE is to kill the sick business quickly and strip any valuble assets before dumping it in the legal fiction bankruotcy river where the remaining obligations and externalities are paid for by the public (PBGC, Superfund, water treatment).