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

#111

Post by RestlessMind » Mon, Dec 31, 2018, 8:04 PM UTC

grogenaut wrote: post #92

RestlessMind wrote: post #77

Earlier quoted context omitted.

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?

Why not go the free-ish market route (with politically acceptable regulations like creditor protections) and let the owners decide how/when to halt the company?

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

#112

Post by mlthoughts2018 » Mon, Dec 31, 2018, 8:06 PM UTC

maxxxxx wrote: post #93

qeternity wrote: post #64

Earlier quoted context omitted.

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…

Unexpected legal expenses, medical expenses, family emergencies, all with money locked away behind 401(k) rules and penalties.

As I mentioned in another comment, my grandparents had gone to some retail financial planner like Edward Jones or something, small town, some guy whose family they knew, and he just turned out to be deeply incompetent.

Imagine being elderly and not personally competent to understand ideas like the relative risk of equity or bond portfolios, and your children are equally as incompetent and can’t really help you, and the local options for financial planners are also equally as incompetent.

That’s the picture for the vast majority of people counting on using 401(k) for retirement. They don’t know if they’re in high fee equity portfolios or low fee index replication or bonds etc. They don’t understand any of that very well. They just take what the employer gives them, unwittingly own a bunch of random crap, and hope they got lucky and everything went up enough, or that someone with decent financial skill gave them sound advice.

Note that this is also a big part of how unicorn companies externalize losses to the public. Jack up the price of Uber or Spotify or something, and a while after it has gone public, nearing the time when employee lockup periods are over, random retirees and teachers and firefighters or whatever all unwittingly end up owning shares of this stuff from broad funds they don’t understand via their retirement plan.

Then the unicorn undergoes a massive correction in valuation, but investors and choice employees were allowed to sell at the known inflated prices, meanwhile the buy and hold people unwittingly owning it via a 401(k) just eat the losses.

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

#113

Post by telchar » Mon, Dec 31, 2018, 8:09 PM UTC

jandrese wrote: post #104

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?

Congress did that to the Post Office and it nearly killed them. Worse, it made them less competitive with FedEx, UPS, DHL, etc... which further exacerbated the problem. You also see this with big legacy companies that slowly get throttled by their pension schemes and are undercut but new companies full of young workers. Automakers for example. We have been underfunding pensions for a long long time because people wer…

That's because Congress was trying to kill the PO, by making them fund pensions far in advance of what would be necessary to cover their obligations.

"What if your credit card company told you: 'You will charge a million dollars on your credit card during your life; please enclose the million dollars in your next bill payment'... Well, that’s what the U.S. Postal Service’s requirement to prefund its long-term pension and healthcare liabilities is like."[0]

[0] https://www.uspsoig.gov/blog/be-careful-what-you-assume

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

#114

Post by kenmicklas » Mon, Dec 31, 2018, 8:23 PM UTC

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.

Why not? Then the wealth can be distributed to everyone fairly. Having this safety net available for everyone and not just the rich would reduce the need for wealth hoarding in the first place. Your ideology has no justification besides your own particular interest in the class position of your offspring.

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

#115

Post by mundo » Mon, Dec 31, 2018, 8:29 PM UTC

closeparen wrote: post #85

mundo wrote: post #80

Earlier quoted context omitted.

A pension is a lot like a loan - a promise to pay someone something with your future earnings. The problem is not that people sometimes fail to repay loans when they go broke, it's that they sometimes manage to weasel out of paying them despite not being broke, and then pocket the money they were supposed to use to pay the debt.

The consequences for the prospective retiree are the same regardless of whether the company is actually broke.

Sure. And if you lend me $100 and I refuse to pay it, you're out the money regardless of whether I'm living in a cardboard box or a mansion. But there's a case to be made that the law should allow you to collect your $100 in the latter case.

Obviously it's a lot more complex in the case of a PE firm buying a struggling business. But at a high level, if the company has $X in debts, it is worth $X more to someone who thinks it's possible to weasel out of paying that debt than it is to someone who doesn't. And finding novel ways to make a company more valuable than its current owners think it is is kind of the whole MO of private equity. That's what's going on here - PE firms are finding novel ways to weasel out of paying pension debt, and pocketing the difference. And what people are complaining about is that in this case, the person who's out the money is not able to collect from the courts, despite the entity who ought to be responsible for the debt living in a mansion and not a cardboard box.

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

#116

Post by TuringNYC » Mon, Dec 31, 2018, 8:51 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 think that just a big a scandal is that the PBGC (https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corpo...) doesn't have stricter requirements for funding pensions -- the teeth i.e., we stop guaranteeing if you fail to meet these requirements.

It seems unfair to me, as a taxpayer, to guarantee something that is the owner themselves aren't working to keep in good shape.

In my humble opinion, pension meltdowns will be the triggering event for massive unrest in the coming decade.

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

#117

Post by PurpleBoxDragon » Mon, Dec 31, 2018, 8:55 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…

>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.

Why? We expect people who drive cars to understand the basics of driving to the extent it is safe for them to drive. Simple diversification isn't a hard concept. Neither is risk/reward in determining where to put your money.

>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.

But you aren't guaranteed it because things can happen. Immoral or even illegal things, or just having a run of bad luck. Regardless of the cause, there is a risk for the money not being there when you need it, a risk that seems to be worse than a 401(k) or equivalent. That risk includes governments not doing what you think they should've done, because no matter how much you think they should've done something they didn't do, it still wasn't done (in this case, companies weren't forced to fund and protect their pensions).

If you have your own money, you can at least protect against this by having diversified investments, and if you are an adult who is allowed to vote then you can understand the concept of not putting all your eggs in one basket.

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

#118

Post by grogenaut » Mon, Dec 31, 2018, 8:57 PM UTC

RestlessMind wrote: post #111

grogenaut wrote: post #92

Earlier quoted context omitted.

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?

Why not go the free-ish market route (with politically acceptable regulations like creditor protections) and let the owners decide how/when to halt the company?

The answer seems to be never halt the company in most cases, just split it up and write off parts. When did yahoo end?

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

#119

Post by clort » Mon, Dec 31, 2018, 8:57 PM UTC

lozenge wrote: post #83

pm24601 wrote: post #50

Earlier quoted context omitted.

Fully funded pension plans are assets that a PE firm uses as collateral for the loan to do a hostile takeover of the firm.

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.

it might be now (?) but I seem to recall a very similar story playing out at BHS only last year..

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

#120

Post by T2_t2 » Mon, Dec 31, 2018, 8:58 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…

Is the problem then the search for a solution that works 100% of the time? I don't see any solution not having a downside, except maybe a UBI, and that's, lets be honest, just way too expensive.

I think superannuation (or 401K in US parlance) with a means tested pension backstop is the most likely to be successful, simply because it removes this sort of shenanigans, and at scale becomes a really boring industry where shonksters are less likely to exist (NOTE: LESS not ZERO) but still has a social backstop for people that just don't ever get it.