[wta-talk] Economic futures: Stock market no panacea

[John Hall]

Well, I tend to trust EPI less than I can throw them.  But I'll mention
something tangential, which I only learned about recently.  Namely, a
reason why defined benefit plans have plummeted and the companies have
gone to defined contribution.

In the heyday of defined benefit plans, companies over-funded their
plans if they could possibly do so.  The better the plan was run the
more likely it was to be over-funded.  You didn't have to pay taxes on
those excess contributions, and if they company *really* got in trouble
you could cancel the plan, 'freeze' everyone at their current level of
benefits, and take the excess back.

Significantly, in 'group' plans like some union based plans the
companies contributions were irrevocable.  Companies did not over-fund
those plans.

Now, it happens that some companies did get in trouble, especially in
the late 70s and early 80s.  Some of those plans were canceled.
Congress decided to add a very heavy excess tax on companies canceling
their plans and withdrawing the excess contributions.  This was to
protect workers, of course.  It was to discourage companies from
canceling their plans by removing the 'reward' for doing so.

But what they basically did is turn all contributions into irrevocable
contributions and undermine any reason for a company to have a plan in
the first place.

So what do you do as a Board Member with a nice over-funded plan when
they pass this law?  First, you stop funding the plan entirely until
your 'over-funded' amount drops to zero.  Then you convert it to a
defined contribution plan, which really screws over people about half
through their careers.

I have to admit I probably wouldn't have foreseen that consequence if
I'd been asked about the change by Congress.  Unintended consequences
can be difficult to spot, even if you are looking for them.

Back to EPI's study -- they mention the decline in defined pensions.  I
wonder how much of what they are seeing is the result of the decline in
defined pensions alone?

I might be able to find a web based reference if someone really wanted
it.

> -----Original Message-----
> From: fork-admin@xent.com [mailto:fork-admin@xent.com] On Behalf Of
Eugen
> Leitl
> 
> Retirement Insecurity, by New York University economist and wealth
expert
> Edward N. Wolff and published today by the Economic Policy Institute,
uses
> the most recent data to examine changes in Americans' retirement
wealth
> during the 1980s and '90s and finds that more retired Americans will
have
> less to live on.