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The private sector boasts how it has replaced employees' defined benefit pension practices with 401(k) plans, which are pushed by Wall Street. But a Bloomberg News story dated Thursday (February 13) is extremely disturbing. It shows how large employers are holding back on both the amount and the timing of 401(k) matching funds, and dragging out vesting schedules.

And look at which companies are doing it: one is Oracle Corp., the software firm. Its chief executive, Larry Ellison, is one of the nation's richest persons, worth $41.8 billion. The company's performance has been lagging. Last year, shareholders rejected a fat pay package for Ellison. The poor dear had to take an 18 percent pay cut — to $78.4 million per year.

Another company that is squeezing employees' 401(k)s is Wall Street's JPMorgan Chase. Last year, its chief executive, Jamie Dimon, was given a 74 percent raise to $20 million after criminal and regulatory probes cost the mammoth bank $23 billion in settlements.

Bloomberg points out that Wall Street has been claiming for the past 30 years that 401(k)s are a big improvement over pensions. "It hasn't worked out that way," says Bloomberg. The median balance in 401(k) and individual retirement accounts for households headed by people ages 55 to 64 was a mere $120,000 in 2010, according to a Boston College study. That would provide only $4800 a year, assuming seniors withdraw 4 percent annually.

Mike Alfred, who heads San Diego's BrightScope, which ranks retirement plans, is quoted in the article saying, "Top executives with high compensation likely don't care what their company contributes to a 401(k), but for employees in the ranks it can mean the difference between financial security and scarcity in old age."

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Visduh Feb. 16, 2014 @ 9:37 a.m.

The notion that 401(k) plans were an improvement over pensions is laughable. At best, they had a couple features, such as "portability" and permitted a degree of control over the investment choices, and perhaps an option to do some short-term borrowing against the balance. But that was it.

The defined benefit pension plan was fully funded by the employer. The 401(k) required the employee to make his/her own contribution in order to get whatever match the employer was offering. That's an advantage? The DB plans, after ERISA kicked in fully, required a five-year "cliff" vesting, which meant that after a mere five years, the employee could either take a lump sum tax-free transfer of the balance, or just keep the benefit in place until he/she reached retirement age. It would be no real disadvantage to be receiving checks from several DB plans upon retirement.

The typical 401(k) plan required the employee to contribute 6% of gross earnings per year (up to a generous limit) in order to receive the employer contribution of 3%. While that looked like free money, for most employers it was a good deal less than their required contributions to a typical DB plan. That's an improvement? Moreover, many of the lower paid employees just didn't participate, complaining that they needed all the pay all the time, and had none to spare for retirement. Another fly in the ointment was the problem of how some 401(k) plans were in danger of becoming "top heavy", meaning that the higher paid folks could not participate fully, lest they push the plan over some legal limits of who was participating. A surprisingly large number of corporations struggled with top heavy plans.

As a savings vehicle to supplement the DB plan offered by an employer, the 401(k) was great. Sadly as they became available and understood, they emerged as a replacement for the by-then heavily regulated DB pension plans. Only if a worker participated fully in a 401(k), starting at around 22 years of age, and never touched the money, could one offer anything like a secure retirement. (Those dollars put into the plan in the earliest years are those that would grow the most and provide a decent balance forty years later on.)

The selling point of portability is interesting, because it is not as though most job changes are voluntary. Far more are due to business restructurings and/or failures, cost cutting layoffs, arbitrary dismissals, etc. Another bad feature of the 401(k) is how many, many folks, who after a job loss, invade and spend the balance just to live on, paying taxes on the money taken out, plus penalties. That's an advantage?

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Don Bauder Feb. 16, 2014 @ 11:59 a.m.

Visduh: Excellent points. Those 401(k) plans were designed to benefit Wall Street and corporations, not employees. The investment industry now holds $4 trillion in investment accounts. It's getting rich while employees are getting poorer. As private sector employees get poorer, the companies can afford to give outrageous pay to top executives.

In the City of San Diego, former Mayor Jerry Sanders is taking typically disingenuous bows for putting new employees in 401(k)s instead of defined benefit pension plans, claiming he solved the pension problem. It definitely gives the new employees less retirement money than employees who were hired earlier. But it hardly solves the pension problem. New employees are a drop in the bucket.

Since the private sector has overwhelmingly gone to 401(k)s, government jobs offering defined benefit packages have become more valuable than private sector jobs. Much will depend on what happens in bankruptcies such as Detroit, Stockton, and San Bernardino. Will the benefits of current workers be cut? This question will eventually be tackled by the Supreme Court. Best, Don Bauder

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Visduh Feb. 16, 2014 @ 4:42 p.m.

The problem for most governments in this state, at least, is that the pay is better as you go along than in private industry, the benefits like medical care are better as you go along, and the pension formulas are far more generous than in the private sector and are based on generous pay, a double whammy. Perhaps the correction needs to start with bringing public sector pay into line with the private sector, then the benefits, and finally some realism in the retirement systems. Putting a patch on an out-of-control compensation system at the end, rather on the front end, is not the place to start.

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Don Bauder Feb. 16, 2014 @ 5:44 p.m.

Visduh: Remember when so-called public service -- taking a government job -- involved low pay but generous retirement benefits, and often retiring at a young age? Now the benefits in the public sector are better than those in the private sector, unless you happen to rise to the top at a big company. Then you get obscene pay and benefits. Best, Don Bauder

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shirleyberan Feb. 16, 2014 @ 12:25 p.m.

So tired of hearing "Trust Me" "For Your Benefit" while I'm being robbed by an autocrat.

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Don Bauder Feb. 16, 2014 @ 5:45 p.m.

shirleyberan: Whenever anyone says "Trust me," run away as fast as you can. Best, Don Bauder

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Dennis Feb. 16, 2014 @ 3:49 p.m.

When 401's first came out I think the max contribution was $2k per year. Since I was only making about 10k at the time it was not feasible to put 20% of my gross income into a pot that I could not afford

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Don Bauder Feb. 16, 2014 @ 5:48 p.m.

Dennis: Twenty percent of your income is a lot to put in a 401(k). At one time, I was putting in 15% in savings plans, but that didn't last long because those of us in management were soon not allowed to put in anywhere near that much. Best, Don Bauder

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shirleyberan Feb. 16, 2014 @ 3:54 p.m.

It's not feasible to give 401 $ on minimum wage, I'm thinking is most of the country while the billions go to other countries without regulations in order.

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Don Bauder Feb. 16, 2014 @ 5:49 p.m.

shirleyberan: On a minimum wage, you can't even support yourself, much less put anything in a savings plan. Best, Don Bauder

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Don Bauder Feb. 16, 2014 @ 5:50 p.m.

shirleyberan: Noted. Best, Don Bauder

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Visduh Feb. 16, 2014 @ 7:52 p.m.

Doggone, but you'll never guess where that Bloomberg piece appeared today? It was in the Mill, starting on p.1 of the Business section. Wonders never cease! It took up almost as much space as a full page. What are Dougie's editors thinking? Reporting the news? I got to read how "Whole Paycheck", aka Whole Foods Markets, contributed $152 for the 401(k) plan for last year. Yep a whole $152 if you put in $1000. What if you put in more? That's all folks, $152 for the year. Oh, Whole Paycheck has a host of reasons for that, and they say the employees are making the choices of how to deploy the fringe dollars, and there may be some truth there. But a niggardly $152 maximum for the year? Outrageous scarcely describes it. If any reader wants to see the whole piece, dig out a copy of today's local rag, and it starts on the bottom of page C1.

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Don Bauder Feb. 17, 2014 @ 7:10 a.m.

Visduh: I absolutely cannot believe that that Bloomberg piece appeared in the U-T, especially since the U-T cut out 401(k) matches not long ago. Whatever editor put that story in could get fired. Best, Don Bauder

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Visduh Feb. 17, 2014 @ 7:40 a.m.

A few such stories in the Mill make me think there is some sort of guerrilla warfare going on there. As in that the editor is pushing an agenda counter to what he's supposed to push, and nobody in power even bothers to read the paper itself. Dougie has other things on his mind:) If it runs more such pieces of reporting I may have to stop calling it the Manchester Mill.

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Don Bauder Feb. 17, 2014 @ 10:12 a.m.

Visduh: Guerilla warfare waged by staff members is just what that newspaper needs. But who would have the courage? I have to believe that Bloomberg story was put in the U-T by some low-level editor who did not understand what the message meant, or didn't bother to read it. I suppose it is possible that someone in the backshop snuck it in there. Best, Don Bauder

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Ponzi Feb. 17, 2014 @ 3:38 p.m.

A top heavy plan is corrected with a fail-safe contribution. But with stock options, excessive executive compensation, bonuses, perks and so forth, the top paid don't care about the measly 401k plan match.

The biggest and most common problem of private companies with defined benefit plans is many of the plans are deliberately underfunded and then hoisted on to taxpayer when the PBGC has to take the plan over.

DB's used to take care of the pension planning. Now it's left up to the employee. As they say.. people don't plan to fail, they fail to plan.

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Don Bauder Feb. 17, 2014 @ 7:21 p.m.

Ponzi: Some companies deliberately scheme to dump their pension obligations on the PBGC. Best, Don Bauder

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Visduh Feb. 17, 2014 @ 8:46 p.m.

Just thinking of another drawback to 401(k) plans. Some employers are permitted to make their match with their own stock. There must be some rules about that, and the company stock probably must be publicly traded. But what if I don't want any company stock, asks an employee? What then? Tough luck. In those cases the plan rarely allows you to sell the company matched stock and replace it with some other investment, while you are still employed there. It is easy to think of all the abuses that such a practice could create. The valuation of the stock has to be made, based on trading prices over some period of time, and then the match is converted into shares of the stock. Whether the company has to buy the stock, or can merely issue some of its treasury stock, doesn't change the valuation method. But what about overly optimistic "guidance" provided by the company and its effect on the stock price? Oh, then there are share buy-backs that are used to prop/jack up the price, especially when the biggies are being issued their stock options.

The company can argue that by making all its plan participants stockholders, it increases motivation, commitment, and performance. But it also makes the employees more vulnerable to a business downturn or takeover or some other such unpleasant event. Nobody should have to keep his or her vested benefits (and the 401(k) vests essentially immediately) locked into any specific security, and that is what many of these plans do. Sometimes it works out to the benefit of the employee, but in too many situations it does not. Worst case: You lose your job with the company and its stock in your 401(k) loses much or all of its value at the same time.

Worse yet is the employee who takes the investment option of putting his/her own contributions to the plan into the company stock. Oh, that really impresses the boss that you have such boundless confidence in the company, and tells them you're there for better or worse, putting your money where your mouth is! Wow. Again, there are people who have done just that, and have benefited greatly when the employer really did deliver success. For more, it was the absolute wrong thing to do, putting all your career and retirement security into one basket. (Think Enron.)

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Ponzi Feb. 17, 2014 @ 9:13 p.m.

There are many privately held companies with ESOP's. Remember SAIC before they went public? The problem with these is liquidity, but they are actually some of the better employee stock programs because they cannot be manipulated by Wall Street.

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Don Bauder Feb. 18, 2014 @ 7:05 a.m.

Ponzi: ESOPs can be a good deal under certain circumstances. Founders' shares in an emerging company can be a bonanza -- or a bust. Ditto stock options. Best, Don Bauder

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Ponzi Feb. 17, 2014 @ 9:21 p.m.

Visdah, you hit the nail on the head with your Enron example. I don't recall the specifics, but I think the employees were highly encouraged to invest in the stock. Of course there was greed involved on the employees part.

I have heard some of the Enron stories. Quit a few employees were married couples and when the Enron fraud was exposed, they not only both lost their jobs, but they owned loans to their 401K plans that were loaded with Enron stock. Enron was pure evil. Imagine you and your spouse losing your jobs, having your 401K's dive to zero and adding insult to injury, actually owning your worthless 401K money from a loan taken out for a home down payment or other purpose.

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Don Bauder Feb. 18, 2014 @ 7:09 a.m.

Ponzi: Yes, Enron was pure evil. Those offshore deals were complete frauds. Employees were completely wiped out when the house of cards collapsed. Some were employees of an Oregon utility that Enron purchased. It was a disaster. And Enron's chairman, who died before he was to go to prison, went around the country preaching that Enron's way was God's way. Religion editors and reporters ate his story up. Best, Don Bauder

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danfogel Feb. 18, 2014 @ 12:10 p.m.

Yeah, well, we all know what David Hannum said!

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Don Bauder Feb. 18, 2014 @ 2:12 p.m.

danfogel: David Hannum supposedly uttered the words, "There's a sucker born every minute." The statement was always wrongly attributed to P.T. Barnum.

The Enron chairman who went around the world preaching religion while helping to construct a complete fraud was Ken Lay. Best, Don Bauder

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danfogel Feb. 18, 2014 @ 11:37 p.m.

Uh, yeah, that's why I referred to Hannum, not PT Barnum. And I think pretty much everyone who is aware of the Enron debacle knows who Ken Lay was, and what he did, thus the "There's a sucker born every minute." reference. And speaking of suckers and Enron, let us not forget that thanks to those "suckers" masquerading as SCOTUS, Jeff Skilling will out and about in a couple of years.

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Don Bauder Feb. 19, 2014 @ 8:02 a.m.

danfogel: Before Enron's crash, Skilling said he was leaving the company to spend more time with his wife and children. He should have been asked, under oath, whether he knew the names of his children.

As to SCOTUS: currently, its majority might as well be the national Chamber of Commerce. Best, Don Bauder

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Duhbya Feb. 19, 2014 @ 7:36 a.m.

And to me, this (see below) was the biggest travesty of that entire sordid affair. Why no incarceration for these buffoons?

From CBS News archives: California's attempt to deregulate energy markets became a disaster for consumers when companies like Enron manipulated the West Cost power market and even shut down plants so they could drive up prices.

There was quick reaction in Washington to the Enron audiotapes first aired by CBS News last night, and the tapes have become part of the debate over the President's massive energy bill.

"People were talking about market manipulation. People were talking about schemes, people were making jokes," said U.S. Sen. Maria Cantwell, D-Wash.

"While the president would like to have an energy bill, I'd like to have an energy bill that protects consumers," said Cantwell.

Consumers like Grandma Millie, mentioned in one exchange recorded between two Enron employees.

Employee 1: "All the money you guys stole from those poor grandmothers in California?

Employee 2: "Yeah, Grandma Millie man.

Employee 1: "Yeah, now she wants her f-----g money back for all the power you've charged right up, jammed right up her a—for f-----g $250 a megawatt hour."

It's clear from the tapes that Enron employees knew what they were doing was wrong, and now lawmakers are responding.

"I will offer an amendment to compel the Bush administration to get off the dime and get back this money that has been stolen," said Rep. Jay Inslee, D-Wash.

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Don Bauder Feb. 19, 2014 @ 8:10 a.m.

Duhbya: I remember those Enron tapes very well, although the press did not emphasize them enough. What Enron and other producers did was a cogent argument that deregulation and self-regulation do not work. The banking calamity of 2008-2009 cinched the case. Greed is too rampant. The so-called free markets aren't as free as many academics think they are. Best, Don Bauder

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Duhbya Feb. 19, 2014 @ 9:41 a.m.

And so far, I don't believe we've developed a cure for greed, short of total collapse.

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Visduh Feb. 18, 2014 @ 8:27 a.m.

Ponzi, you took that one step farther than I ever imagined, and yet it makes perfect sense. Putting all your economic eggs in one basket, when you don't need to do that, is fraught with peril.

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Don Bauder Feb. 18, 2014 @ 7:02 a.m.

Visduh: Buying one's own company's stock can be accomplished outside the 401(k). A company will permit employees to buy its stock at, say, 85% of market value on a given day. It can work out very well -- or can work out disastrously. Depends on the company and the drift of the general market. Best, Don Bauder

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Don Bauder Feb. 18, 2014 @ 1:05 p.m.

Visduh: I used to think that ESOPs, employee stock ownership through 401(k)s, IPOs, stock options, founders' shares or whatever, were socially useful. Now I have my doubts, The field of accounting is so rotten that employees will more frequently than ever wind up owning a piece of a corporate hoax. Of course, those who get founders' shares in a halfway honest and successful startup will be richly rewarded, because they pay so little for their shares. The same can be true with stock options. Best, Don Bauder

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Don Bauder Feb. 18, 2014 @ 10:21 p.m.

Firozall A. Mulla: In politics, perceptions and feelings have been more important than facts for a long time. Best, Don Bauder

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