on retirement planning

[acroyear]

In response to Mike the Mad's suggestion that old-school benefit pensions are a better alternative to the unreliability of market-based 401K plans, I wrote the following...

Pity the Poor Couple Who Make $250,000 Per Year (Haven't We Been Through This Before?) : Mike the Mad Biologist:

I still see (just looking at the blatantly obvious examples of the car and airline industries, and state governments) that the pension idea simply will never work anymore. The idea of a corporation paying for your retirement is a sign of "loyalty" that simply does not exist anymore, either for the worker to the company or the company to the worker. It is predicated on the idea that a company will only ever get bigger and continue to grow its profits, something the industrial world has shown is simply no longer the case. Finally, it puts retired workers directly at odds with a corporation's REAL "customers", the stockholders, over who actually gets the lions share of the profits even if that ever-increasing growth actually takes place. Given how the law benefits stockholder value when it comes to the legal responsibilities of a board and a CEO, the pension fund will always go before stockholder dividends do.

Now, the obvious "out" for all of that is to replace pension funds with retirement stock grants (my last company did something similar, replacing 401K matches with ESOP grants), but that just makes matters worse: not only is your retirement all dependent on a single company's performance far in the future beyond your time working for them, but unlike a pension fund, there is no government protection when that stock value drops down to a penny a share because the market forces simply left them behind or the CEOs screwed the pooch royally. Enron is a textbook example for that.

401K and IRA may suck, and benefit the wealthy (or at least the upper middle class) more than most others, but outside of actually increasing social security benefits, it really is all we have left.

Faith in in the success of a single company after you're no longer working for them is faith in a failed system, based on assumptions of future growth, or even future existence, that could never hold out forever...or even into next week.

Comments

[stori-lundi.livejournal.com]

One of the things I would like to see enacted into law is that if an employee is laid off through no fault of their own, they immediately vest in their 401K matching. I can understand why companies use the vesting scheme to encourage employees from jumping ship, taking money out of the 401K of employees that have been laid off just hurts everyone in the future. I lost several thousand dollars in my 401K because I was laid off after 3 years in one company. They had already committed that money so the company has already budgeted for it. 20-30 years down the road when I retire, that few thousand dollars could be tens of thousands of dollars. Plus money stays in the market for that time as well. Win for everyone.