FINANCIAL: What is the defined-benefit pension plan alternative?

Friday, March 17, 2017

FROM THE WALL STREET JOURNAL “The 10-Point”

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Jerome Schmid of South Carolina commented: “Sad to see defined-benefit plans slip away into history. But employers no longer care about employee welfare (despite volumes of acclamations in various mission statements), as once-paternalistic corporations have been reduced to financial schemes, manipulated like exotic derivative securities. It is probably a very good idea to turn over the plans to insurance companies who are staffed with people who are (thought to be) competent risk managers, and who are far more likely be around 10 years from now.”

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Well, I’m no Ric Edelman, but here’s my suggestion.

Remember the history of defined-benefit plans and take action accordingly.

Remember “benefits” — that is employer supplied and paid for “entitlements” — is a vestige of the World War II wage and price controls. Prior to that, the employer just paid you what you had earned. What you did with it was up to you. To get around the WW2 wage and price control, employers offered “benefits” which were found to not be wages — probably due to Crony Capitalist bribing the politicians. Of course, as an expense to the company they were tax deductible. Unfortunately, if the employee bought the very same “benefits”, then they paid with “after tax dollars”. (That’s how the whole “pre existing conditions” and “health insurance tied to the job” disaster got started! Thanks to the Gooferment.)

So, the defined-benefit pension plan is a fiction. Some companies like AT&T were rigorous in their financial planning for it. To the extent of setting up a completely separate corporate entity, with its own Board of Directors, to manage the funds. (And, to insist that all liabilities be 100% funded.) Other, like Enron forced their pension and 401k plans to hold only Enron stock in the plans. (We all know how that worked out.) Also, look at Dallas where the city my have to file for bankruptcy because of the unfunded liabilitiesOther horror stories exist. Like CalPers underfunded by many trillions of dollars. Like some Union pension funds underfunded by 75%. And other pension making risky investments, like Puerto Rican junk bonds, to try and catch up.

My suggestion?

Easy. Take responsibility for yourself and your own future. The Gooferment is NOT your friend. Your employer is NOT your friend. Your insurance agent, your broker, and your banker are NOT your friends. So you have to treat them and their promises like a used car salesman’s as you driving off the lot. (At least, the salesman is “honestly” lying to you.)

You have to hire a “team” — lawyer, accountant, and registered financial advisor — that you WILL pay for out of your own pocket — to help you. Then, you figure out how much you will need in retirement to NOT be eating dog food and choosing between medicine or heat. How much you “discount” the promises of Social Security, Pensions, and Retirement savings is an important calculation. And, finally, you build your own “defined-benefit pension plan” with a well diversified investment portfolio that you save into. 

Hard, not really. Essential, absolutely.

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This is entertainment; not investment advice. Call Ric for help. 1-800-call-ric anytime.

Remember the sources of my education! I’m just a fat old white guy retired injineer who’d now a poor old senior citizen on a fixed income with:
* Law “degree” from watching Judge Judy;
* Medical “degree” from watching Doctor Phil;
* Building “degree” from watching “Holmes on Homes”;
* Investing “degree” from reading about Bernie Made-off;
* Finance “degree”from listening to Ric Edelman;
* sensitively managing Human Resources from watching Chef Ramsey; and
* creating loving / caring human relationships from studying the movie roles of Gunny Ronald Lee Ermey

http://www.recedelman.com

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