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An important distinction to make with GE is that most of their pension plan is "defined benefit" as opposed to "defined contribution". The latter is much more c

An important distinction to make with GE is that most of their pension plan is "defined benefit" as opposed to "defined contribution". The latter is much more common nowadays because it avoids these massive long-term obligations to the company. EDIT: Added "most of". A percentage of their employee base has already transitioned to defined contribution.

lotsofpulp 7y ago
In the US, "pension" typically means a defined benefit pension.
- joeyrideout 7y ago
  Not any more... "The percentage of workers in the private sector whose only retirement account is a defined benefit pension plan is now 4%, down from 60% in the early 1980s. About 14% of companies offer a combination of both types." [1] [1] https://money.cnn.com/retirement/guide/pensions_basics.moneymag/index7.htm https://money.cnn.com/retirement/guide/pensions_basics.money...
  - lotsofpulp 7y ago
    I mean that in common vernacular, when someone says "pension", they are referring to a defined benefit pension. Otherwise, in the US, we use 401k, IRA, "retirement funds", or other words.
    - walshemj 7y ago
      And a 401k and IRAs is are very poor "pension" plan compared two other countries.
      - lotsofpulp 7y ago
        I'm not sure what you're claiming. It's possible to design a very lucrative and costly defined benefit pension, but in the US, no employer is offering it other than governments, and even the governments are beginning to croak under the stress of unsustainable benefits, so new employees are not eligible for them.
        walshemj 7y ago
        I was comparing the US DC (401k) vs say the UK (A Group Personal Pension or a SIPP).
        lotsofpulp 7y ago
        Based on some quick Googling, I don't see what is so much better about an SIPP or a group personal pension plan? SIPP offers some kind of matching from the government, but it doesn't seem significant.
        nguoi 7y ago
        I don't know anything about the 401k system, but the money going into my pension is from my gross salary. Combined with high taxation, it means that it's worth up to twice as much going into my pension as it would be going into my bank account. SIPPs are beyond my lifestyle.
        lotsofpulp 7y ago
        It's the same in the US.
        walshemj 7y ago
        Main one is Tax relief at your highest rate on income tax you get an extra 20% into your pension - if your a higher rate tax payer you can reclaim the extra tax relief. For a higher rate taxpayer you put in £60 and get £100 in your pension. You can also do salary sacrifice and reduce you income tax and NI lability
        sokoloff 7y ago
        Unless your retirement tax rate will be lower than your working years rax rate, it comes out in the wash eventually. It's quite likely that some people today will end up paying higher income tax rates in retirement than today.
  - Rebelgecko 7y ago
    I don't think I've ever heard someone refer to their 401k as a pension
    - lotsofpulp 7y ago
      I think they use the word "pension" for defined contribution retirement plans in the UK since they, of course, don't have the US tax code section 401k.
  - deleted 7y ago
    [deleted]
  - SketchySeaBeast 7y ago
    All that tells me is that there are no more pensions, not that the definition has changed. Employers are contributing money now, but have pushed any risk onto the employee, making it feel pretty worthless as a retirement strategy.
    - ghaff 7y ago
      > Employers are contributing money now, but have pushed any risk onto the employee, making it feel pretty worthless as a retirement strategy. You seem to be arguing that saving for retirement is futile. You can invest is (almost) arbitrarily low risk to principal investments like US treasuries. I probably wouldn't advise that as the sole investment strategy for most people. But it is one way to reduce certain types of risk. (And most defined benefit plans have the same risk with respect to inflation.)
      - sokoloff 7y ago
        I think all they're arguing is that the word pension =~= "defined benefit retirement plan".
- chrisfinazzo 7y ago
  In the past, this was generally true, but not anymore. Case in point, my great uncle - yes, that's a thing in genealogy, look it up - was fortunate enough to retire with one in the late 80's/early 90's. You don't even have to know much about the system to understand how this works. Defined benefit - Your pension is X, determined by rank, years of service, etc. Defined contribution - While the above conditions may still apply, the bottom line of how well you do is determined by how much you put in on a regular basis. Not hard to imagine why most companies made the switch or simply stopped offering traditional pensions - they're really expensive over the long term.
  - nilkn 7y ago
    I think the point is about vocabulary more than anything. Most people (in the US) understand the word "pension" to specifically refer to a defined benefit plan.
  - CalRobert 7y ago
    I never heard anyone in the US in my 30 years there use the term "pension" to refer to the typical retirement plans available in the US. In UK and Ireland, though, most retirement plans are called "pensions", even defined contribution. The first time I told my mom about pensions after moving, she said "oh my god you get a PENSION?!??" like it referred to the paycheck for life her parents got from the paper mill. It's just semantics.
- charles_f 7y ago
  Earnest question from a non-American - aren't companies legally bound to pay these benefits? It's always surprising to me to see those huge companies stopping payments and the story ending there
  - lotsofpulp 7y ago
    Legally bound doesn't mean much if it doesn't have the power to print money. If it affects enough voters, the government usually steps in with a bailout for part of the benefit.
hammock 7y ago
"Defined contribution" is a euphemism to give a softer landing for employees that were expecting a pension. Workers should consider not using that language. The fact is the words are 50% the same but the product is 100% different.
- sokoloff 7y ago
  I think it's a quite literal and clear explanation of the differences between the types of plans. Which variable is fixed? In a defined contribution plan, the contributions are fixed/defined and the benefits vary. In a defined benefit plan, the benefits are defined/fixed and the contributions vary.
  - hammock 7y ago
    That's the spin coming through. In a traditional pension plan, the company pays you a defined amount for your retirement. In a "defined contribution" plan, the employee pays for their own retirement (maybe some of what they pay gets matched).
beached_whale 7y ago
It seems that when the companies do not own the pensions and they are funded properly this issue goes away. It's when the companies play games with other peoples money that we have victims. Independent 3rd party management of pensions often means less shenanigans and trouble

lotsofpulp 7y ago

In the US, "pension" typically means a defined benefit pension.

joeyrideout 7y ago
Not any more... "The percentage of workers in the private sector whose only retirement account is a defined benefit pension plan is now 4%, down from 60% in the early 1980s. About 14% of companies offer a combination of both types." [1] [1] https://money.cnn.com/retirement/guide/pensions_basics.moneymag/index7.htm https://money.cnn.com/retirement/guide/pensions_basics.money...
- lotsofpulp 7y ago
  I mean that in common vernacular, when someone says "pension", they are referring to a defined benefit pension. Otherwise, in the US, we use 401k, IRA, "retirement funds", or other words.
  - walshemj 7y ago
    And a 401k and IRAs is are very poor "pension" plan compared two other countries.
    - lotsofpulp 7y ago
      I'm not sure what you're claiming. It's possible to design a very lucrative and costly defined benefit pension, but in the US, no employer is offering it other than governments, and even the governments are beginning to croak under the stress of unsustainable benefits, so new employees are not eligible for them.
      - walshemj 7y ago
        I was comparing the US DC (401k) vs say the UK (A Group Personal Pension or a SIPP).
        lotsofpulp 7y ago
        Based on some quick Googling, I don't see what is so much better about an SIPP or a group personal pension plan? SIPP offers some kind of matching from the government, but it doesn't seem significant.
        nguoi 7y ago
        I don't know anything about the 401k system, but the money going into my pension is from my gross salary. Combined with high taxation, it means that it's worth up to twice as much going into my pension as it would be going into my bank account. SIPPs are beyond my lifestyle.
        lotsofpulp 7y ago
        It's the same in the US.
        walshemj 7y ago
        Main one is Tax relief at your highest rate on income tax you get an extra 20% into your pension - if your a higher rate tax payer you can reclaim the extra tax relief. For a higher rate taxpayer you put in £60 and get £100 in your pension. You can also do salary sacrifice and reduce you income tax and NI lability
        sokoloff 7y ago
        Unless your retirement tax rate will be lower than your working years rax rate, it comes out in the wash eventually. It's quite likely that some people today will end up paying higher income tax rates in retirement than today.
- Rebelgecko 7y ago
  I don't think I've ever heard someone refer to their 401k as a pension
  - lotsofpulp 7y ago
    I think they use the word "pension" for defined contribution retirement plans in the UK since they, of course, don't have the US tax code section 401k.
- deleted 7y ago
  [deleted]
- SketchySeaBeast 7y ago
  All that tells me is that there are no more pensions, not that the definition has changed. Employers are contributing money now, but have pushed any risk onto the employee, making it feel pretty worthless as a retirement strategy.
  - ghaff 7y ago
    > Employers are contributing money now, but have pushed any risk onto the employee, making it feel pretty worthless as a retirement strategy. You seem to be arguing that saving for retirement is futile. You can invest is (almost) arbitrarily low risk to principal investments like US treasuries. I probably wouldn't advise that as the sole investment strategy for most people. But it is one way to reduce certain types of risk. (And most defined benefit plans have the same risk with respect to inflation.)
    - sokoloff 7y ago
      I think all they're arguing is that the word pension =~= "defined benefit retirement plan".
chrisfinazzo 7y ago
In the past, this was generally true, but not anymore. Case in point, my great uncle - yes, that's a thing in genealogy, look it up - was fortunate enough to retire with one in the late 80's/early 90's. You don't even have to know much about the system to understand how this works. Defined benefit - Your pension is X, determined by rank, years of service, etc. Defined contribution - While the above conditions may still apply, the bottom line of how well you do is determined by how much you put in on a regular basis. Not hard to imagine why most companies made the switch or simply stopped offering traditional pensions - they're really expensive over the long term.
- nilkn 7y ago
  I think the point is about vocabulary more than anything. Most people (in the US) understand the word "pension" to specifically refer to a defined benefit plan.
- CalRobert 7y ago
  I never heard anyone in the US in my 30 years there use the term "pension" to refer to the typical retirement plans available in the US. In UK and Ireland, though, most retirement plans are called "pensions", even defined contribution. The first time I told my mom about pensions after moving, she said "oh my god you get a PENSION?!??" like it referred to the paycheck for life her parents got from the paper mill. It's just semantics.
charles_f 7y ago
Earnest question from a non-American - aren't companies legally bound to pay these benefits? It's always surprising to me to see those huge companies stopping payments and the story ending there
- lotsofpulp 7y ago
  Legally bound doesn't mean much if it doesn't have the power to print money. If it affects enough voters, the government usually steps in with a bailout for part of the benefit.

hammock 7y ago

"Defined contribution" is a euphemism to give a softer landing for employees that were expecting a pension. Workers should consider not using that language. The fact is the words are 50% the same but the product is 100% different.

sokoloff 7y ago
I think it's a quite literal and clear explanation of the differences between the types of plans. Which variable is fixed? In a defined contribution plan, the contributions are fixed/defined and the benefits vary. In a defined benefit plan, the benefits are defined/fixed and the contributions vary.
- hammock 7y ago
  That's the spin coming through. In a traditional pension plan, the company pays you a defined amount for your retirement. In a "defined contribution" plan, the employee pays for their own retirement (maybe some of what they pay gets matched).

beached_whale 7y ago

It seems that when the companies do not own the pensions and they are funded properly this issue goes away. It's when the companies play games with other peoples money that we have victims. Independent 3rd party management of pensions often means less shenanigans and trouble