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

#51

Post by ataturk » Mon, Dec 31, 2018, 5:17 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…

The state of Illinois, the state of California, probably most other states, too, all in the same bad situation. If you look at the budgets for school districts, same thing--a lot of $$$ going to pension obligations, starving the rest of the organization. Our taxes keep going up, but no level of tax can fill this void. Pensions were pretty much a ponzi, they spent the money and what they invested failed to perform as projected.

Every city, county, local municipality, and school district over-promised on pensions while underpaying salaries.

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

#52

Post by pm24601 » Mon, Dec 31, 2018, 5:18 PM UTC

rubidium wrote: post #37

mlthoughts2018 wrote: post #31

Earlier quoted context omitted.

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 g…

> It should be a separate company that exists solely for the purpose of paying the benefits at retirement.

Yes. S.O.C.I.A.L. S.E.C.U.R.I.T.Y.

Look how well Americans will fight for and defend Social security benefits.

We really should just force an expansion of Social Security like most civilized countries.

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

#53

Post by ghaff » Mon, Dec 31, 2018, 5:19 PM UTC

rubidium wrote: post #37

mlthoughts2018 wrote: post #31

Earlier quoted context omitted.

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 g…

>"glory" days of employer-paid pensions

Furthermore, the structure of most of those pensions was oriented around long-term (i.e. decades-long) employment at big, stable employers. Someone who moved around every few years would probably end up without much of a pension.

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

#54

Post by pm24601 » Mon, Dec 31, 2018, 5:21 PM UTC

samfisher83 wrote: post #43

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…

Equity holders are pretty low on the totem pole. Pension holders would have higher bk priority.

Reread the article. Clearly the PE owners have figured out exactly how to get all their money out before bankruptcy.

Sears, Toys R' Us, Marsh .... all brought by PE firms. All drained dry by interest payments, until there is nothing left.

The vampires have already gotten all the blood out of the body before bankruptcy occurs.

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

#55

Post by mythrwy » Mon, Dec 31, 2018, 5:24 PM UTC

cityzen wrote: post #30

Just another illustration that the "America" you learned about is not the America™ we live in. As a parent I find it more and more difficult to try to teach my kids the reality of America without sounding like a conspiracy theory nut job. I do not want my kids growing up with blindly trusting that any institution (schools, corporations, government, etc.) have their best interests in mind. In a way I feel like selling…

I feel similar, but think it's less the institutions are corrupt and more institutions have been co-opted by corrupt people seeing opportunity for profit without contribution.

I don't know how to fix it, it seems a deeply entrenched problem at many levels and each level will vigorously deny they are the problem. Healthcare and education being two of the most egregious examples but similar problems exist in many areas in public and private institutions.

It's like a fungus or rot or something. A food source exists, a store of value which is supposed to provide energy to the social whole which gets infected by middle (and upper) management, consultants etc, pathologically twisting the flow of energy away from the original purpose and into their own pockets. I don't think it's "conspiracy" to notice this seems to have grown rampantly in the past few decades in the USA. So it's very easy to get cynical. But we either solve these problems and return to standards of non-kleptocracy and general justice and welfare or we die as a society. This has happened before in human history. It's not easy to roll back corruption and usually it doesn't happen, but the possibility exists.

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

#56

Post by kokokokoko » Mon, Dec 31, 2018, 5:24 PM UTC

Sometimes I look back and wonder if this last 30+ years of PE firms consolidating and eating up all of these mid sized companies is actually the reason things haved trended towards very large corporations. As opposed to economies of scale etc. A large market cap is probably the best defense a company has against being bought out. It's almost like being a giant whale in the ocean as opposed to a fish.

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

#57

Post by AlexTWithBeard » Mon, Dec 31, 2018, 5:24 PM UTC

tome wrote: post #45

rileymat2 wrote: post #34

Earlier quoted context omitted.

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…

In the UK you can buy an annuity with the proceeds of your pension fund at retirement. Is the same not true of a 401(k) in the US?

There's always a risk an annuity provider will go bust.

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

#58

Post by sct202 » Mon, Dec 31, 2018, 5:25 PM UTC

heneryville wrote: post #46

mlthoughts2018 wrote: post #31

Earlier quoted context omitted.

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…

How on earth could a retirement savings have been totally wiped out by the 2008 financial crisis? If you had bought at the peak and sold at the bottom (unlikely for a retirement account), you'd have lost at most 50% of your value. Holding on 5 more years and you'd be totally recovered.

They probably didn't have a whole lot of buffer when they retired, so having a drop of half right when they start to use the money could cause their fund to become unsustainable. Plus a lot of older people tend to rebalance towards bonds when they retire, so if they did that at 2008/2009 they wouldn't have gotten to recover as much from the stock markets in 2010+.

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

#59

Post by corebit » Mon, Dec 31, 2018, 5:27 PM UTC

pm24601 wrote: post #49

As a natural person, our interest payments are NOT tax deductible. Corporations get to deduct interest costs from their taxes. So PE firms are incentivized to load up the firms they attack with debt. Additionally, PE firms are allowed to use a firm's own money as collateral for the loan used to take over the firm. This includes the pension funds. So any public firm responsibly run is subject to attack. Its almost irr…

Or just let the market move away from pensions entirely, like any sane, moral person would choose.

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

#60

Post by tw04 » Mon, Dec 31, 2018, 5:27 PM UTC

ChrisLomont wrote: post #39

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 someti…

>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.

And when is the last time one of these companies had their pensions cut, executives paid, then turned around the ship to be successful?

I mean, that's a great story on paper, but it's never the way this plays out. BEST CASE a PE firm buys up the company then sells off the assets at a profit to themselves. The workers NEVER come out ahead and almost universally would be better off if the company went under leaving them with whatever the partial pension funding was.