[FoRK] Chart of the Day...

Ken Ganshirt @ Yahoo ken_ganshirt at yahoo.ca
Tue Jun 8 20:57:07 PDT 2010


--- On Tue, 6/8/10, J. Andrew Rogers <andrew at ceruleansystems.com> wrote:

> > 
> > It seems to me that a fully funded pension fund should
> be no burden on anyone's future. It's only the unfunded ones
> -- the ones that are "funded" out of future revenues or some
> other euphemism for deferring the liability -- that are a
> problem. 
> > 
> > Why do you think pensions are a ponzi scheme?
> 
> 
> Define "fully funded".  Therein lies the problem.
> 

What's so mysterious about "fully funded"?

The pension fund (defined-benefit) I'm part of is funded by both employee and employer contributions. Not some funny promises but actual monetary contributions by both parties. Actuaries figure out, using whatever voodoo computations they use, how much needs to be contributed in order for the fund to be self-sustaining until the last eligible member dies. That's how the total contributions are established in any year. 

Unfortunately -- for new employees -- this particular pension plan was discontinued in 1977 in favor of a defined-contribution plan. It has been sufficiently well managed that even with only a couple dozen members continuing to work it is self-sustaining. That is, neither the remaining working members of the plan nor the company have been obliged to increase their contributions due to the shrinking base of working employees.

When the last of the working members finally retire -- likely within the next two or three years -- it will still be self-sustaining. That is, there will be no ongoing obligation for anyone - not the company or anyone else - to contribute more money to the plan. Even with the financial downturn. At least that's what the actuaries tell us as of the latest review last year.

This plan has been sufficiently well-managed that it has an annual COLA (cost of living adjustment) and a few years ago, when the company turned management of the plan over to a board of retired employees, there was a pension increase AND a rebate of contributions to the company AND a two-year contribution holiday for the company.

The defined-contribution plan is even easier to deal with because there is never any potential ongoing obligation for funding by the employer - as long as they kick in their tithe at the time rather than defer it using the many sleazy ways that governments and other employers usually "fund" pension plans. And if they keep their fingers the hell off of those funds rather than "borrowing" from them. 

In the case of the company I am retired from, the employer and employee put in their agreed-to contributions to the defined-contribution plan -- real money, not any funny promises -- and that's the end of the company's or anyone else's liability.

So where's the problem?

       ...ken...





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