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In Re: The End Of Pensions on Thu, 12 May 2005 03:42:49 GMT, by Talkin Horse, we read: While called a benefit the defined benefit was sold to...
The End Of Pensions 61
Talkin Horse ... That's the beauty of defined A bank account isn't an IOU? What happens when banks and S&L's corruptly screw up? Or when a hurricane hits...
No, it's not the end of pensions. But we may see a shift from "defined benefit" pensions to "defined contribution" pensions. The "defined benefit" is an unfunded or semi-funded liability, and it may come back to destroy whoever promised it if the pension managers can't deliver high returns. The "defined contribution" is fully funded: You've paid in, and your pension will be based upon the fortunes of your pension fund. Yes, we'd all rather have a defined benefit, but the system breaks down, as we see here. That's why some of our old-line industries (airlines, steel, Ford and GM) are sinking. It's also why some state and local governments are staggering. It's very easy for the Debt Management guy at the negotiating table to promise future payments to be paid out of future profits or future taxes. By the time the bill comes due, he'll be long gone, and the next guy gets stuck with the mess. But sooner or later it catches up with you, and you may find the promise isn't worth the paper its printed on. That's the beauty of defined contributions or privatized Social Security: You've actually got an account that holds real buttets, rather than an IOU from someone who doesn't have the money but hopes he will later. Yes, your account may struggle at times in difficult markets, and that's a risk and a concern. But, as we see with United, there are hazards on every path. Demographic shifts are giving us a period of pension crunch, and, although no politician will admit this, there's no way to avoid some pain. Doing nothing is not an option, but there is no panacea.