Wednesday, September 26, 2007

Watch out for those pension promises

It's been sad to watch the recent UAW-GM talks and strike; apparently, what kicked off the strike was the UAW's refusal to discuss the possibility of reducing medical benefits for retirees. Now, for starters, I think the UAW would have done well to talk to retired steelworkers about what happens when their former employers go bankrupt; that medical plan, and a lot of their pension, is gone after Chapter 13 reorganization. The choice is not "if" they will get reduced benefits, but rather "when" they will. Honda, Toyota, and others will see to that.

At a deeper level, this debacle speaks to the inherent insolvency of any pension plan. Yes, insolvency, and here's why; actuaries are hard pressed to predict future trends at all, and pension plans face a further difficulty because the very existence of any pension changes behavior.

In other words, the very existence of a retiree pension or medical plan invalidates the assumptions that were used to create it. If you want a reason to end Social Security, Medicare, and pensions, this is it. That, and the fact that the Bible tells us not to presume upon the future.

6 comments:

Jim Peet said...

Good comments about no presuming upon the future.

If you think pensions have problems ... how about the good old Social Security system (not unlike a ponzi scheme!)

pentamom said...

Great points.

It never ceases to amaze me (thought it really shouldn't anymore) that active union members and retirees continue to agitate for pension obligations to be met by bankrupt companies. It's not that I don't get that they're suffering tremendously at having their pensions evaporate when they were counting on them, but the fact that I could make good use of a fairy godmother doesn't make me believe in one. You'd think grownups would use something other than wishful thinking and toddler reasoning (I want it so somebody HAS to give it to me) to motivate their actions.

I guess I can be thankful that my husband's company decided to freeze their pension program when he was a mere 40 -- not that we were counting heavily on it anyway. Still, I'm thankful that we avoided the temptation to fall into the trap of depending on it.

jroosh said...

a self-admitted "very liberal" client of mine said yesterday morning that even he can't understand how these union members can expect their employer to survive let alone be competitive when at the same time they strive to suck their employer dry.

jroosh said...

a self-admitted "very liberal" client of mine said yesterday morning that even he can't understand how these union members can expect their employer to survive let alone be competitive when at the same time they strive to suck their employer dry.

Bike Bubba said...

Maybe there's hope to stop this train wreck before it gets any worse after all....

Tracy said...

Pensions should be outlawed. They are based on the very outdated idea that you company will out live you.

I'm not sure even Bill Gates is 100% sure of that!