DB Pensions - Are they REALLY THAT worth it

[bgc_fan]

Interesting .... I guess it depends on the organisation ...

I'd consider the manager to be middle management.

The mid-sized Canadian insurance company that I left around 1994 had a managers salary range that topped out at $72K. The IT department had three of them (one for the technical staff and two for the programming staff). There is at least six more I can recall (Actuarial, Group Pensions, two more in Mortgage, Individual, Group Account Services), without really trying.

I should have been a little more clear. I was referring to a particular federal government department that I was in where most that you could consider middle-managers (overseeing anywhere from 10-100 people) probably had a $60K salary. BTW the salaries are not secret by any means, you can just look on the Treasury Board website assuming that you can attach the specific position to a classification. As for bonuses, while I am not an expert on the collective agreements, I am unaware of any provision to award bonuses.

The exception are the EX (executive classification) types who do have high compensation (start at $100K) and have at-risk pay; however, they are the top managers (a step below the deputy ministers) and are not unionized. They are certainly not representative of rank-and-file, or middle-managers. Their duties (considering that they manage a governmental department) are probably more akin to a CEO.

Leaving aside a handful of professions like doctors, and maybe teachers, the vast majority of govt. workers do not have any magical skills or unusual educational qualifications.
They are no more, and no less, skilled and qualified than similar private sector workers.
Yet, the labor market is rigged in their favor due to collective bargaining and the political clout of the unions that represent them.

There are almost no private sector corporations that provide public sector style DB pension plans to its employees.
And it is not because the private sector companies are greedy, corrupt, profiteering corporations (as the chest-thumping union leaders allege).
It is simply because the public sector has an carte blanche to gouge the tax payers until eternity.

I'd like to include people like law enforcement, firefighters, military into those professions. As well, considering the size of the govenment, one should expect internal support as you can not privatize everything, though the government does try to do that when it attempts to "cost-cut".

The public sector is not the only one to gouge the tax payers, as many private companies will do the same when given the opportunity. While the e-Health portfolio was very mismanaged to say the least, the consultants were happy to cash the checks and provide no return.

Anyway, to get back more on topic, the way I see it is that when starting out on the career, people will look at the government job with pension, and then look at a private sector job with higher pay and pick the private sector job. For example, in some trades (HVAC, refrigeration) the federal government can not attract anyone because the private sector job pay is much higher. It was an issue for the computer type positions as well, which is why their government salaries are fairly high to compete with the private sector. Now, ten or twenty years down the road, when the workers start thinking about retirement and look at the federal DB pension against what they saved via RRSP, they may start to grouse and complain about the gold-plated pensions, but they made their decision.

[sags]

What has changed in the world is not the ability of business to pay for DB pensions (they are hoarding record levels of cash) but the unwillingness to do so.

Somewhere..........somehow.........sometime....... .....the view of business towards it's workforce changed from employees being a valuable asset to the company........to the employees being a necessary evil and a cost to be eliminated.

[MoneyGal]

What has changed in the world is not the ability of business to pay for DB pensions (they are hoarding record levels of cash) but the unwillingness to do so.

Somewhere..........somehow.........sometime....... .....the view of business towards it's workforce changed from employees being a valuable asset to the company........to the employees being a necessary evil and a cost to be eliminated.

Average retirement length in the 1940s was about 10 years (people lived about 10 years after retiring - they worked later, and died earlier, than they do now). Average retirement length now is about 20-22 years (people are retiring earlier and living much longer). That's more than doubling. If your costs for something doubled over time, would your willingness to pay the new costs change?

[Square Root]

Average retirement length in the 1940s was about 10 years (people lived about 10 years after retiring - they worked later, and died earlier, than they do now). Average retirement length now is about 20-22 years (people are retiring earlier and living much longer). That's more than doubling. If your costs for something doubled over time, would your willingness to pay the new costs change?

+1 Also the riskiness of the assumptions and investments available to plan sponsors has probably increased as well. I don't believe for a minute that employers generally view employees as a necessary evil .....to be eliminated.

[Daniel A.]

Don't forget that many of the plans have health care costs as well.

[sags]

While average life spans of employees were lengthening, the productivity of each worker has grown at a much faster rate.

Fewer employees produce many more goods and services for a lower labour cost per unit.

That fact is rarely, if ever mentioned in articles or discussions involving the cost of labour.

At one time a lumber company sent a gang of tree cutters into the woods with axes and saws. They cut a few trees a day.

Today, they send one man in a machine to cut down and strip hundreds of trees all by himself.

The cost of machinery per tree cut went up..............the cost of labour went down.

Auto assembly lines used to employ 3,000 people to produce a few hundred cars a day. Today, the same 3,000 people produce 70 cars an hour 24 hours a day. The cost of machinery went up.............labour costs per unit went down.

Lengthening lifespans is only one factor

Employees are the first to go, when companies implement cost saving restructuring, and companies are more than willing to heap more work onto the ones that are left.

The evidence of that is all around us.

Never heard of............or been subject to.........time study evaluations?

They only exist to show companies how to eliminate employees.

[Daniel A.]

sags remember that the cost of products has come down as well due to improved productivity.
All companies in this age are looking at any savings they can get show them on paper something that will save 15% and its done.
If I had a company there is no way I'd offer a DB plan but I sure like collecting mine.

General Motors has something like four retirees for every worker.

[sags]

sags remember that the cost of products has come down as well due to improved productivity.
All companies in this age are looking at any savings they can get show them on paper something that will save 15% and its done.
If I had a company there is no way I'd offer a DB plan but I sure like collecting mine.

General Motors has something like four retirees for every worker.

Using GM as an example, and other companies could be similarly used, their retirees were employees of the company for 30 years or more. Many of those years were record breaking profitable years, and yet GM failed to properly fund the pension plan to perpetuity. They chose rather to use unrealistic future returns of 9% annual return on pension capital to lower or eliminate annual contributions to the pension plan, which in turn paved the way for the declaration of higher profits and therefore higher executive compensation based on those profits. Record profits also served to raise stock values in the corporation, which was a major part of the compensation for executives and management retirees.

Other corporations declared themselves "pension holidays", aided and abetted by governments. It was argued many times in our courts, who owned the pension "surpluses" at the time.

Had surpluses been left to build, pension plans would probably not be in financial duress

The relationship of workers to retirees is often quoted, and it does have an impact when working employees are expected to pay for those already retired........but that isn't how pension funds should be properly funded. Past retirees should have paid for their own retirement, and current workers should be funding their future retirement.

I view this whole debate of pension vs non pension as the "have nots" vs the "have a littles", as if the elimination of pensions by the minority will somehow assist those without pensions........in their own retirement.

I don't see how that will happen.

The discussion should be why record earning corporations can't afford pensions, but are being allowed by compliant governments to dump all future retirement liabilities onto the government.

If people are angry that pensions are being funded through their tax dollars, what do they think is going to happen in the future, when millions of workers retire totally dependent on government resources?

The pooling of wealth among fewer and fewer citizens is a problem that has changed history in the past and will do so again in the future.

[Saniokca]

They chose rather to use unrealistic future returns of 9% annual return on pension capital to lower or eliminate annual contributions to the pension plan.

Not too sure about "chose" because that assumption is set by the actuary and the report is reviewed by the auditor. It is easy to look back today and say it's "unrealistic"...

Other corporations declared themselves "pension holidays", aided and abetted by governments. It was argued many times in our courts, who owned the pension "surpluses" at the time.

Why would any corporation want to be in a surplus if they might not get it back? Don't forget that pension plans are not mandatory.

Had surpluses been left to build, pension plans would probably not be in financial duress

You would have to take that one up with CRA - they put a cap on how much surplus a pension plan can have. By the way, after the 2008 disaster they increased the cap.

The relationship of workers to retirees is often quoted, and it does have an impact when working employees are expected to pay for those already retired........but that isn't how pension funds should be properly funded. Past retirees should have paid for their own retirement, and current workers should be funding their future retirement.

Agree here, however this creates two problems. If you look at government pension schemes (like the cpp/oas/etc.) the issue is that the retirees are funded by current workers so it's harder to support with the lower ratios.

If however you are looking at a pension plan, at some point the plan becomes "mature" and cash outflows start to be higher than contributions (I think Ontario teachers' plan has that problem now). This means that if you have a bad year with investment income, it's a lot harder to bounce back with just investment returns. This means you need to contribute more. Since you don't have as many "active" workers the costs/worker soars.

I view this whole debate of pension vs non pension as the "have nots" vs the "have a littles", as if the elimination of pensions by the minority will somehow assist those without pensions........in their own retirement.

I don't see how that will happen.

The argument is not against the "haves" in the private sector, it's against the "haves" in the public one.

The discussion should be why record earning corporations can't afford pensions, but are being allowed by compliant governments to dump all future retirement liabilities onto the government.

If people are angry that pensions are being funded through their tax dollars, what do they think is going to happen in the future, when millions of workers retire totally dependent on government resources?

Why is it the corporation's responsibility to care for you? You work and get paid - that's it. If the corporation wants to throw something in that's great. Do you suggest forcing corporations to have pension plans?

The pooling of wealth among fewer and fewer citizens is a problem that has changed history in the past and will do so again in the future.

I agree here... However this time I don't think that it's happening because of greedy evil corporations... And definitely not in Canada/USA. Here if you are not lazy you will succeed.

P.S. sorry about the long post

[uptoolate]

HaroldCrump wrote: 'Leaving aside a handful of professions like doctors, and maybe teachers, the vast majority of govt. workers do not have any magical skills or unusual educational qualifications.'

I'd like to include people like law enforcement, firefighters, military into those professions.

Just to clarify, doctors don't enjoy the benefits of being government employees: no DB pensions, no medical coverage, no dental coverage, no sick days, no vacation days, etc. They do, however, have the government control how much they can bill, earn and to some extent where or even if they can practice. And yes, there is quite a bit of education involved, magic - not so much!