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Companies controlled by PE firms use bankruptcy to shed pension obligations

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

#91

Post by d4rti »

kurthr wrote: post #40
sct202 wrote: post #32

Earlier quoted context omitted.

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).

Perhaps it should be called Public Subsidy instead.

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

#92

Post by grogenaut »

RestlessMind wrote: post #77
fatbird wrote: post #38

Earlier quoted context omitted.

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?

Why? I can think of multiple reasons. Some essentially boil down to human nature - short-term thinking, preferring politicians who make rosier promises ("assume high rate of return on pension investments and lower the taxes") against honest politicians ("increase taxes since current levels are unfunded"), etc Some are about societal changes no one can honestly predict - avg lifespans increasing (avg life expectancy i…

I imagine it’s a lot like any other cash flow issue. It’s in no ones best interest to halt the company the instant it can’t meet its obligations by $1. You get a loan instead. But when do you halt the company?

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

#93

Post by maxxxxx »

qeternity wrote: post #64
sct202 wrote: post #58

Earlier quoted context omitted.

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+.

If they were retiring within 5 years and had substantial equity holdings, then this is the real problem. They should have been mostly in credit and as rates plummeted, credit rallied. They would have done quite well.

"They should have been mostly in credit and as rates plummeted, credit rallied. They would have done quite well."

That's the thing with investment advice. There is a lot of "should" and "would" advice in hindsight but not so much concrete advice about the now. Also, if you just have a major medial issue, all your well-laid plans will be moot.

We are engaging in a massive financial experiment over the last few decades. I know people who started working in the 80s and did extremely well. But they started from a low stock market, had massive housing appreciation and didn't have huge college debt. If you started working in 2000 with a Dow of 11000 the picture is less pretty. And for people who are starting now it's just plain ugly. Houses are already super expensive, they have college debt and the stock market is expensive. They won't see the growth the people who started in the 80s saw. But somehow they are still held to the same standards.

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

#94

Post by tedmiston »

closeparen wrote: post #88
lozenge wrote: post #83

Earlier quoted context omitted.

Shouldn't the assets of the pension plan be owned by the individual employees? A PE can't acquire a stock broker and just sell the stocks in people's accounts for profit. Why is a pension different? FWIW this is exactly how it works in the UK. After employer and employee contributions are made my employer has nothing to do with what it's invested in etc.

With a 401k, you own the underlying assets, and a brokerage is just holding them for you. With a pension, you own a promise from the employer to pay you a fixed amount. How it does that is (theoretically) none of your concern. Some consider pensions to be more pro-worker because you're entitled to the same payout regardless of market performance. But it seems to be turning out that the 401k is more worker-friendly, a…

Even better rolling over from a 401k to an IRA where the worker truly has full control over the expenses of their retirement as well.

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

#95

Post by [deleted] »

late2part wrote: post #12
prklmn wrote: post #7

Earlier quoted context omitted.

It’s only ok because they’ve written all the laws for themselves. Of course the common person would not deem this to be ok.

We the people of the United States of America elect the people that write the laws. If we don't like what they're doing, vote them out and vote in people that will write the laws we want.

[deleted]

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

#96

Post by frgtpsswrdlame »

madengr wrote: post #81
kenmicklas wrote: post #33

Earlier quoted context omitted.

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

So you are supposed to just give your estate to the government? Fuck that.

A king would say the same thing about his throne. Why should privilege - whether it's power or wealth - flow through bloodlines if we can prevent it?

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

#97

Post by eropple »

RestlessMind wrote: post #87
eropple wrote: post #74

Earlier quoted context omitted.

> 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). Yes, there is a reason: people matter more than companies. Lenders can price that risk in. If that makes lenders "stay away"? Then the executive teams that get their golden parachutes get screwed too , and I'm frankly pretty okay with that. And let's be…

If lenders stay away, then execs get screwed and rest of the company gets screwed as well because now everyone is out of their jobs. Isn't that a worse outcome overall?

The majority, when it isn't all, are functionally already out of their jobs. These bridge investments exist to provide the runway gut the company and sell off its assets. I have no real problem with PE firms not getting to do that at the expense of people who the company have promised things to.

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

#98

Post by tedmiston »

vageli wrote: post #66
rubidium wrote: post #37

Earlier quoted context omitted.

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'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. What is "something safe"? I was under the impression that 401ks are not really known as risky investments.

401ks are investment vehicles or "buckets" that contain investments, rather than investments themselves, so a 401k's risk level depends entirely on the underlying assets (investments) that it holds. There is nothing inherently more safe about a 401k from an investment perspective compared to any other type of bucket.

Within their 401k, most people hold a higher percentage of stocks (more to gain) earlier in their working life and transition to a higher percentage of bonds (more stability / safety) later in life as they approach retirement.

Good concrete examples of what to hold are Vanguard's funds which are low cost and own the whole stock market because they're index-based. VTSAX for stocks and VBTLX for bonds.

https://investor.vanguard.com/mutual-funds/profile/overview/...

https://investor.vanguard.com/mutual-funds/profile/overview/...

There are also target-date funds (also called target retirement date funds) which automate the transition from stock heavy to bond heavy based on a future retirement date, and you pay extra for this benefit, but BE CAREFUL as many of them charge significantly more fees than doing it yourself.

Vanguard is one of the best (lowest fee), so for example, their TDFs have a 0.13–0.15% expense ratio while the two index funds above have ERs of 0.04% and 0.05% respectively.

It is not uncommon for the more popular mutual fund providers to have radically higher expense ratios in the neighborhood of 1–2%+ (in addition to other more subtle fees). The difference might sound small but compounded over decades, the effect is massive. (There's a reason people working in finance are paid so well.)

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

#99

Post by deogeo »

closeparen wrote: post #88
lozenge wrote: post #83

Earlier quoted context omitted.

Shouldn't the assets of the pension plan be owned by the individual employees? A PE can't acquire a stock broker and just sell the stocks in people's accounts for profit. Why is a pension different? FWIW this is exactly how it works in the UK. After employer and employee contributions are made my employer has nothing to do with what it's invested in etc.

With a 401k, you own the underlying assets, and a brokerage is just holding them for you. With a pension, you own a promise from the employer to pay you a fixed amount. How it does that is (theoretically) none of your concern. Some consider pensions to be more pro-worker because you're entitled to the same payout regardless of market performance. But it seems to be turning out that the 401k is more worker-friendly, a…

> With a pension, you own a promise from the employer to pay you a fixed amount. How it does that is (theoretically) none of your concern.

I'm mostly in the dark about the US pension system, so forgive me if the question is a silly one: How is this 'promise' not a legally binding debt, to be repaid as much as possible by the selling of assets during bankruptcy?

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

#100

Post by 50656E6973 »

late2part wrote: post #12
prklmn wrote: post #7

Earlier quoted context omitted.

It’s only ok because they’ve written all the laws for themselves. Of course the common person would not deem this to be ok.

We the people of the United States of America elect the people that write the laws. If we don't like what they're doing, vote them out and vote in people that will write the laws we want.

That doesn't seem to be working.
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