For all you “burned out characters” with a pension

Excerpt from Military Pensions Are ‘Bloated’ for a Reason
By Megan McArdle – Feb 6, 2015, 4:54:20 PM Bloomberg View

I am happy to report I am one of those burned out characters who stayed with a company for forty-eight years, far longer than needed to collect a pension. The logic below is what was used (including by me) to terminate pension plans, convert them to cash balance plans or replace them with 401k plans. Employees are more mobile we were told, employees don’t appreciate a pensions value, employees rather have control over their money. Even if all this adjusting to the new workforce had resulted in paying more now, which of course it did not, workers would not have been better off in their retirement.

To the (naive) Megan McArdle’s, CFOs and eager consultants of the world who encouraged the demise of what defined benefit system we did have in this Country, I have one question, “How is that all working out?”

Why can’t the experts factor in human nature in their “what should be” economic models?

I think the evidence sadly shows that the majority of American workers do not have the means, discipline, attitude, skills, planning ability or anything else that is required to save, invest and utilize assets over a fifty to sixty year period; which of course, is why Social Security is such a third rail to politicians … and the AARP. 😬

As readers know, I’m against tenure, and I’m generally also against backloading compensation in the form of defined-benefit pensions. These systems are terrible for workers who don’t stay long enough to qualify for a pension, and they’re not good for the workforce as a whole, either: It encourages risk-averse time serving at the expense of your organization’s mission, not to mention clogging your org chart with burned-out characters who ought to go do something else but won’t leave until they get that golden ticket.

But I also recognize that de-emphasizing backloaded compensation means that you have to pay more up front, right now. No, don’t wave around actuarial charts showing that your new plan has just as high an expected value as the old one; the workers won’t buy it, and I’m not buying it, either. You’re asking them to take more risk, and just as in financial markets, you’re going to have to pay them to do so. I think that’s a good idea — that ultimately, doing so creates more value for everyone.


  1. Dick, I’m not sure I understand your position. On the one hand you say that the majority of American workers do not have the means, discipline, etc. needed to invest successfully for fifty to sixty years, yet on the other hand (I think it’s the other hand) you say that companies must “de-emphasize backloaded compensation” but pay more “up front, right now.”

    If what you say is true about the majority of Americans inability or unwillingness to manage to invest their money successfully, what difference does it make whether they are investing $100 a week or $250 ?


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