Pension finalized

Last week I sent in the forms to initiate my pension. As discussed earlier I chose to receive it all in the form of a single life annuity. I called today and verified that the forms had arrived ok. So I am all set to begin receiving a pension in November (although the first payment may be delayed a little).

Traditional defined benefit pensions like mine are becoming less common especially for private employers. Defined contribution plans (eg 401k) are becoming more popular. And in fact my former employer had shifted during the time I worked there, first putting all new employees into a 401k plan and later terminating the traditional pension plan (while preserving benefits earned). I think the main reason for this is that the value of a 401k plan is more apparent to employees. Each year you see how much money is added and the accumulated value. And it is totally portable. By contrast I expect most employees have little idea how to value a traditional pension. Since traditional pensions are in fact quite costly for employers this makes them an undesirable form of compensation.

One liberal complaint, which getting laid off has made me a bit more sympathetic to, is 401k plans and the like require people to be investment managers a task that many people are likely to be bad at. I am smart and fairly knowledgeable about financial markets and I still find managing my 401k and other investments a bit daunting. I expect many people would make expensive mistakes.

I consider this a strong argument against privatization of social security. Social security is not all that generous but it does provide a safety net. Left totally to their own devices I expect many people would end up worse off.