[FoRK] Chart of the Day...

J. Andrew Rogers andrew at ceruleansystems.com
Wed Jun 9 16:44:44 PDT 2010


On Jun 9, 2010, at 4:25 PM, Ken Ganshirt @ Yahoo wrote:
> 
> Okay, let's accept that for the moment. I'm willing to admit that the two plans associated with the company I retired from might well be exceptions. That doesn't make pension plans either scams or ponzi schemes. You still haven't answered why you think they are. And you haven't specified whether it's the defined-benefit plans or the defined-contribution plans you think are the baddies.


Defined-benefit plans have to make assumptions about both short-term costs and revenues in the very distant future. Trying to predict such things is a fool's errand, and pension funds generally don't spend enough money to have the margin of error required for when those predictions invariably fail.  Consequently, the only way to make the numbers work in the short-term is scams or Ponzi schemes.

The eventual insolvency of pension funds comes down to there being no easy way to "fix" the fund once an assumption fails. At that point, it is all just accounting gimmicks or bailouts by suckers to push the insolvency date as far out as possible.  


> If they are all so bad, what do you suggest as an alternative?


Defined-contribution plans are fine, they don't make any promises. Those plans don't have their solvency tied to the ability of someone to predict the distant future.  





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