Companies should never be responsible for managing the retirement savings of their employees. I can't imagine that this every made any sense, but it's an idea that comes from an era when there were a lot of big stable companies that people believed would be profitable for an entire lifetime. We've now seen ample evidence that such companies are really unusual.
Companies controlled by PE firms use bankruptcy to shed pension obligations
41–50 of 155 posts
Re: Companies controlled by PE firms use bankruptcy to shed pension obligations
#42Earlier quoted context omitted.
Sometimes companies maintain high friction/high cost crap like that to scare off acquisition. A friend worked for a regional bank that had a strategy of purposeful obsolescence to maintain control with the core shareholders, who were mostly from one family. They were using 1980s era AS/400 systems with terminals as late as 2008, and had only 1 PC assigned to a manager in the branches, with connectivity via ISDN.
I hadn't thought of this to be honest, but I do faintly remember the IT / Dev team using the "not technically feasible" line a bunch whenever Marketing would come through with stuff. Used to get me angry quite a bit and I saw it translate a bunch to lost revenue and increased costs. I don't know how much of this got sent out of Marsh and up to Sun though.
Lazy IT people are always a good excuse too. Especially in CFO driven IT shops.
I've seen people waste millions on magical systems that did very little out of inertia. In one case, a system with something $10M in annual costs that managed terminal (as in VT-102 terminal) and line printer assignments. A decade after the printers were trashed and terminals moved to a (almost equally offensive) very expensive web-based system.
Re: Companies controlled by PE firms use bankruptcy to shed pension obligations
#43Still 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.
Re: Companies controlled by PE firms use bankruptcy to shed pension obligations
#44To 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?
I'd like to know the answer to that. I'm curious how it's legal to call something a "pension" without legal guarantees and professional oversight. Otherwise it's less a "pension" and more a "vague promise".
Re: Companies controlled by PE firms use bankruptcy to shed pension obligations
#45Defined 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…
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?
Re: Companies controlled by PE firms use bankruptcy to shed pension obligations
#46To 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…
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.
Re: Companies controlled by PE firms use bankruptcy to shed pension obligations
#47This kind of thing is horribly common in declining firms - a last minute attempt to asset-strip everything of value and transfer it out of the corporate entity, which can then go bankrupt, stiffing creditors and employees. See also Radio Shack, Toys R Us, Maplin, and British Home Stores: https://www.theguardian.com/business/2017/feb/28/philip-gree... (The astonishing thing there is that somehow the thief was shamed i…
Newspaper are an excellent example as well.
https://www.bloomberg.com/opinion/articles/2018-03-26/alden-...
Re: Companies controlled by PE firms use bankruptcy to shed pension obligations
#48Earlier quoted context omitted.
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?
Make a conscious and overt decision to forfeit those accumulated benefits.
Re: Companies controlled by PE firms use bankruptcy to shed pension obligations
#49As 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 irresponsible for a firm to fund the pension fund as it will be used against the firm.
The solution:
1. Require that any loan be based on the assets currently controlled by the PE firm.
2. Eliminate tax deduction for debts that are not directly tied to capital purchases.
Re: Companies controlled by PE firms use bankruptcy to shed pension obligations
#50To 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…
Fully funded pension plans are assets that a PE firm uses as collateral for the loan to do a hostile takeover of the firm.