[FoRK] Chart of the Day...

Ken Ganshirt @ Yahoo ken_ganshirt at yahoo.ca
Wed Jun 9 21:57:56 PDT 2010


-- On Wed, 6/9/10, J. Andrew Rogers <andrew at ceruleansystems.com> wrote:
> 
> 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.
> 


Seems to be we're still talking about dishonest and/or incompetent people, not necessarily plans that are fundamentally flawed. Whatever.


> 
> > If they are all so bad, what do you suggest as an
> alternative?
> 
> 
> Defined-contribution plans are fine, ... Those plans don't have their solvency tied to the ability of someone to predict the distant future.  
> 

Of course they do. They absolutely have their solvency tied to such predictions. But now it's you and I who have to do the predicting. 

Someone still has to make similar guestimates about the cash requirements out there in the future and figure out what the contributions need to be. Shorter time frame is all. Perhaps you are equipped to make that sort of prognostication. I don't pretend to be. So, in the end, it's the same scam and ponzi artists (if you're right about that) deciding what contributions by the employer and employee will be sufficient. Not???

What I'm saying, I think, is that the greed and/or incompetence of the employer will cause the defined-contribution plan to be underfunded, too, because that is what's in the best interests of the employer. Bailouts are still a possibility if, indeed, the scam and ponzi artists are rampant in the picture. Only in this case it's the individuals who need bailing out rather than the plan itself. But it's the same thing, net. Isn't it?

..... Maybe it's worse? In the case of a defined-contribution plan, some members will have done a better job than others of recognizing the potential for underfunding and will have taken steps to hedge their risk (by running their own personal retirement fund in parallel). So the blowback from underfunding a defined-contribution plan will more likely be disorganized and piecemeal. The employer won't likely have to deal with the united front of an entire plan worth of screwed members as they may with a defined-benefit plan. 

        ...ken...





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