US proposals to re-regulate finance

47 posts / 0 new

Wed, 2009-06-17 19:20

thanks

here's the US Treasury Dept. document:

http://www.financialstability.gov/docs/regs/FinalReport_web.pdf

i'm just reading it, and this strikes me as odd:

"The build-up of risk in the over-the-counter (OTC) derivatives markets, which were
thought to disperse risk to those most able to bear it, became a major source of contagion
through the financial sector during the crisis." p.6

how does leveraging the debt of poor households 'disperse risk'?

this statement does not make sense to me whatsoever.

unfortunately the usefulness of the whole set of proposals rests on the analysis of the problem, and it seems they've missed the mark.

even if they use a new agency to make sure consumers/ low income persons aren't duped to take on more than they can afford (mortgages/loans), still the proposals aren't addressing the fact that the entire financial system is an upside-down pyramid balanced with it's diamond tip poised and crushing the weakest link in the chain.

how exactly is that 'dispersing risk'? seems more like its focussing risk. like a magnifying glass in the sun on an ant.

also there are big questions around giving the Federal Reserve more powers- the Federal Reserve system, though it has a nice public-sounding name, is made up of banks which are privately owned. The relationship between the Federal Reserve and the Treasury Dept. isn't really clear in the document, which describes a new oversight agency with a Treasury chair and using staff to be housed at Treasury, but not how this agency will relate to the Federal Reserve in a useful way- sounds like giving the fox more run of the henhouse.

anyway, i'll keep reading it for a bit. if others have thoughts, pls share.

Wed, 2009-06-17 19:41

thanks

the Financial Services Oversight Council (p.10) appears to have no regulatory authority itself ! its just an info sharing space;

"A. Create a Financial Services Oversight Council
1. We propose the creation of a Financial Services Oversight Council to
facilitate information sharing and coordination, identify emerging risks,
advise the Federal Reserve on the identification of firms whose failure could
pose a threat to financial stability due to their combination of size, leverage,
and interconnectedness (hereafter referred to as a Tier 1 FHC), and provide a
forum for resolving jurisdictional disputes between regulators....

2. Our legislation will propose to give the Council the authority to gather
information from any financial firm and the responsibility for referring
emerging risks to the attention of regulators with the authority to respond."

so much for increased public regulation of financiers- it's just another taxpayer-funded giveaway of more power to the private bankers in the so-called 'Federal reserve' system.

"New authority for the Federal Reserve to supervise all firms that could pose a
threat to financial stability, even those that do not own banks."p.3

Wed, 2009-06-17 19:50

thanks

here's another bizarre statement;

"Firewalls between banks and their affiliates should be strengthened to protect
the federal safety net that supports banks and to better prevent spread of the
subsidy inherent in the federal safety net to bank affiliates." p.12

that's not the purpose nor target of useful firewalls, its to keep banking and eg. insurance separate to limit financier conflict of interest and excessive leveraging.

you know, i'm not liking this doc so far at all.

think i'm going to cool down by peeling some potatoes...

Wed, 2009-06-17 19:54

thanks

yikes, it gets worse.

"Treasury would have no role in
determining the application of these rules to individual financial firms." p.23

Wed, 2009-06-17 20:13

thanks

then on p.32 there's a bit more detail on a new 'National Banking Supervisor' which is supposed to eliminate problems with bankers changing their charters to thrifts to escape regulation, but then the section says at the end "the Federal Reserve and the FDIC would maintain their respective roles in the supervision and regulation of state-chartered banks". the next section goes to say how state banks [under the privately owned FR 'regulator'] will be encouraged to expand across state lines...

Wed, 2009-06-17 20:27

thanks

p. 50 proposes harmonizing agriculture and energy commodity markets, to 'strike a balance' 'be sufficiently flexible' and, adds a classic 'necessity test' for any regs:

"We recommend that the CFTC and the SEC complete a report to Congress by September
30, 2009 that identifies all existing conflicts in statutes and regulations with respect to
similar types of financial instruments and either explains why those differences are
essential to achieve underlying policy objectives with respect to investor protection,
market integrity, and price transparency or makes recommendations for changes to
statutes and regulations that would eliminate the differences."

further, differences between those wanting less or no regulation are to be given to the Council noted in post 1 above, which has no authority to regulate in any case! bizarre.

"If the two agencies cannot
reach agreement on such explanations and recommendations by September 30, 2009,
their differences should be referred to the new Financial Services Oversight Council. The
Council should be required to address such differences and report its recommendations to
Congress within six months of its formation."

this non-regulation masked as regulation could go on a long time...

Wed, 2009-06-17 20:33

thanks

p.51 and continuing goes back to the primary regulatory authority of the Federal-Reserve-fox-in-hen-house, with lots of language prior and following about the supposed goals of this privately owned authority, but whose got authority to regulate the Federal Reserve?

only, at this point, Congress, it seems.

hope they can do better, sooner, than this doc.

funny the timing of the release of these proposals, just after the SCO has been talking about getting away from trade in US currency, and Iran is on the brink, likely over the same, and the UN is having a conference next week on hopefully more responsible alternatives for economies.

Wed, 2009-06-17 21:03

thanks

the section on 'consumer protections' is basically civilian surveillance :

"Critical new fields should be added to HMDA data such as a universal loan identifier that
permits tying HMDA data to property databases and proprietary loan performance
databases," p.70

along with lots of protections for investors.

well, ok, they have one line in the whole doc that might actually help some employees, "Finally, we should explore means of strengthening the defined benefit plan system." p.75

then you get a section on more bailout options for really big bankers.

then there's a section on getting the same-old-same-old IMF and G20 players and their Financial Stability Forum -now Financial Stability Board (FSB) - with all G20 members, woo-hoo !, to keep-the-same-damn-set-up-go-over-it-all-again-with-another-report-and-media-blitz-in-another-6-months BS.

over to the rest of you good folks. i must do some cooking tonight.

Thu, 2009-06-18 06:17

Tommy_Paine

Ever since the Enron scandle broke, I've been thinking about the regulation of the financial sector, how it should be done, etc. That far back, I imagined it was every bit as bad as it has turned out to be.

However, we can regulate these guys all we want. We could even drag the worst culprits out into the streets and flay them alive. But time will go on, a generation or two will pass, and someone will resurect the idea of unregulated, casino, or pirate capitalism, and our grandchildren will end up victimized by these sociopaths once again.

I think the mission for us is different. Obviously, we cannot rely on government to protect us.

Thu, 2009-06-18 09:23

#10

thanks

so what do you think our task is, TP?

Thu, 2009-06-18 09:29

#11

thanks

ok ok, you want me to name some alternatives.

how about a nice mix of starting-at-the-bottom-barter-for-survival-and-participate-at-kitchen-tables-and-in-the-field-while-working-talk-and-neighbourhood-gatherings-to-help-eachother-and-solve-immediate-then-larger-problems ?? sound good?

Thu, 2009-06-18 09:37

#12

Tommy_Paine

so what do you think our task is, TP?

I'm not sure, entirely. I was hoping for other ideas that would help my so far nebulous ones coagulate. Also, I'm being taken out for breakfast by one of my many daughters, and I don't have time to expound.

Thu, 2009-06-18 09:57

#13

thanks

well, the thing is that a lot of us already barter and talk and try to solve local and other problems, and really what i keep hearing is that we do need governments, the people we elect, to do what we ask them to. they are supposed to be 'public servants', not bankers' and CEO puppets. everyone seems to know this is a real problem in our country. so maybe it's that this government isn't going to help us. we need proportional representation and elected officials who will work to make laws and regs and policy in our interest, not in the interests of the corporate financial parasites which suck all the life out of us.

Thu, 2009-06-18 10:02

#14

thanks

speaking of which, [parasites], i need to see what the slugs have done to the broccoli. the rain has let up now for a bit.

you know i had to replant half the soybeans, because after the chipmunks ate the emerging beans (right off their stalks!) then the earwigs launched in (which i've kept at bay with soap), and now the slugs. people advise putting beer out in to attract and drown the beggars. i'm not a fan of beer though. i'll have to think about this. ok, back to work.

Thu, 2009-06-18 20:20

#15

Tommy_Paine

The beer thing doesn't work. I've heard putting crushed egg shells on top of the soil helps deter slugs. But I think applications of diatomatious (sp?) earth will take care of slugs and earwigs. You can also cut down on earwig numbers (cool wet springs like we are experiencing here in Ontario favours earwig population explosions) by crumbling up newspaper and leaving it over night on the ground. They like to eat it, and hide in it. Just toss it in the garbage. Or give the recyclers a treat.

It's clear to me that it's foolish to trust government to look after the interests of people like ourselves. I mean, all those regulations that were put in place as lessons hard learned in the 1930's were for the most part quietly done away with, either legislatively or through lack of enforcement.

And, we kinda went along with it.

I think it's a false dichotomy, however, to say, "give up on socialism, it just doesn't work" depend on rugged individualism!. Clearly, we need to collectively protect our interests. And maybe for grand ideas like health care or education it has to be through government.

However, maybe we can enact socialist ideas with either no government involvement, or very little.

Thu, 2009-06-18 23:05

#16

Fidel

I'll have to try that with the newspapers for earwigs.

Tommy_Paine wrote:
However, maybe we can enact socialist ideas with either no government involvement, or very little.

I dont think we can have socialism as long as there are non-socialists in government. They adopt a few socialist ideas and then screw them up beyond recognition. Theyre in there for one purpose and that's to provide social services for rich people. We have government of the rich, run by the rich and for the rich.

Fri, 2009-06-19 13:24

#17

thanks

so some friend of theirs mentioned to my folks they'd been reading me at rabble...and we were talking yesterday about this issue, so now i have to think about neighbours and family, not that it really changes anything i write. actually it's probably good.

so, good idea with the newspapers, the diatoms soak in too much w. rain.

on 'socialism'- you'll both need to define that please, in the context of optional actions for government or grassroots.

Fri, 2009-06-19 15:34

#18

thanks

i forgot to write in above, regarding the 'consumer protection' section of the proposals, that along with increased civilian surveillance and data collection, the section outlined strategies to get the ants holding up the world to 'save' more money by putting it in IRAs, sounding similar to Harper's tax-free savings accounts. together with the call for defined benefit pension plans, which are better than no pensions plans at all, one can see that the strategy is again to force civilians to depend entirely upon the banks and the leveraged casino for their entire security into elderly years and for future generations.

tell me how many shareholders and pensioners understand and control one iota of what goes on with their investments.

in practice, the control of our entire lives is given over completely to the bankers who know how to manipulate the system.

this is a system without democracy whatsoever. democracy being defined as persons participating equitably in governance.

it is also a system which gives the entire decision-making process for planet-friendly corporate behaviour over to bankers.

this system has been operating with banker control for some decades now. how well has it done in promoting people and planet-friendly behaviour?

Fri, 2009-06-19 19:54

#19

Tommy_Paine

Well, that's the kind of thing I mean. I think we have to find ways to divorce our social and economic security needs from the groups that seek to, basically, steal it from us. And I'd say those groups are the two headed monster called government and the financial markets.

I look at groups like orthodox Menonites or the Amish, who have separated themselves almost completely. While that's not the life I envision for myself or others, I still think there are lessons to be learned from them.

Other things strike me. A confluence of people being jerked around by high energy costs, and that energy also endangering the environment. There seems to me a confluence of needs that should be getting people "off the grid", or nearly so. It seems to me all it needs is a spark or a push in the right spot.

The same could be said for "buy local". It seems to make sense for more than one reason, and fit the interests of many people for different reasons.

My ideas haven't, as I said, coagulated into something neat and tidy. I just know that if we are to have things we need or want, we have to do it ourselves, and control it ourselves. But we can't do it by ourself. It requires a socialist, or communal effort of some type or another.

Sat, 2009-06-20 00:40

#20

thanks

it's true that it takes people helping eachother, directly in an onsite community, but these efforts are always also constrained, rather strangled, by the regs and restrictions dumped from on high to the extent that it is often difficult for many reasons to make on-site communities function well. things like bylaws, tax laws, insurance issues, etc. in this country its easy to set up a private business, but compromises need to be made in setting up communities.

also, interpersonal conflicts emerge. time is needed and conscious effort needs to be taken to develop communications and problem-solving. the parameters of commitment need to be clear. there are all kinds of organizational things that need to be worked out. and practical matters like ownership, inputs, costs. the latter can influence power issues in a disastrous way. i don't know how the mennonites or amish organize things, except that they seem to have some traditional/authoritarian structures in some respects that act as glue, for which alternatives would need to be found.

it's something i've been interested in for a long time, but practicalities have blocked it so far.

Sat, 2009-06-20 08:15

#21

abnormal

Tommy_Paine wrote:
together with the call for defined benefit pension plans, which are better than no pensions plans at all...

I don't understand that statement - are you sure you don't mean "defined contribution" pension plans? A defined benefit plan is one that say "we will pay you $X per month for the rest of your life" where $X may or may not be indexed for inflation. A defined contribution plan is one that says "we will contribute $Y to an account in your name and give it to you when you retire".

Sat, 2009-06-20 09:03

#22

josh

A defined benefit plan is a pension plan. You're guaranteed a certain payment. Defined contribution plans, like 401ks in the U.S., are not. You may do well, or you may not. You're at the mercy of the market.

Sat, 2009-06-20 09:12

#23

josh

Tommy_Paine wrote:

But time will go on, a generation or two will pass, and someone will resurect the idea of unregulated, casino, or pirate capitalism, and our grandchildren will end up victimized by these sociopaths once again.

I think the mission for us is different. Obviously, we cannot rely on government to protect us.

There is some truth to that. Lessons learned in one generation are often forgotten down the line, and we end up repeating history. But I believe we can rely on government. Only government is big and strong enough to protect the people from the avarice of capital. The problem is having the wrong people and policies in power, not government itself.

Sat, 2009-06-20 10:02

#24

Tommy_Paine

Tommy_Paine wrote:

Actually, Thanks wrote that.

But this brings up a point about government and trust. Back a ways, the employees at GM in Ontario voted to allow GM to not make it's 100% funding requirement on the pension, putting it off for another five years. The employees did so with the understanding that if the GM were to go under, the Provincial pension insurance would soften the loss. Based on this, as a worker, you can assume some calculated risk in your decision making.

Unless the government pulls the rug out under your feet, and doesn't tell you untill it's too late.

Now, my employer will be asking us to make the same decision. Unfortunately for them (and perhaps us) we have to calculate the perfidiousness of government into the decision making.

i don't know how the mennonites or amish organize things, except that they seem to have some traditional/authoritarian structures in some respects that act as glue, for which alternatives would need to be found.

Well, another thing those communities rely on is keeping the next generation glued to the system by limiting their education, traditionally. Certainly, there are aspects of their system none of us here would want to adopt.

However, I think we have to have the kind of mind that can look at many examples, and see what can be adopted and tried, connected to other ideas or aspects of systems, as opposed to the kind of mind that expects fully functioning ideas and systems served to them on a silver platter, and rejects whole ideas because 10% of it doesn't work. I hate anchovies, but I like pizza enough that I'd have no problem picking them off.

There's stuff happening all over the world, and for the first time, perhaps, we have lightning fast abilities to observe how women in villages in India are taking control, or workers in Argentina are "fireing the boss".

I guess what I'm trying to say is that the answers for us are out there, we just have to recognize and assemble them.

But I believe we can rely on government. Only government is big and strong enough to protect the people from the avarice of capital. The problem is having the wrong people and policies in power, not government itself.

Well, I was never sure of that before, and I am even less so now. I guess one's view depends on a couple of factors. If one's percieves the current economic meltdown as something akin to the randomness of a tornado, or meteroite strike, one can reassemble one's faith in government. But I see how banking and investment changed from my parents generation-- where you had an insured savings account that actually paid, to where boomers were steered into uninsured mutual fund investments. That dissapeared.

I don't think this was random. I think it was rather premeditated with government complicit in the theft.

Accident or premeditated act, the effects are the same in the end.

I happen to be infatuated with the concept of democracy. Which means that I welcome the idea of having, from time to time, the "wrong" people in office. I have left instructions that the epitaph (seriously) "Never Voted Tory" be put on my grave marker. However, I might vote Tory, still, if I ever live under twenty years of continuous NDP governments. I believe that even Stephen Harper and Iggy Thumbscrews can't be wrong about everything, all the time.

So, from time to time, even in ideal circumstances we'd have to deal with "the wrong people in government", and they'll have their run, and we can depend on markets being deregulated and our money-- and security-- stolen from our kids and grandkids again.

Sat, 2009-06-20 17:53

#25

abnormal

josh wrote:

A defined benefit plan is a pension plan. You're guaranteed a certain payment. Defined contribution plans, like 401ks in the U.S., are not. You may do well, or you may not. You're at the mercy of the market.

I'm an actuary so I think it's safe to say I understand that. What I don't understand is Tommy Paine's statement - I think he's got the two concepts reversed. Or he's making an entirely different point.

Sat, 2009-06-20 20:58

#26

Fidel

abnormal wrote:

josh wrote:

A defined benefit plan is a pension plan. You're guaranteed a certain payment. Defined contribution plans, like 401ks in the U.S., are not. You may do well, or you may not. You're at the mercy of the market.

I'm an actuary so I think it's safe to say I understand that. What I don't understand is Tommy Paine's statement - I think he's got the two concepts reversed. Or he's making an entirely different point.

There's an important difference between defined contribution and defined benefits plans. A defined contribution accumulates from day one on the job.

A defined benefits plan requires that a worker achieves equity in the company plan, for example, after no less than ten years on the job, a worker has equity in the pension fund. Some companies, like Algoma Steel in Northern Ontario, changed the rule to just two years after 1987 or so. Workers there will have earned rights to a company pension after two years working for Algoma.

I think the Pension Act sets benefits at half of the workers' overall lifetime contribution in a particular pension fund to pay for administration etc. And your monthly pay out would be something like $13 dollars per thousand on half your overall sum total contributions.

And Ontario Pension Assurance-Insurance Fund only backs up defined benefits plans. So there are lots of defined contribution funds out there that arent guaranteed today.

Sun, 2009-06-21 10:39

#27

abnormal

Fidel]There's an important difference between defined contribution and defined benefits plans. A defined contribution accumulates from day one on the job.[/qote]</p> <p>Actually not true - most defined contribution plans have some sort of vesting schedule (it's often cliff vesting so if you leave prior to the vesting date you only get your own contributions with interest back).</p> <p>[quote wrote:
A defined benefits plan requires that a worker achieves equity in the company plan, for example, after no less than ten years on the job, a worker has equity in the pension fund. Some companies, like Algoma Steel in Northern Ontario, changed the rule to just two years after 1987 or so. Workers there will have earned rights to a company pension after two years working for Algoma.

That doesn't mean that they're entitled to a full pension at that point in time - the vesting schedule can take many years before the individual is entitled to the standard "X% of salary" on retirement. All it means is that they're entitled to contributions beyond to a pension when they reach whatever retirement age is defined in the plan - if they leave the company "early" (i.e., prior to full vesting) their pension will be a fraction of what they would have received if they'd stayed. As an observation, if you leave before the initial vesting date (the two years you reference for example) you'll likely receive your contributions back with interest - if you leave after that date you'll receive a pension down the road.

Quote:
And your monthly pay out would be something like $13 dollars per thousand on half your overall sum total contributions.

That's going to be a function of what the plan says (i.e., it pays 66% of your final salary, 75%, a percentage of the average of your last five years, etc), how long you were employed, whether you took early retirement, and just how much the employee contributed (there are non-contributory plans out there).

Quote:
And Ontario Pension Assurance-Insurance Fund only backs up defined benefits plans. So there are lots of defined contribution funds out there that arent guaranteed today.

Agreed - but how exactly do you guarantee a defined contribution plan? After all, it's essentially a bank account that the employee is entitled to at retirement. It should be set up as a trust so that it's protected from the creditors of the employer. About the only thing you can guarantee is that the employer makes the required contributions. If you want to guarantee the investment returns in the employee's account the plan ceases to be a defined contribution plan and becomes something else entirely.

And for the record, there are other types of pension plans in addition to defined contribution and defined benefit plans.

Mon, 2009-06-22 17:17

#28

Fidel

abnormal wrote:

Fidel wrote:
There's an important difference between defined contribution and defined benefits plans. A defined contribution accumulates from day one on the job.

Actually not true - most defined contribution plans have some sort of vesting schedule (it's often cliff vesting so if you leave prior to the vesting date you only get your own contributions with interest back).

Youre splitting hairs. I did mention the "vesting schedule" in so many words and gave Algoma Steel-Essar in Sault Ste Marie, Ontario as a Canadian example.

And as far as I can tell, GM-Canada workers' pension fund is a defined benefits plan. And apparently GM was underfunding it, and now Ontario Assurance is going to have to cough-up some of the missing money. Algoma Steel, as an example again, was putting $10 million a year into Ontario Assurance and accepting that as a penalty for not fully funding Algoma workers' pension fund. They were $200 million short at one point.

Mon, 2009-06-22 17:45

#29

abnormal

Fidel wrote:

abnormal wrote:

Fidel wrote:
There's an important difference between defined contribution and defined benefits plans. A defined contribution accumulates from day one on the job.

Actually not true - most defined contribution plans have some sort of vesting schedule (it's often cliff vesting so if you leave prior to the vesting date you only get your own contributions with interest back).

Youre splitting hairs. I did mention the "vesting schedule" in so many words and gave Algoma Steel-Essar in Sault Ste Marie, Ontario as a Canadian example.

And as far as I can tell, GM-Canada workers' pension fund is a defined benefits plan. And apparently GM was underfunding it, and now Ontario Assurance is going to have to cough-up some of the missing money. Algoma Steel, as an example again, was putting $10 million a year into Ontario Assurance and accepting that as a penalty for not fully funding Algoma workers' pension fund. They were $200 million short at one point.

Absolutely correct. But I'm not splitting hairs. Both the plans you reference by name are defined benefit plans so they have nothing to do with your comment re defined contribution plans.

Having said that I am interested in your statement that defined contribution plans aren't guaranteed. While you're absolutely correct I'd like to know how you can guarantee such a beast. [The question isn't purely academic.]

Mon, 2009-06-22 21:34

#30

Fidel

abnormal wrote:

Absolutely correct. But I'm not splitting hairs. Both the plans you reference by name are defined benefit plans so they have nothing to do with your comment re defined contribution plans.

What I'm saying simply is that with defined contributions, there is no vestment schedule, or in other words, there is no pre-determined waiting period of X number of years before a worker attains equity in a company pension fund. But with a defined benefits pension plan, there is.

Quote:
Having said that I am interested in your statement that defined contribution plans aren't guaranteed. While you're absolutely correct I'd like to know how you can guarantee such a beast. [The question isn't purely academic.]

I dont know why. But the Pension Act doesnt cover defined contribution plans and which are not guaranteed. [url=http://www.policyalternatives.ca/MonitorIssues/2008/09/MonitorIssue1995/... Jackson[/url] said:

Quote:
The problem on the pensions front today is that public pensions replace only about 40% of the previous earnings of an average worker, and much less for those higher up the income ladder. Meanwhile--and this is a big problem--fewer and fewer workers are covered by workplace pensions, especially defined benefit plans which provide a secure and adequate replacement income in retirement. Only about one in five workers in the private sector are now covered by a defined benefit pension plan, meaning that they have to save as individuals--mainly through RRSPs--to have any prospect of a secure retirement

And he goes on to say how RRSP savings have not risen to offset the decline of workplace pensions in Canada.

Tue, 2009-06-23 07:46

#31

abnormal

Fidel wrote:
What I'm saying simply is that with defined contributions, there is no vestment schedule, or in other words, there is no pre-determined waiting period of X number of years before a worker attains equity in a company pension fund.

Absolutely untrue. There is generally some sort of waiting period before the employee has any rights to the employer's contributions. If they leave before that period is up all they receive back is whatever funds they've contributed together with relevant investment income.

Quote:
But with a defined benefits pension plan, there is.

True, although as I said before if the employee leaves before they are vested they'll get their own contributions back.

Quote:
... the Pension Act doesnt cover defined contribution plans and which are not guaranteed.

That's not the question. How do you guarantee a defined contribution plan? You can police contributions to the plan and ensure that money makes it's into the fund when it's supposed to but that's it. Beyond that there is nothing to guarantee. Nothing.

Quote:
[url=http://www.policyalternatives.ca/MonitorIssues/2008/09/MonitorIssue1995/... Jackson[/url] said:
Quote:
The problem on the pensions front today is that public pensions replace only about 40% of the previous earnings of an average worker, and much less for those higher up the income ladder. Meanwhile--and this is a big problem--fewer and fewer workers are covered by workplace pensions, especially defined benefit plans which provide a secure and adequate replacement income in retirement. Only about one in five workers in the private sector are now covered by a defined benefit pension plan, meaning that they have to save as individuals--mainly through RRSPs--to have any prospect of a secure retirement
And he goes on to say how RRSP savings have not risen to offset the decline of workplace pensions in Canada.

Agreed - and defined benefit plans are rapidly going the way of the dinosaur on both sides of the Atlantic for a number of reasons. But that's not the question.

Tue, 2009-06-23 09:34

#32

thanks

so Harper is trying to get kudos now for setting up an 'advisory cttee' like the US:

http://www.cbc.ca/cp/national/090622/n062285A.html

As noted above this will leash Canada to a similar sell-out to private finance.

and Harper is doing that too with major Canadian businesses like Nortel- giving taxpayer dollars to help offshore buyouts and later contracting out work!

as one of banners said during the FTAA protests 'Traitors, not traders'.

Harper is giving away the country, lock stock and barrel. the latter quite literally.

Iggy has to come clear on some serious issues.

we can always pray for miracles.

and keep talking

but this country won't have a leg to stand on.

Sat, 2009-06-27 09:35

#33

NDPP

US states' Budget Crisis Sets Stage for New Attack on the Working Class:

http://www.wsws.org/articles/2009/jun2009/cris-j27.shtml

"Now, as the fiscal year approaches its June 30th end, the budget crisis is being used by Democrats and Republican governors alike to launch new attacks on the social position of the working class.."

Sat, 2009-06-27 12:24

#34

Fidel

abnormal wrote:

Fidel wrote:
What I'm saying simply is that with defined contributions, there is no vestment schedule, or in other words, there is no pre-determined waiting period of X number of years before a worker attains equity in a company pension fund.

Absolutely untrue. There is generally some sort of waiting period before the employee has any rights to the employer's contributions. If they leave before that period is up all they receive back is whatever funds they've contributed together with relevant investment income.

Not true as far as I know. For instance, I worked as an apprentice ironworker for only a few years in Northern Ontario in the late 80's to early 90's and paid into a defined contributions plan, which is basically an individual retirement savings account set up in my name. The longest stretch I was with one employer at any one time while ironworking was about 15 months. And as of today, I'm still entitled to about 70 months of retirement payments at some small monthly payout, if I wanted to draw early. That is unless theyve invested the fund in a bunch of crap in the States or elsewhere and have taken a big hit and are not telling anyone.

Sat, 2009-06-27 13:00

#35

abnormal

Fidel wrote:

abnormal wrote:

Fidel wrote:
What I'm saying simply is that with defined contributions, there is no vestment schedule, or in other words, there is no pre-determined waiting period of X number of years before a worker attains equity in a company pension fund.

Absolutely untrue. There is generally some sort of waiting period before the employee has any rights to the employer's contributions. If they leave before that period is up all they receive back is whatever funds they've contributed together with relevant investment income.

Not true as far as I know. For instance, I worked as an apprentice ironworker for only a few years in Northern Ontario in the late 80's to early 90's and paid into a defined contributions plan, which is basically an individual retirement savings account set up in my name. The longest stretch I was with one employer at any one time while ironworking was about 15 months. And as of today, I'm still entitled to about 70 months of retirement payments at some small monthly payout, if I wanted to draw early. That is unless theyve invested the fund in a bunch of crap in the States or elsewhere and have taken a big hit and are not telling anyone.

That's dependent on how the plan is set up. Any plan I'm aware of says that, when you leave, you get your contributions back. Most of them (at least the ones where I'm privy to the details) require you to spend some fixed amount of time with the employer before you're eligible for the employer's contributions.

Your description of your plan (or is it plans) sounds a little peculiar. Was this a single plan that moved with you as you went from employer to employer or was it a separate plan for each employer (in which case you'd be eligible for a multitude of tiny payouts).

It also sounds like your plan converts to some sort of annuity at retirement - your description (i.e., 70 months of payments) sounds like an annuity certain as opposed to a life annuity, which sounds a little unusual.

Sat, 2009-06-27 13:35

#36

Fidel

Ronald Davis of University of BC Law gives an overview [url=http://www.pensionsatwork.ca/english/pdfs/scholarly_works/sw_edition1/da...(pdf)[/url] of DB vs DC pension plans and using ENRON as an example to compare differences between US and Canadian legal frameworks. Apparently pension plans in Canada can be roughly categorized as either DB or DC, and some plans can be a combination of both.

Quote:
In contrast to the defined benefit plans, in a defined contribution plan, it is the input (the contribution), rather than the output (the pension benefit) of the pension fund that is defined. A typical defined contribution plan is one in which the level of employer (and sometimes employee) contributions into the plan is defined, often as a percentage of the employee's wage. These contributions, plus the earnings generated by their investment until retirement, will be the amount of funds available to provide an annual pension benefit upon the employee's retirement. Thus, the defined contribution plan promises no particular level of benefits on retirement, only a particular level of contributions over the course of an employee's working life.

Sat, 2009-06-27 16:35

#37

abnormal

Interesting article although it doesn't say much [discussion of the difference between defined contribution and defined benefit plans is pretty much restricted to the paragraph you quote in your post - the rest of the paper focuses on problems that the author sees with respect to the way that defined contribution plans, RRSP's, and 401k's are managed and invested].

But I'm still intrigued by your earlier comments re defined contribution plans not being guaranteed - while I'm in complete agreement with you I still don't see any way that can be accomplished - simply put, there is nothing to guarantee.

Sat, 2009-06-27 16:52

#38

Fidel

Oh I dont know that they could be guaranteed and am of the opinion that all pension plans should be of a defined benefits variety.

[url=http://www.progressive-economics.ca/2009/02/20/dont-take-away-my-defined...'t Take Away MY Defined Benefit Pension![/url] Jim Stanford

Sun, 2009-06-28 09:31

#39

abnormal

I can't disagree with that position but the reality is it's not going to happen. Defined benefit plans are rapidly going the way of the dinosaur for any number of reasons and we're rapidly reaching the point where any pension is better than none.

Sun, 2009-06-28 13:37

#40

Fidel

Here's what US economists Dean Baker and Debayani Kar said in 2002

[url=http://www.cepr.net/documents/publications/world_bank_social_security.pd... Contributions from Workers, Guaranteed Benefits for Bankers: The World Bank's Approach to Social Security Reform[/url] (pdf)

Quote:
Executive Summary

In the last decade the World Bank has actively promoted the partial or complete

replacement of public Social Security systems with systems of individual accounts. While

proponents of such accounts had originally hoped that they would boost growth by increasing

national saving, the evidence to date has convinced even most advocates of individual accounts

that the net effect on national saving will be minimal.

However, the increase in the government deficit, due to the loss of Social Security tax

revenues during a transition period, can lead to serious financial problems. In the case of

Argentina, the current budget crisis can be attributed largely to the decision to privatize its Social

Security system. The lost tax revenue, plus the interest resulting from the additional incurred

expenditure, exceeded its central government budget deficit in 2001. In other words, if Argentina

had not privatized it Social Security system in 1994, and done everything else exactly the same,

it would have run a budget surplus in 2001.

This paper compares the administrative costs associated with individual accounts,

measured as a share of contributions to the system, with the costs of operating an efficient public

Social Security system like the one in the United States.

Among the findings:

1) According to data from the World Bank, the administrative cost of running privatized

systems of individual accounts is between ten and fifty times as much as the

administrative cost of running the public Social Security system in the United States.

These additional fees are direct transfers from workers' retirement income to the financial

sector. . .

[url=http://skeptically.org/parwho/id22.html]Pension Plans In Corporate Cross-Hairs[/url] (USA)

Quote:

Corporations and financial institutions prefer 401Ks, IRAs, and similar individualized plans because they can charge high fees and raise administrative costs, lower the benefit amount at will, borrow from the accounts when they want, pressure workers to buy the company's stock, manipulate the plan's funds to make the company appear more profitable than it is, and let workers assume all the risks if the company or stock and bond markets fall. With union-defined benefit plans and Social Security they can't do any of that. . .

Cash Balance plans were recently launched by the largest corporations with Defined Benefit plans. Think of Cash Balance plans as a unilateral attempt by corporations to do an end-run on union negotiated Defined Benefit plans and convert them into Defined Contribution plans. More than 40 of the largest 100 corporations with Defined Benefit plans have gone this route in recent years. Cash Balance plans essentially permit workers (and managers) to cash out their benefits before retirement (at a total amount almost always less than what they would have earned in retirement). Once they cash out they can invest in 401Ks offered by the companies. Cashing out weakens financially the Defined Benefit plan and puts those who don't cash out at growing risk. This provides an incentive for those initially reluctant to cash out, to do so. The result is a snowball effect that hastens the demise of the original Defined Benefit plan, which was intended by management from the outset.

Sun, 2009-06-28 20:38

#41

abnormal

Sorry mate but I did read both links - incredibly painful after it became clear that they literally didn't understand the terms they were throwing around. "Cash balance plans" are a specific type of pension plan that fit between Defined Benefit and Defined Contribution plans - they effectively remove the market risk from defined contribution plans but, since there is no asset class that covers either service risk or mortality risk, those plans still leave significant risk with the employee. The authors of your articles simply don't know what the term "cash balance" means so most of the rest of what they say is meaningless at best. [As an aside, they don't begin to understand how Social Security works or what the Trust Fund is (another question but it's far worse than they think even though the time horizons they express are far to short - and that doesn't begin to consider Medicare, you know the $85 trillion shortfall in funding that doesn't show up in government statistics).

Sun, 2009-06-28 21:38

#42

Fidel

And here, economist [url=http://www.progressive-economics.ca/2009/02/27/macro-economic-implicatio... Jackson[/url] calls for an expansion of public pension plans as a response to the pensions crisis:

Quote:

The most obvious cause for concern regarding the meltdown of retirement savings vehicles is that current and future retirees will face major shortfalls in their retirement incomes. The scale of the problem reinforces the long-standing argument of progressive economists that we need to expand our system of public pensions moving forward, and reduce reliance on fickle financial markets and on the costly apparatus of private as opposed to public savings vehicles. ...

Mon, 2009-06-29 08:56

#43

abnormal

That's only going to work if the plans in question are properly structured and funded. Easier said than done.

Mon, 2009-06-29 09:58

#44

Fidel

Well I'm not holding out for either of the two old line parties to do anything pogressive in the way of expanding public pensions. They'll throw Canadians to the wolves every chance they get.

Mon, 2009-06-29 12:38

#45

abnormal

Fidel, don't forget that a number of years back the Chief Actuary for Canada's Social Insurance system resigned rather than sign off on the number that the then Minister of Finance wanted. Speaking from memory the MoF (who just happened to be Paul Martin) had made a major speech in which he guaranteed that there would be no need to increase the contribution rate above some set margin (10% I think). A few months later the actuary came up with some different numbers and, rather than change them to match PM's statement, he resigned.

Mon, 2009-06-29 13:43

#46

Fidel

Denis Desautels? I know he promised not to rubberstamp the Liberal government's book-cooking in general in the 1990's.

Mon, 2009-06-29 13:51

#47

abnormal

Cannot remember his name - there was a fairly lengthy interview with him at the time in one of the American Academy of Actuaries newsletters but they're not something I keep and I don't believe it's on line anymore.