# DB Pensions - Are they REALLY THAT worth it



## Plugging Along (Jan 3, 2011)

After reading all of these threads on pensions, I have to admit, I am a little confused, or more so looking for clarification reading DB pensions.

Based on advice I have been given for my personal situation, I have been told that it was better not to lock myself into a pension or the 'golden handcuffs'. The logic was that I was young, and the probability of me staying with a company for a lifetime was slim to none. I could do better one my own (coming from a family of entrepenuers), and not ever be worried of being tied down.

That being said, the first company had an DB or DC option, I choose the DC option, and my current company has a DB. In order for me to collect my pension (without penalties), I would need to work there another 17 years. I have only been there 2. Based on the pension calculator tool it puts me at less that 50% of my income. 

I am used to moving jobs (usually to something for more a learning opportunity or promotion type) on average every 18-24 months, it's been like this since I first started working. I have been fortunate enough that the companies I have worked for have been very large, and have had a lot of movement within the company. However, my plan in about 3-4 years is to leave my current job, and start consulting full time for my own business. 

I have never considered the DB that much more of a benefit, as I don't ever really expect to get the full benefit (if that makes sense, I was planning to move my plan into my locked in RSP, like my past one). It seems like most people here considered the DB pension the holy grail or something. What am I missing?

I know that the DB is gaurenteed return, however, the amounts seem rather low if I don't plan to contribute for the whole time. Also, I know if leave the public sector, I will earn easily 20-30% more in terms of salary, and if I go out consulting, it will be more than double. Wouldn't it make more sense to make more money now, invest the difference, than stay with a DB plan?

Hope this makes sense.


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## GoldStone (Mar 6, 2011)

My 2c but I'm not a pension expert.



Plugging Along said:


> It seems like most people here considered the DB pension the holy grail or something. What am I missing?


I think you are missing the context. It's *government* DB pensions that are the holy grail. Not the private ones (though some private ones are pretty good too).

The benefits of government DB pensions:

1. Unlike private pension plans, government plans cannot fail. They are backed up by the taxpayers.

2. Very generous payout formulas. 70% of the best 5 years, or something of that nature.

3. Generous early retirement provisions. A person can retire with a full pension at age 55.

4. Full or partial pension indexation to the rate of inflation.

5. Portability of accrued pension credits between different government plans.

I'm sure I missed some important benefits (there are so many!).

All that said:

If I remember correctly, you are in some kind of executive position in the private sector. If so, good DB pension is not worth as much to you as it is to a regular salary slave. You have the earning ability to accumulate high net worth. This is much more valuable than any DB pension.


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## Plugging Along (Jan 3, 2011)

Thanks for the inforamtion. I didn't know there were a difference between private and public DBs. The company I worked with before was a private sector with a DB, and it's has pretty much the same types of payouts as the one I currently have with the public sector. I guess I just never really valued the DB pension at either of my places of employement. 

I'm not an executive, but am in a middle management type of position, and do have the potential to move relatively easily or go out on my own. I am just trying to understand what I would be potentially giving up.


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## Square Root (Jan 30, 2010)

Some private pension plans are also generous and well funded, ie banks, oil co's i would day generally that , for the fairly small cost to join, most plans are worth it. I worked at my last job for about 20 years and now receive a very generous pension. Pension insolvency is very rare.


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## kcowan (Jul 1, 2010)

If you are not intending to stay with one plan for 20+ years, then building a big RRSP while consulting is the way to go. If you get employment, DC is better because you can take it with you. I worked for mega-corp for 25 years but I never had one job for more than 3 years while other people did the same job over again for each of the 25 years.

The ability to have many jobs in a big company is more rare now.


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## Four Pillars (Apr 5, 2009)

Plugging Along said:


> I am just trying to understand what I would be potentially giving up.


I think at this point, it's too late to really consider the DB/non-DB path. Ideally you want to start the DB thing in your twenties and set yourself up for retirement in your fifties or early 60's. I think you are slightly older? Ie late 30's?


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## Eclectic12 (Oct 20, 2010)

GoldStone said:


> My 2c but I'm not a pension expert....
> 
> All that said:
> 
> If I remember correctly, you are in some kind of executive position in the private sector. If so, good DB pension is not worth as much to you as it is to a regular salary slave. You have the earning ability to accumulate high net worth. This is much more valuable than any DB pension.


Strange ... if for an executive a good DB is not worth as much - why do public companies offer executives not only a DB pension but a supplemental DB pension to make up for the legislated maximum the regular DB pension can pay?


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## HaroldCrump (Jun 10, 2009)

Square Root said:


> Some private pension plans are also generous and well funded, ie banks, oil co's


Many of the banks/FIs are switching to DCP now.
The most recent was RBC.
Couple of years ago MFC switched as well.
It is getting harder and harder for private, profit-driven corporations to continue this model.

Unlike the various levels of govt. that have pretty much carte blanche to pillage the tax-payers to sustain this model.


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## Eclectic12 (Oct 20, 2010)

Now that the first coffee of the day is done ... while the discussion of staying with the DB plan or not is important, I'm wondering if it is relevant.

The OP says the current company offers a DB plan. Where this is the only plan offered, this likely means that when the OP reaches enough time with the company - he will be forced to join the DB plan. Companies I've worked for that had only a DB plan, required say two years of service before I was forced to join the DB plan. Only one of three allowed a five year window to decide (i.e. two years of service, option to join for the next five years, automatically joined the plan after five years), where eventually I had to join the DB plan.


The times I've heard of a choice are two situations. 

The first is where the employee was a DB plan member, a DC plan was brought in for new hires and for a limited time, the DB plan members could opt to transfer to the DC plan.

The second is when the employee has quit.


The situation may end up being that the OP will be in the DB plan until they leave the company (or a DC plan is brought in).


Cheers


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## Daniel A. (Mar 20, 2011)

Two good books worth reading, Pension Ponzi , Retirement Heist, explain in detail the ins and outs.

To capitalize on the DB pension years of service is everything as it is a major part of the formula.
In my case a private company DB was a benefit no contribution by me required, I had the option of switching DC after 20 years of service now the numbers.
In the first twenty years the cash value of my DB was less than 100,000.00 that is the amount that would have been moved to the DC had I switched.
In the final ten years working the cash value of my DB was 500,000.00 

I expect to collect over one million in retirement in pension income.
Yes the amount is less than 50% of my working wage but with CPP & OAS to raise the bar it is now 60% .

For someone changing jobs every 5-10 years the DC is worth more. I know people that quit after seven years and they had less than 15,000.00 for transfer, had they been in the DC for that time it would have been 50,000.00


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## Eclectic12 (Oct 20, 2010)

^^^^

Good points ... though as I say - I'm not sure there is an option for a DC, as the OP says the current company offers a DB plan without mentioning a DC plan. Most companies are looking to save money with the DC plan and get rid of the costs of a DB plan. So it is pretty rare that an employee has the option to choose between these two. 

With the OP changing jobs on average every 24 months - the companies that offer a DC might be the only ones that can be used. 

The companies that offer only a DB typically won't let the employee join the DB plan until at least 24 months of service. Where this is true - then the best scenario I've heard of is if the company puts some sort of matching funds into a Group RRSP or one's personal RRSP. Where there's no matching company money - everything is up to the employee until the DB plan is made available.


Each company can offer what it wants so this analysis will need to be done for each job change.


Cheers


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## Plugging Along (Jan 3, 2011)

Thank you everyone for the insight. This really helped me.



kcowan said:


> If you are not intending to stay with one plan for 20+ years, then building a big RRSP while consulting is the way to go. If you get employment, DC is better because you can take it with you. I worked for mega-corp for 25 years but I never had one job for more than 3 years while other people did the same job over again for each of the 25 years.
> 
> The ability to have many jobs in a big company is more rare now.


I have to admit, I have been very fortunate in the places I work. I get to move around quite a bit. I haven't had a job for more than three years either, and am only on my 3rd company in 18 years. My strategy is that I am planning to be here for another 3 years at least, and then after that it will depend on many factors. This DB thing was one of them.



Four Pillars said:


> I think at this point, it's too late to really consider the DB/non-DB path. Ideally you want to start the DB thing in your twenties and set yourself up for retirement in your fifties or early 60's. I think you are slightly older? Ie late 30's?


I am in my late 30's, so that's why I was trying to figure out how much of a benefit this really was for me. 



Thanks again for all the information. I think my initial thoughts were right, but just wanted to confirm


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## My Own Advisor (Sep 24, 2012)

The "gold-plated" government pension plans that everyone would love to have, but also those that don't love to hate, have this formula attached to them:

2% x pensionable years of services (up to 35 years) x average salary for 5 consecutive years of highest paid years.

Example, a person who retires with 35 years of service and an average salary of $40,000 over the best five years would receive 2% X 35 X $40,000 = $28,000 per year.

Not all DB plans are created equal.


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## GoldStone (Mar 6, 2011)

HaroldCrump said:


> Many of the banks/FIs are *switching to DCP now*.
> The most recent was RBC.
> Couple of years ago MFC switched as well.
> It is getting harder and harder for private, profit-driven corporations to continue this model.


Yes. My employer - Canadian division of a multinational megacorp - switched from DB to DC in *1995*.


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## GoldStone (Mar 6, 2011)

My Own Advisor said:


> Example, a person who retires with 35 years of service and an average salary of $40,000 over the best five years would receive 2% X 35 X $40,000 = $28,000 per year.


$40,000 after 35 years of service is what? Clerical job requiring a high school diploma?

Example 2:

A college graduate joins government at age 20. After 35 years of service, she retires from a mid-level management position at age 55. Average salary of $100,000 (with annual bonuses) over the last 5 years.

2% x 35 X $100,000 = $70,000 per year.

Assuming 85 years life expectancy, she will receive 30 x $70,000 = $2,100,000 in today's dollars. The nominal total will be higher due to indexation.

Ottawa is a wealthy city. Lots of couples with two DB pensions.


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## HaroldCrump (Jun 10, 2009)

GoldStone said:


> Assuming 85 years life expectancy, she will receive 30 x $70,000 = $2,100,000 in today's dollars. The nominal total will be higher due to indexation.
> Ottawa is a wealthy city. Lots of couples with two DB pensions.


This is what happens when you have a rigged labor market.
A market where the price is not set by competitive forces, but by collective bargaining.
In this model, the price of labor is not being determined by the value contributed by it, but by political vote trading.

If this model were to be extended to all commodities, goods and services, we would have....a centrally controlled, communist economy i.e. the USSR.
And we all know how well that turned out.


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## sprocket1200 (Aug 21, 2009)

why anyone would force themselves to work that long is a mystery!!


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## bgc_fan (Apr 5, 2009)

GoldStone said:


> $40,000 after 35 years of service is what? Clerical job requiring a high school diploma?
> 
> Example 2:
> 
> ...


I'd be curious on your definition of a middle management position. Yes topping out at $40k would be a clerical, but most positions that I would consider middle management would top out around $60K (AS-3). Even then I am not aware of many positions at that level in certain organisations.


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## Square Root (Jan 30, 2010)

I agree that DB pensions at private employers is getting rarer. Indeed, the RY is a good example of how this has happened. This wasn't the question though, which was" are the ones available really that good". My personal experience leads me to respond" yes, they are" 
I was involved in the decision at a big bank in 2000 not to discontinue its DB plan for new hires. We didn't feel it was fair or wise to transfer the risk of market returns onto the employee. We were concerned that there would be "horror" stories of people retiring with poor pensions because their investment decisions(made in the context of a relatively few Bank sponsored fund choices) would expose the bank to bad publicity and legal risk. Instead we continued with the DB plan and in fact improved it for many employees. 

As far as public sector DB plans go, I think the issue is more philosophical and a stronger case can be made that they are too generous. But again, that was not the question. Furthermore when discussing public sector comp, especially pensions, I say if the are so good why not work for the gov't and get one? The real issue with public sector pension envy is that young people don't value pensions very highly when choosing their early jobs. Many don't want to work for PS employers when they are young because the feel 'it would be settling". I must admit I fely the same way. However, often after 20 years or so in the workforce, they begin to realize that DB pensions can be really important in helping to fund a good retirement. This often translates into a feeling that public sector workers' pensions are too generous. In reality these could,very well, be the same people who declined participation in their own DB plans. DB plans, when offered, are usually good to join. Not always but usually. We shouldn't let our own lack of forsight translate into rants against PS pensions.


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## HaroldCrump (Jun 10, 2009)

Square Root said:


> Furthermore when discussing public sector comp, especially pensions, I say if the are so good why not work for the gov't and get one?


Because it is a practical impossibility - not everyone can work for the govt. (unless we are talking about Greece, etc.).
There are what, at least 15M workers in Canada - the govt. doesn't employ that many folks, not even half.

In order to facilitate this, we would have to convert into a socialist state where everyone works for the govt. and the state takes care of you from cradle to grave.

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.


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## Eclectic12 (Oct 20, 2010)

bgc_fan said:


> I'd be curious on your definition of a middle management position. Yes topping out at $40k would be a clerical, but most positions that I would consider middle management would top out around $60K (AS-3). Even then I am not aware of many positions at that level in certain organisations.


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.

They've bought a couple of other companies since I expect they have more now.


There were at least three others in town that dwarfed the company I worked for.


Cheers


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## Square Root (Jan 30, 2010)

Middle management is an ill defined term so open to interpretation, but at a bank the salary would be in the 80-120k range I would say. These would be branch managers and people with the manager title in head or division offices. People in the securities or specialized ares would make more. Bonuses of 10-20% would not count towards pensions. They would often qualify for pensions of 50-70% of average of best 3-5 years. Senior employees who would be assistant vp's and higher would qualify for much better pensions. Quite common for these senior staff to get pensions of $200-250k at 62 years of age.


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## Square Root (Jan 30, 2010)

Harold, I understand and appreciate your argument about PS pensions. Not everyone can get a PS pension but they are after all the largest employer in Canada with significant jobs. There are other private sector employees (the banks come to mind) that have even better comp plans including pensions. There are many good co's with excellent pension plans out there. I see the problem more that young people don't value the availability of pensions enough. Then complain when they reach older age that PS pensions are too high. Maybe they are, but these people make decisions when they are young that have consequences later on. If they had taken better decions when younger, perhaps they wouldn't feel diadvantaged later on.


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## MoneyGal (Apr 24, 2009)

Holy crust a branch manager only makes $80-$120K? Huh. That's...amazingly low given the compensation landscape out there.


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## Square Root (Jan 30, 2010)

MoneyGal said:


> Holy crust a branch manager only makes $80-$120K? Huh. That's...amazingly low given the compensation landscape out there.


MG I've been gone for a while and might be low. It certainly would depend on the branch size. I was thinking of the smallish local branch manager. Bonus of 15-25% on top of this not pension eligible.


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## MoneyGal (Apr 24, 2009)

I think my sense of what people do/should get paid (on both sides of the ledger) has been utterly destroyed over time.


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## Daniel A. (Mar 20, 2011)

Square Root you have articulated my thoughts well far better than I could have.

After a life of working for a private company 30+ years one that has always been profitable I am very pleased with my DB pension.
Many companies over the last 10-15 years have moved to bonus, department managers where I worked earned 130,000.00 - 140,000.00 their year end bonus added another 20,000.00 - 30,000.00

In my first five years I chatted with a fellow that had started with the company at age 42 he constantly told us how good our future would be as we were in our twenties and he was only going to put in twenty years before retiring. He pointed out that he turned down a job at the same company ten years earlier and considered it a major mistake in life.

The grass is always greener on the other side.


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## MoneyGal (Apr 24, 2009)

Four Pillars said:


> I think at this point, it's too late to really consider the DB/non-DB path. Ideally you want to start the DB thing in your twenties and set yourself up for retirement in your fifties or early 60's. I think you are slightly older? Ie late 30's?


Another possible way to go would be to join a DB plan mid-career, after having built up wealth in through non-pensioned employment. Then you could theoretically benefit from the provisions of a DB plan for higher-income years, while only "pensionizing" a relatively small amount of wealth. (Note: this strategy does not work as well in public sector employment, given how PS DB plans work.)


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## Plugging Along (Jan 3, 2011)

Square Root said:


> Furthermore when discussing public sector comp, especially pensions, I say if the are so good why not work for the gov't and get one? The real issue with public sector pension envy is that young people don't value pensions very highly when choosing their early jobs. Many don't want to work for PS employers when they are young because the feel 'it would be settling". I must admit I fely the same way. However, often after 20 years or so in the workforce, they begin to realize that DB pensions can be really important in helping to fund a good retirement. This often translates into a feeling that public sector workers' pensions are too generous. In reality these could,very well, be the same people who declined participation in their own DB plans. DB plans, when offered, are usually good to join. Not always but usually. We shouldn't let our own lack of forsight translate into rants against PS pensions.


This is exactly how I felt when I first started working. I actually did decline out of the DB in my private company. However, I admit, that after being in the workforce for close to 20 years, I still feel the same way in terms of settling, hence my question here. I still feel that I don't want to be tied down to my db (which I had no choice in enrolling). Now, I am questioning my thinking, that perhaps I should value a DB more than I do right now. 



HaroldCrump said:


> *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 am finding this is really not true in what I am observing. My currently DB plan with public sector, is pretty much the exact same as I what I was offered in the private sector. Hence, why I don't understand why everything thinks gov't pensions are so great. 

In terms of the skill of the workers, for the unionized parts, I agree. However, I have never been in the union, though both of my companies have a large number of union workers. I have found that the people in non union jobs aka management, are quite a bit more qualified education wise. I see more graduate degrees (mbas, masters, phd, etc) in the public sector (non union) jobs, than I ever did in private sector, and they are in much lower positions. I am one of the least educated in my area. 



MoneyGal said:


> Another possible way to go would be to join a DB plan mid-career, after having built up wealth in through non-pensioned employment. Then you could theoretically benefit from the provisions of a DB plan for higher-income years, while only "pensionizing" a relatively small amount of wealth. (Note: *this strategy does not work as well in public sector employment, given how PS DB plans work*.)


Could you please explain your note. This is exactly where I am at now.


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## Four Pillars (Apr 5, 2009)

Plugging Along said:


> I am finding this is really not true in what I am observing. My currently DB plan with public sector, is pretty much the exact same as I what I was offered in the private sector. Hence, why I don't understand why everything thinks gov't pensions are so great.


You are basing your conclusion on a sample size of two.


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## bgc_fan (Apr 5, 2009)

Eclectic12 said:


> 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.



HaroldCrump said:


> 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.
> 
> ...


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.


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## sags (May 15, 2010)

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.


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## MoneyGal (Apr 24, 2009)

sags said:


> 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?


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## Square Root (Jan 30, 2010)

MoneyGal said:


> 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.


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## Daniel A. (Mar 20, 2011)

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


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## sags (May 15, 2010)

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.


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## Daniel A. (Mar 20, 2011)

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.


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## sags (May 15, 2010)

Daniel A. said:


> 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.


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## Saniokca (Sep 5, 2009)

sags said:


> 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"...



sags said:


> 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.



sags said:


> 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.



sags said:


> 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.



sags said:


> 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.



sags said:


> 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?



sags said:


> 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


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## uptoolate (Oct 9, 2011)

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.'



bgc_fan said:


> 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!


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## fraser (May 15, 2010)

I had a similar experience to Daniel. In 2000 after fifteen years of service I had the option of remaining in the Company DB plan, or moving over to the DC plan (the DB plan was being closed to new members and those who did not have a certain number of points were moved). We were told that the DB plan would be wound up it the end of 2007. Fortunately I was grandfathered and had the option to stay or move to DC.

In 2000 my conversion dollars into the DC were I calculated at $113K with an estimated PAR of $40K. Comparator numbers for each option were based on a 7 percent rate of return. We did not contribute any money to this DB plan, it was a company benefit in it's entirety.

I stayed in the DB plan. MY employer kept the DB plan going until the end of 2010. When I retired early at the end of 2010 that same DB pension had a value of $850K. I also had a small supplementary pension worth about $500K. 

I am so glad that I stayed.

One big issue with DC plans is the ability of the employer to change the matching contribution amounts. The company that I worked for changed this for US employees. Eventually they only matched if the company has met it's quarterly targets on a quarter by quarter basis. In Canada the DC matching amounts have declined over time. 

The other variable is the investment options and the management fees associated with the DC investment selections. 

DC plans can be very good but they are definitely not all the same.


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