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Comment by derekp7 | Hacker News Reader

Pensions are a tricky subject. In cases where a pension job paid less than prevailing wages, that pension is in reality deferred payment for time already worked. So taking away the pension is wage theft. It would be similar to if an organization decided to take back a large portion of your 401K because they retroactively deleted the company matching benefit.

In reality, that deferred pay should have been properly invested / managed from the beginning, but that would mean higher taxes or lower spending on other programs at the time the wages were earned.

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Defined benefit pensions have a simple fix. They should be illegal (along with all other deferred compensation schemes) for taxpayer funded entities.

The moral hazard of letting today’s voters and today’s politicians and today’s senior government employees (the union leaders) steal from taxpayers 30 years in the future is obvious.

Not to mention it is all going into the same SP500 anyway, so just cut out the middleman and moral hazard, and give everyone a Fidelity/Vanguard/Schwab 401k and let them buy the SP500/target date retirement fund they want.

Having a lien on future taxpayers is literally the only difference between taxpayer funded defined benefit pension funds and 401K/IRA.

Defined benefit pensions are also largely a product of a more paternalistic time when there was an implicit deal of spend your career (or at least a big chunk of it) working for us and we'll help take care of you in retirement. It doesn't really work for private company employees these days given you often don't get much of anything if you leave in less than 5 years. And the public sector has even more moral hazard as you say; there is at least regulatory oversight of private pensions.

> Defined benefit pensions are also largely a product of a more paternalistic time when there was an implicit deal of spend your career (or at least a big chunk of it) working for us and we'll help take care of you in retirement.

There's no reason you can't have portable DB pensions (you'd need standards for employers set by the plan, and a common DB plan, but in a way that's how many non-federal public DB plans already work—they serve multiple different public sector employers.)

Its a policy choice not to do that in a way which provides universally portable plans covering private as well as public sector employers.

At that point, why not just increase the level of social security? It sounds like you're mostly creating an additional universal system to layer on top. And, if it's not universal (including small businesses that now have an additional administrative cost) you have now created a retirement plan that basically favors public sector and big companies (which admittedly 401k already does to an extent).

> At that point, why not just increase the level of social security?

I was mostly thinking in the context of state governments in creating their existing multi-employer DB plans making that policy choice, but, yes, the Feds could also expand SS contribution and benefits to make it a universal first-line pension instead of a near-universal safety net pension.

Multiemployer DB pension plans are a specific thing unrelated to taxpayer funded DB pension plans.

An examples would be multi employer Teamsters truck driver pension plans, and they are notable because in a multi employer DB pension plan, when an employer goes bankrupt, the unfunded liabilities get distributed amongst the remaining employers. Which means once things start going downward, the longer you stay in, the more of the bag you are left holding.

Which precipitated the recent bailout of some multi employer pension plans, since they had enough political sway:

https://www.nytimes.com/2021/03/07/business/dealbook/bailout...

Will only work assuming population and economy will continue to grow in the future. While this has always been the case in the USA, it is not always the case globally.

Not paying pensions should be illegal.

I think after Sears and the rest, people prefer money now vs money later. But if I knew the money was good, I'd rather not manage it myself.

There are very low effort ways like target date funds. Of course, that means you have to pro-actively take money out of your paycheck and deposit it.

A bankruptcy does not mean the pension funding is gone. In the case of Sears it transferred to the PBGC with the federal government. In my case, the pension administration is handled (well outsourced) by the current owner of my long ago employer.

Does your employer not (optionally) manage your 401k? Mine has been doing better than my other accounts on index funds.

I've never heard of such a thing. For me, it's always been a choice of funds (and maybe company stock) held at a brokerage that allows me to reallocate investments as I wish.

I have to believe that if a company is "managing" 401k investments, it's just an abstraction on top of some agreed-to investment strategy at the brokerage.

Depends on what you mean by "manage". The money is explicitly yours, the company can never touch it. However; you are locked into the company agreement with the custodian (e.g. Vanguard and their list of investment funds).

Not locked. You can roll it over into a IRA/ roth IRA and manage yourself. You won't pay early withdrawal taxes as long as you roll over within 60 days.

An 401k custodian that allows an in service distribution (rollover while employed) is rare, and I think it is not even allowed by law before age 59.5.

Rollovers typically only happen after employment has ended.

https://www.investopedia.com/terms/i/inservicewithdrawal.asp

How is a governmental DB pension stealing? Or are we talking about Libertopia "taxation is theft" garbage?

The way pensions are currently implemented in the state is "don't invest, just transfer tax revenue to pensioners" social security style. The issue is todays tax payers did not agree to those pensions. The people who voted for the pensions are mostly no longer working, they foisted all the costs onto their children and grand children.

No, this is not true. CalPERS is a huge investment fund. My own much smaller pension has a (nominally) large investment fund and believe me it ain't sitting in a money market fund at Wells Fargo. I don't have survey data for you but I am going to go ahead and state that the vast majority of money in pension funds is invested to hit some assumed rate of return with minimized risk / diversification targets.

Im talking specifically about Illinois pension funds, which were unfunded for decades. There's no money sitting in them at all, everything that comes in immediately goes out.

Pay-as-you-go is more risky and more costly overall but it's not an unworkable system.

Since you clarified that you mean one specific state has this system, then I'd say the rest of your post is bogus too. Current taxpayers didn't agree to build old bridges or whatever either. Few people living agreed to build out the state highway system. Yet taxes today pay for their maintenance and upkeep and it's not some great moral problem.

Bridges and infrastructure benefit everyone. I get no benefit from someone who's been collecting a pension since before I was born.

Not all infrastructure benefits everyone. No doubt some of the taxes you pay today cover the costs of maintaining boondoggle projects or wastes of money. And the pension might not directly benefit you today, but let's say those pension benefits go to a woman who used to maintain the bridge. Now today the bridge is in better shape than it otherwise would have been if they'd been done by some high-turnover, low quality employee.

boondoggle projects are also theft.

How do you know? Perhaps that person built or improved something very important to your life. Even if they stamped papers at the DMV for 40 years, someone needed to do that work if we're to have a functioning society.

And don't wave that away saying that worker could now be replaced by a kiosk and AI, or a contractor in India. Someone needed to do that work, manually and in-person in the 80s and 90s when that wasn't an option. If you want to slim down the civil service today, that doesn't erase the work done by those workers in the past.

Finally, remember that you don't personally benefit from every tax dollar, but as long as many (or sometimes even a few) do, then that dollar wasn't wasted on those grounds alone.

I think these are all reasonable arguments. It’s just hard for me to take them seriously with how corrupt our government is. Yes these are all factors, but the main thing is just that politicians 60 years ago decided to give themselves bribes instead of funding the pension and now I’m paying for it.

But it kind of is a great moral problem: A whole lot of infrastructure in the US is way overbuilt, with maintenance sent forward decades. The cost of the infrastructure isn't really handled by the people that built it, or those that use it today: It's left as a giant ball of debt to children and grandchildren.

A major reason for problems with old suburbs is that, unless they massively appreciated in value, and accept very large taxes, the per-house costs of rebuilds and maintenance isn't handled by the people that live in said suburb, but kicked outward. There's all kinds of very bad incentives, caused by how we have this kind of infrastructure. It's all over midwestern cities, and the outer suburbs that are getting built are doing the very same thing.

CalPERS is only 80% funded according to their own rosy assumptions, even after a historic annual stock market increase. See top right of page 130.

https://www.calpers.ca.gov/docs/forms-publications/acfr-2022...

In fact, the system is so corrupt, 80% funded (of that rosy number) is considered “fully funded” for taxpayer funded DB pensions, so kicking the can forward for the remainder 20% is just par for the course.

The real situation is worse though, and clearly evident in the ever increasing proportion of the budget going to pay for deferred compensation schemes, whether it is the “normal cost” for this year’s accrued benefits or to make up for underfunding from previous years’ benefits.

> CalPERS

CalPERS the fund that famously didn't put a dime in for basically a decade? The one everyone was sure was going to bankrupt California until they lucked out and the stock market saved them?

CalPERS was prudent in planning that the federal government would, as usual, backstop asset price growth even if it meant near 0% interest rates reducing purchasing power of the USD. Aka, taxing future generations to pay for the underfunding. And even after all that currency devaluation, CalPERS is still only 80% funded, by their own calculations.

At least previous California legislators were generous enough to not bake cost of living increases for DB pensions into their state constitution like Illinois.

The simplest explanation is politicians excluded taxpayer funded defined benefit pensions from any regulations ensuring their solvency, such as ERISA 1974 and PPA 2006. Why? Because future taxpayers can always make up for underfunding.

Voters today want lower taxes today. Politicians today want votes today. Government employee union members want maximum compensation, and union leadership is composed of older employees who will collect benefits in the short term.

So, how do you deliver both lower taxes (than a competing politician) and market pay? By using benefits where you can fudge the numbers with plausible deniability.

For example, the federal government requires non taxpayer funded pension plans to calculate the present value of the benefit using corporate bond yield curves, which were ~4% and below for the last 10+ years.

https://www.irs.gov/retirement-plans/pension-plan-funding-se...

In the meantime, most taxpayer funded pensions were using 7%+, some even 8.5% return on investment assumptions to calculate present value of the benefit.

The higher the discount rate (or ROI) assumption, the cheaper the benefit is today (since you are expecting the investment to pay the benefit to grow quicker). And as a rough estimate, the sensitivity of the discount rate is 15%, meaning a 1% difference in the discount rate assumption will change the present value (or liability) by 15%.

Which means when a government uses a discount rate 2% and 3% above what non governments have to use, that means your government is understating liabilities by 30%+, which means either they have to make up for it by investing in riskier investments, and most likely hosing down future taxpayers to make up for the underfunding.

These reports show a ranking of the levels of deferred compensation funding throughout the US. Note the relatively bad position of Chicago and Illinois, hence why this thread exists.

https://www.truthinaccounting.org/resources/page/state-repor...

https://www.truthinaccounting.org/resources/page/city-report...

Aside from the challenges of switching over deeply-ingrained systems, it's really hard for me to make the case for DB pensions today, especially with them largely gone from the private sector.

Yes, a lot of people don't voluntarily save for retirement as much as they should to supplement social security and other benefit programs. But my response to that is something the lines of "OK. Let's stipulate that's an issue. Why are we only solving it for public sector employees?" I suspect the answer is at least partly because voters won't give us enough money to pay today's salaries so we need to obfuscate our costs and kick the can down the road. But that's not a very satisfactory answer.

I'd say it's a very easy case to make.

Pensions are much cheaper than individual private plans and place various financial risks on the party that can actually afford to manage it (and spread it across the entire employee base). The pension holds the risk for me that I live longer than I planned, or that the market crashes the month before I turn 65. Being a large professionally managed fund, it's in a great position to do so, and it even spreads the cost around! I don't have to pay some insurance company a huge premium to get an annuity, the pension gives me the annuity at cost and probably with much better terms.

The only argument you give is that the private sector got rid of them. Well, don't ask me to eat shit just cause you're happy to.

> Pensions are much cheaper than individual private plans and place various financial risks on the party that can actually afford to manage it (and spread it across the entire employee base).

This is obviously false given the underfunded states of pretty much all taxpayer funded pensions in the US.

> Being a large professionally managed fund, it's in a great position to do so, and it even spreads the cost around! I don't have to pay some insurance company a huge premium to get an annuity, the pension gives me the annuity at cost and probably with much better terms.

A pension fund manager is not doing anything more special than a simple target date retirement fund does. The job has been automated away. The only savings comes from shafting future taxpayers, which is why almost no non taxpayer funded entity offers DB pensions anymore.

Also, there exists a defined benefit pension plan for all US residents called Social Security. But the federal government has the power to issue new money, which no one else does.

>This is obviously false given the underfunded states of pretty much all taxpayer funded pensions in the US.

You have confused two different but related issues. Let me be more explicit.

My pension fund provides all employees who join with certain benefits. Let's say over the course of 50 years we look at what it costs to provide these benefits in some constant dollars and it's 100 bucks. I claim that the cost for all employees using individual retirement accounts to achieve the same benefits as the pension, they would have to had paid e.g. 110 bucks. I can't prove this claim but can provide some explanation:

Each individual fund is much smaller and is paying much higher fees, both management fees and transaction type fees.

Each individual is much harder to insure than the group and has to go to a for-profit insurer to get an annuity (as they have with the DB pension). They pay the risk and for the insurer's profit.

Each individual has to manage pre-retirement market risk and pay a price to do so, e.g. they're using target date funds and the money is in low-yield bonds for the last few years before they retire, losing returns at exactly the time it's most costly.

The question of funding is separate. It's up to my employer to decide if they want to set aside the whole 100 bucks up front that the pension costs or if they only want to set aside 80 bucks. So, either the pension is fully funded, or 20 short, either way it's cheaper.

I do not see why costs arising from agency risk, as seen pervading the US on state and county and city levels, should be disregarded.

> Each individual fund is much smaller and is paying much higher fees, both management fees and transaction type fees.

Compared to Vanguard/Fidelity/Schwab/Blackrock/etc offerings that are easily available in any brokerage/IRA/401k?

> Each individual is much harder to insure than the group and has to go to a for-profit insurer to get an annuity (as they have with the DB pension). They pay the risk and for the insurer's profit.

And yet insurers are able to pay annuities without needing the power to tax entire populations. There is clearly a disconnect between the theory and practice, due to the aforementioned agency risk.

> Each individual has to manage pre-retirement market risk and pay a price to do so, e.g. they're using target date funds and the money is in low-yield bonds for the last few years before they retire, losing returns at exactly the time it's most costly.

Another way to look at it is they are invested in lower volatility investments because they are at a point in their life where they can not afford volatility.

> The question of funding is separate. It's up to my employer to decide if they want to set aside the whole 100 bucks up front that the pension costs or if they only want to set aside 80 bucks. So, either the pension is fully funded, or 20 short, either way it's cheaper.

Yes, it is cheaper and great for those who are early enough in the scheme to be a benefit recipient, which is why I specified older employees who compose union leadership in my original post.

It is not cheaper for younger taxpayers and younger government employees shunted into lower paying tiers of the pension. I have a sister in law who is 7 years older than my other sister in law. Both work for a state government, and the older one has worked a lower paying job her whole life than the younger, by at least $20k per year. However, the older one will retire with a benefit worth at least 2x as much as the younger one.

>I do not see why costs arising from agency risk, as seen pervading the US on state and county and city levels, should be disregarded.

Fair point, but individual accounts have similar issues. People give their money to wealth advisors or whatever all day long.

>It is not cheaper for younger taxpayers and younger government employees shunted into lower paying tiers of the pension. I have a sister in law who is 7 years older than my other sister in law. Both work for a state government, and the older one has worked a lower paying job her whole life than the younger, by at least $20k per year. However, the older one will retire with a benefit worth at least 2x as much as the younger one.

I'm arguing that benefit-for-benefit, the pension does it cheaper. It would be cheaper for a pension to provide your older sister's benefit and cheaper for a pension to provide your younger sister's benefit. But yeah, this kind of thing is fucked up and I don't know why unions agree to it.

>which is why almost no non taxpayer funded entity offers DB pensions anymore.

In fairness, my (utterly non-expert) understanding is that tax law changes factored in as well. Though, to the degree they understand that pension funding isn't "free," a lot of employees would prefer to do their own saving, including in tax-advantaged accounts, without strings attached.

From a mental accounting point of view, yeah, it's nice that I'll have some "free" money coming in from decades ago but it was presumably not actually free in that offered benefits presumably factored into pay scales at some level.

No, it was the Pension Protection Act of 2006, and the accompanying adoption of International Financial Reporting Standards (IFRS) that made DB pensions a nonstarter. In conjunction with the advent of nearly free equity index funds.

The former made it so no more fantasy discount rate assumptions could be used to understate liabilities by 30%+. The latter made it so paying the costs of active fund managers was a waste of money when you get the same results with a 0.03% to 0.06% expense ratio passively managed fund.

Thanks.

Related to the index funds, although a lot of people lost quite a bit of money during the dot-com bubble popping, that period also democratized and made buying and selling stocks/index funds/other mutual funds much less expensive and accessible.

401(k)s had been around for a while but it was probably around then that online trading was really normalized as opposed to something that investment professionals largely handled for you out of sight out of mind.

Again, discount rate assumptions don't directly affect the cost of the pension. The liabilities will be what they will be. Returns will be what they will be, though of course assumptions impact the amount of risk you take as you attempt to achieve the assumed return.

And even with passively managed indexes the pension fund will win. Who's paying fewer basis point for this index fund, you or the billion dollar pension fund? If they achieve similar results then still the pension will have you beat.

I think we are referring to costs in different contexts.

If I may switch to a different term, the outgoing cash flow will be what it will be, the question is where and when and from whom is the incoming cash flow?

In the context of this thread, apparently some of it will be from people who pay parking meters for the next 70 or so years. Is that what the plan was when this cash flow was promised to voters and recipients 20, 30, 40 years ago?

>In the context of this thread, apparently some of it will be from people who pay parking meters for the next 70 or so years. Is that what the plan was when this cash flow was promised to voters and recipients 20, 30, 40 years ago?

I don't know about the City of Chicago but most pensions were pay-as-you-go til the 80s or 90s, so the voters then probably agreed that they should pay benefits for retirees then and future citizens and taxpayers should pay for benefits now. The advent of the pension fund means that it's now more common for taxpayers today to set aside a separate fund from which some or all future benefits will be paid. Just a different way of doing things.

That DB pension still has interest rate risk over a period of decades. And, although with some exceptions (charitable trusts and the like), an equivalent annuity is mostly not a great investment for individuals, there are a lot of other ways to manage risk if you're happy with a modest 6% or whatever return. For starters, I can buy long-term treasuries although that may be too safe by itself. And almost certainly wouldn't be the optimal investment for an early-career employee who may be starting to think about saving for a house down payment.

I'm perfectly happy to have an early-career pension coming that I probably didn't really think twice about at the time. However, overall, myself and I imagine most of the people here would prefer to invest their own money rather than count on the pension from the company they worked for long ago (assuming they worked for them long enough).

But maybe you just prefer effectively being forced to save at a low-risk rate which is what a DB pension is.

>That DB pension still has interest rate risk over a period of decades.

That's the employer's problem, not the pensioner's. Again, the large corporation that can afford to manage the risk is forced to, rather than the individual retiree.

>But maybe you just prefer effectively being forced to save at a low-risk rate which is what a DB pension is.

No, it's an effective guarantee of the benefits I'll receive upon retirement. I don't invest in anything as part of the pension.

Now, I'll agree that some individuals would long-term beat the 6% that the pension fund will get (presumably with higher risk).

But for the entire employee base to each individually beat it seems very unlikely to me. Even to collectively beat it and accept that some unlucky duckies will eat dog food when they retire, I think is not very likely.

Another argument is the risk of early death means that the earned benefit resulting from a lifetime of work defaults to the pension plan (as part of the agreement) rather than to the heirs of the person who worked a lifetime and suffered the early death.

Many people are OK with that tradeoff, but nowhere near everyone is.

Taxpayer funded pensions frequently come with cushy terms that allow a spouse to continue receiving benefits after the retiree dies, called joint and survivor benefit.

Most pension plans offer the possibility of a cash out or transfer of actuarial benefit to a 401k-type plan. Except in the case of accidental death where there genuinely is no time to do so, if you were sitting on your deathbed you could at least theoretically take the money and run. And most pension plans offer death benefits while you're active so the calculation may not be so cut-and-dry whether the pension is better or if you'd have been better off with an individual account.

But yes, you can certainly find individual cases where a specific person would have been better off with 401k for this or other reasons. My claim is that it's systematically better for almost everyone and better overall.

My pension currently uses around 6% assumed rate of return for the purposes of calculating unfunded liability, and has, over the past 24 years, returned 6.03%.

Further, keep in mind that the real pension costs are actual dollars leaving the fund and are not directly affected by assumed discount rates. The effect of a low discount rate is simply to have more money in the pension fund, but at the end of the day the liabilities are the liabilities and the discount rate doesn't enter into it. It may be wise to put more away now, but even pay-as-you-go pensions have a long history of working out even if there is greater risk.

> may be wise to put more away now, but even pay-as-you-go pensions have a long history of working out even if there is greater risk.

What is the definition of working out? Of course they work out, as long as there is enough of a tax base to keep soaking. But that is a poor definition of working out, as I have no interest in paying for labor performed decades ago.

When it doesn’t work out is when you get into a Detroit situation. Or most recently, Chester, PA, where there isn’t a sufficient tax base to soak anymore.

Definition of working out would be the pension costs are still a reasonable and manageable cost as compared to e.g. payroll or the budget.

City bankruptcies do occur, I'd argue that blaming pensions is just a scapegoat, but hey, that's me. I haven't looked into Detroit's books, much less Chester PA, Detroit city limits population right now is sub-1920 levels and around 1/3 of where it was in 1950. Such a change would put enormous stress on the finances of any large city, pension or no.

A properly funded pension should be a non factor in a city’s finances.

The fact that leaders in previous decades punted costs (unnecessarily) into the future when the city’s economic productivity ended up not being able to afford is the problem, and what we are discussing on how to avoid (by simply not offering deferred compensation).

The problem is a bit deeper in that these workers were paid less while employed on the basis that they'd have a sweet pension. So the government employer double dipped on faking their finances.

Hence the only solution being to make all deferred compensation schemes for taxpayer funded entities illegal.

A secondary benefit will be more transparent prices in the labor market that allow quicker responses to changes in supply and demand.

I think the shift away from defined benefits retirement was the shafting of a generation. Any fixed sum of money saved away got killed when interest rates were slammed to zero. It was theft on a massive scale.

It’s easy to pick on defined benefit plans when they are underfunded, but they do have advantages for the employer - when the retiree (and spouse) die, the obligation is over. A given contribution can fund more people at a higher level if the obligation ends when they die.

Is that really true?

It's an actuarial calculation. They win some they lose some.

It's an actuarial calculation with good statistics on (for governments and large corporations) very large populations. So the estimates are accurate. But mostly, defined benefit pensions do not go the the heirs, so there is more money for the people getting the pension.

> But mostly, defined benefit pensions do not go the the heirs,

Right, most DB pensions I've seen, public or private, extend benefits at full value to exactly one designated person after the covered worker dies, for life, and then expire.

I have not seen that in the US. Usually, you get to choose how much benefit you want to go to a spouse, inversely correlated with the benefit you receive.

So you can choose your whole monthly benefit for just your life, then less for a joint and survivor (J&S) 50% benefit, and an even lesser amount for J&S 75% benefit, and finally a J&S 100% benefit option.

Thanks, I had wondered how that worked.

My grandmother had a pension which came from her late husband (in addition to her own pension). She avoided remarrying because that would have also terminated that survivor pension, apparently. She cohabited for decades with a man (my de-facto grandfather) who also collected a similar pension from his late wife. A rather silly restriction, if you ask me. They made the right call.

> Having a lien on future taxpayers is literally the only difference between taxpayer funded defined benefit pension funds and 401K/IRA.

The other difference is that the governmental authority cannot "borrow" money from the pension fund if each employee owns his or her own 401K account.

The problem with a lot of these insolvent pension funds is that they are nothing but a stack of IOUs.

> The moral hazard of letting today’s voters and today’s politicians and today’s senior government employees (the union leaders) steal from taxpayers 30 years in the future is obvious.

You don't seem to want to state the other obvious solution--all defined benefits plans should have to be funded as the person is paying in.

The problem with defined benefits plans is that they are allowed to be funded when the person retires rather than as the person is working.

That simple change takes the problem out of defined benefits plans.

That "simple" change involves a ton of agency risk, which we already have. Who is going to force the politician to make the payment? Who is going to force the pension plan board of trustees to use appropriate assumptions in their calculation of liabilities and the requisite funding? Who is going to watch out to make sure the board members are not investing in their brother in law's cousins' real estate project?

>n cases where a pension job paid less than prevailing wages,

How often is that actually the case? I think it was the ideal and expected result at one time (civil service job + pension = private market job) but the connection was broken long ago.

It's probably a pretty tenuous connection given a lot of large private sector companies used to have defined benefit pensions too. It was one of a bucket of benefits that was sort of expected. At some level, modulo tax effects, a dollar in benefits is theoretically a dollar not paid in salary but that's not really how things work--certainly not on a 1:1 basis.

If I weren't going to start collecting a pension soon from some ago company that by now has gone through a couple generations of acquisitions would I have been paid more at the time? Maybe I guess. But it's very indirect.

The problem was a few companies went bankrupt and then the workers discovered not only did they lose their job, but it turns out the pension they had been in for decades was invested in company stock and thus worthless.

We have a lot of laws around pensions these days to prevent that. However they were written when the investing environment was different (higher interest rates made AAA bonds a great investment, so investing in risky stocks didn't make sense). The result is pensions are generally have a terrible return on investment. You are much better off with a well managed 401k in modern funds (at least as I write this and the 30 years before, while I can only guess what the future will hold I think that trend will hold for the next 10 years at least).

401k has one other advantage: it is clear where the money is and who controls it. Pensions often are setup as a great deal if you work for the same company for 40+ years (25-65), but if you switch jobs you don't get nearly as much, even if all the other companies have a pension plan your total is much worse.

>401k has one other advantage: it is clear where the money is and who controls it.

I'll add another one: the investor can tailor their risk to where they are in life. At some point, it probably makes sense to put even most of my savings in very low risk, low yield bonds.

But that point is probably not when I'm in my twenties.

I actually understand the appeal of a (presumably) low risk "guaranteed" annuity payout at retirement that may have been a long ago benefit you never really thought about. But it probably wasn't really free and probably doesn't represent a better investment than if you were given the actuarial share of the money paid into the pension on your behalf instead.

A pension should be able to look at demographics and even better manage that risk. You have no idea if you will live to 105 (a few years ago I saw a headline suggesting 175 might be a reasonable life expectancy for young people today - even more unknown though I don't know if it is true), or die at 63. You might have some family history as a guide, but odds are yours is average: sometime between 65 and 95 with a peak around 78. Realistically, for almost everyone our expected lifespan is so close to even that we shouldn't be tailoring our investing to anything out than our age.

A lot risk annuity payout is a great insurance against living to 105. I tell people when they retire they need to figure out the minimum they need to live on and invest in a guaranteed annuity that will pay that amount (ideally inflation adjusted) until they die. However because annuities are not really a great investment, don't put any more than that in them. Plan for a more normal lifespan.

I pretty much agree with all that.

An annuity or two isn't bad. I'll have one through a long-ago DB pension and another through a charitable trust that wasn't really a great financial "deal" but I wanted to donate and it provides another income stream. But they're pretty much just nice add-ons (in addition to social security of course).

I'm not against annuities, including DB pensions. I just don't think (honestly funded) DB pensions are this fantastic benefit that's been yanked away from people who could have taken the same amount of money and invested it otherwise.

DB is better only because many of people who think about their investments are falling for a scam.

That comes close to being: "Let the professionals handle it and you'll be fine." I mean, I can also pick a financial advisor at one of the major brokerages and they'll take their skim but probably won't do anything really bad.

I know enough people who have fallen for scams...

> It's probably a pretty tenuous connection given a lot of large private sector companies used to have defined benefit pensions too.

They stopped because tax policy was adopted to incentivize more portable, defined contribution plans, as a deliberate effort to both increase retirement insecurity and promote labor mobility.

Visit governmentjobs.com and search for a job title you're familiar with the private sector pay range on. I think you will be enlightened.

For federal jobs, the 2210 series is the one that hn readers would probably be able to best compare. GS-13 is realistically where you'll top out without being something like a regional administrator

State and federal governments are almost entirely this case, at least for technical positions.

> think it was the ideal and expected result at one time (civil service job + pension = private market job) but the connection was broken long ago.

Long ago, private sector jobs also had defined benefit pensions, and civil service jobs still were notorious for having lower pay outside of low-end labor (where, sometimes, civil service jobs still, in addition to pensions, have competitive pay and better pre-retirement benefits.)

maybe those employees shouldn't have screwed up the county then.

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