Pensions vs. 401k


#1

Continuing the discussion from Middle school teacher in trouble after administering "Pimps and Hos" math test:

That’s not how pensions work generally - you are vested after a few years and get benefits for every year you worked - many of them do use an average of your last three years pay however teachers (unlike cops) can’t work massive overtime to bump up the ‘pension payout’ so firing her would just let her collect unemployment until it ran out then collect her pension.

That’s (btw) why pensions are so f’n awesome - they can’t be sued away from under you and it generally takes a literal act of congress to touch someone’s pension. 401k… well your paperpoy can trip and fall in your front yard and take every cent. Or the RIAA if you downloaded say a CD’s worth of songs. And it’s ripe for looting if you need to file bankruptcy. 401k’s would be awesome if they were anything close to a pension in protected assets for retirement - they don’t even exist in the same universe and are generally just big bags of money that one bad decision could wipe out.


#2

Pensions are way better, but generally only if the fund is carefully managed and the board includes future recipients. I’ve never liked the idea of 401k’s. You don’t know what future tax brackets are going to look like, and income taxes are at a historic low. Eventually, when the country wakes from its Libertarian stupor, taxes will go up so we can start having nice things again. Roths are good for times like now, but could be less good when taxes go up. Either way, retirement instruments really do need better protection as an asset class. Your example of the tripping paper boy should be handled under your homeowner’s insurance, though.


#3

Being un-American, I’ve never been sure how a 401k works and how the employer is involved. In Canada we have RRSPs that we can invest in, deducting invested income from our income for taxes that year, and then pay taxes on the money when it is taken out, but they are personal, not affiliated with employers.

As for pensions, here’s wikipedia:

an investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned

Well, that’s the wikipedia article for “Ponzi Scheme” anyway.


#4

For a second I thought you were describing how every Fortune 100 company makes cash by laying people off.


#5

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