Rush Limbaugh

[Paddy]

You are right in as much as you consider it a contract. But it is more like a futures contract on the financial market, than a traditional exchange contract. The way I understand it, you are agreeeing to take a specified income right now, in exchange for a specified amount at a later date.

There are no doubt many schemes, most of them structured with 'creative accounting' as imaginative as necessary for the corporations to avoid their obligations.  This is done so the current officers and directors can show the stockholders bogus current 'profits' and thereby justify huge salaries, bonuses and perqs for themselves.  The stockholders are co-conspirators by default, since the scam is not possible without their participation.

Now since legislation like Sarbanes-Oxley has effectively stopped the ability of corporate execs to lie about assets and earnings, they're looking for ways to cut costs to boost the bottom line.  Unfunded pension obligations are an easy target, apparently.

The futures portion is that you are betting that sales will grow at a rate large enough to sustain all the retired employees who are no longer producing revenue.

If those 'futures obligations' were funded, and tied to or invested in the overall stock market, retired employees would have been easily 'sustained'.  Instead, those empty promises were in many cases never funded, and the ones that were funded were invested in some pet scheme or risky venture close to the pockets of those who directed the funds.  Out and out larceny, in my book.

That in my opinion is a sucker bet, just like Social Security.

That's a grotesque misrepresentation.  First, a bet is by definition, optional.  Social Security is not optional; you pay into the system from all earned income. Second, the SS system has never defaulted on its obligation to pay benefits; the risk is effectively zero.

[garrettwc]

There are no doubt many schemes, most of them structured with 'creative accounting' as imaginative as necessary for the corporations to avoid their obligations.  This is done so the current officers and directors can show the stockholders bogus current 'profits' and thereby justify huge salaries, bonuses and perqs for themselves.  The stockholders are co-conspirators by default, since the scam is not possible without their participation.

Now since legislation like Sarbanes-Oxley has effectively stopped the ability of corporate execs to lie about assets and earnings, they're looking for ways to cut costs to boost the bottom line.  Unfunded pension obligations are an easy target, apparently.

OK, let's assume for a second that you have a company with an unwavering moral compass, that says we are going to pay the pensions no matter what, and you have stockholders that will go along with. For various external reasons, you have less revenue coming in than you have going out. You are still going to run out of money before everyone gets paid. So is it better to bankrupt the company and pay a few more people? And what of the companies that were their suppliers who are now going to face the same problem? Can a line be drawn, and if so where?

If those 'futures obligations' were funded, and tied to or invested in the overall stock market, retired employees would have been easily 'sustained'.  Instead, those empty promises were in many cases never funded, and the ones that were funded were invested in some pet scheme or risky venture close to the pockets of those who directed the funds.  Out and out larceny, in my book.

I can't argue with that point. But that's where the employees and the unions are culpable to some extent. They didn't spell out the nature of the investments and then follow up to see that they were adhered to when they voted on the contract.

First, a bet is by definition, optional.  Social Security is not optional; you pay into the system from all earned income. Second, the SS system has never defaulted on its obligation to pay benefits; the risk is effectively zero.

Payment into the system is mandatory. Not investing your money elsewhere as a hedge, and then allowing yourself to become dependent on SS is optional.

SS has not defaulted, because unlike corporations, the federal government can spend more than it takes in as tax revenue, and increase revenue by raising taxes. Would you really want companies to engage in that same practice? The CEO and shareholders (equivalent to POTUS and Congress) decide to fund the shortfall by increasing the amount you pay into the pension?

[Paddy]

Bush gets it right  He's saying "you made a promise, now keep it".

For various external reasons, you have less revenue coming in than you have going out. You are still going to run out of money before everyone gets paid. So is it better to bankrupt the company and pay a few more people?

Less revenue=reduced need for employees, no?  Layoffs reduce payroll and the corresponding pension obligations.

I can't argue with that point. But that's where the employees and the unions are culpable to some extent. They didn't spell out the nature of the investments and then follow up to see that they were adhered to when they voted on the contract.

That's blaming the victim for the crime.  Although the language will differ from contract to contract, you can bet assurances were given the unions that 'professional' managers would direct the investments for the benefit of the employees.

SS has not defaulted, because unlike corporations, the federal government can spend more than it takes in as tax revenue, and increase revenue by raising taxes. Would you really want companies to engage in that same practice? The CEO and shareholders (equivalent to POTUS and Congress) decide to fund the shortfall by increasing the amount you pay into the pension?

A direct comparison of social security to retirement pension funds allegedly invested in the stock market is not possible.  Social security 'contributions' are stolen and spent by the federal government and replaced with IOU's; accordingly, the 'fund' has no source of growth other than subsequent 'contributions'.  Pension funds, OTOH, have continuing contributions and stock market growth, along with the economy.  Over the past many years, the stock market has increased substantially in value.  Proper investing and diversification of the pension funds would have grown accordingly.  These pensions were largely 'unfunded', consisting of only entries on the corporations books, so there was no stock market 'growth' possible.  The companies planned to renege from the beginning.

[Headless Thompson Gunner]

Bush gets it right  He's saying "you made a promise, now keep it".

The problem is that many companies can't keep their pension promises.  The sad fact is that they'll go bankrupt if they continue to pay out at the rate they promised they would.  And if they go bankrupt, they won't pay back ANY of their obligations to ANY of their creditors.

So whadya do if you're one of these companies?  Welsh on your pension promises, or welsh on all of your promises?   Avoiding bankruptcy certainly seems like the wiser alternative.  But how can you justify selectively and arbitrarily deciding which promises to honor and which to break?  It's a tough situation either way.

To the retirees it doesn't matter whether the company goes under or merely screws all of the pension holders.  Either way they won't get the checks they were promised.

Which is why you NEVER rely upon anyone else for your well-being.  If it's not in the bank with your name on it, then it isn't safe to depend upon it.

"Chicken ain't chicken 'til it's finger lickin' fried and on the table."

[garrettwc]

Less revenue=reduced need for employees, no?  Layoffs reduce payroll and the corresponding pension obligations.

Future obligations yes. But not current ones for employees already retired. I guess it depends on how the company funds the pension. If they deposited the money into an escrow account that was invested properly, that would hold true. I suspect several of them have funded existing pensions with money collected from current employees.

That's blaming the victim for the crime.

Not my intent, only trying to point out that the "victims" should have taken the necessary steps to protect themselves.

Pension funds, OTOH, have continuing contributions and stock market growth, along with the economy.  Over the past many years, the stock market has increased substantially in value.  Proper investing and diversification of the pension funds would have grown accordingly.  These pensions were largely 'unfunded', consisting of only entries on the corporations books, so there was no stock market 'growth' possible.  The companies planned to renege from the beginning.

If that turns out to be the case, then I would agree the company needs to be held accountable. What you describe would be malfeasance through a deliberate act, rather than financial failure. As to the type of investment in the pension I suppose that varies. In my father's case, the pension wasn't in the stock market, it was an annuity much like the ones you get from a life insurance company. Growth rate barely matched inflation, but it was reasonably safe.

Look at Headless Thompson's last post. I'm not saying there aren't corrupt some companies or union leaders cooking the books and skipping out with the pension fund. We all know that has happened and that's a foolish argurment.

What I am saying is that you as the investor shouldn't put all your eggs in one basket.

[Paddy]

I can speak from personal experience that the SS organized theft system system often fails to come through when needed. My dad died at 61, my mother wasn't quite 50 and, in a situation of bankruptness, debt, a halfway finished 800 mile move, a fourteen year old boy, and no income, couldn't collect a single penny from SS because she "wasn't old enough".

Blackburn, that doesn't sound right.  According to this, your mom should have been eligible for survivor's benefits based on your age (14).  How long ago did you dad pass away?