Detroit thread. Post Kwame, Monica, and $1 houses here.

[Barrister]

I thought the "problem" with defined benefit pensions wasn't that actuaries screwed up in calculating how much money would be needed, but because bad assumptions were made about how much money pension investments would make over time.

[crazy canuck]

I thought the "problem" with defined benefit pensions wasn't that actuaries screwed up in calculating how much money would be needed, but because bad assumptions were made about how much money pension investments would make over time.

There were a number of poor assumptions.

[Savonarola]

Another landmark lost 

Malice Green shrine demolished

Neal Rubin



A retouched mural of Malice Green still dominated the graffiti-marked and deteriorating facade of the memorial site on West Warren at 23rd last week. (Ray Stanczak/The Detroit News)

The building stood for two decades as an unofficial shrine to Malice Green, and Al Jones couldn't understand why it had been turned to rubble.

"I would have liked to see it be saved," he said, but this is Detroit, where nothing lasts for long except ill will and legend. So one of the city's grittiest landmarks was a pile of cinder blocks and jagged planks Tuesday, and Jones was standing on the fringes of it with a crowbar and a hammer, salvaging bricks to sell for 8 cents apiece.

The city can't yet say why the storefront at West Warren and 23rd was leveled Monday, or whether it was a sanctioned demolition.  The property manager, if you can describe an empty shell as being managed, was surprised to learn the structure no longer exists.

It's the circle of life, Detroit style. On Nov. 5, 1992, Green, a 34-year-old habitual crack user, was pulled over by two police officers. When he refused to show them the vial clenched in his hand, they struck him in the head repeatedly with their heavy flashlights. On the way to the hospital, he died.

Now here was Jones, 54, soaked in sweat and caked in dust, knocking the mortar from a brick and tossing it onto a pile. "It helps out an unemployed person," he said, meaning himself. "Puts something on the table for the kids."

Green was unemployed, too. Once a steelworker, he had become someone you'd pretend not to see. Then in death, he became a martyr. After his raggedy car was towed away and his blood was washed from the sidewalk, the closest marker was the storefront, and that's where a dreadlocked artist named Bennie White began painting Green's portrait five days after the beating.

White, who liked to call himself Bennie White Ethiopia Israel, retouched the painting frequently over the years, once when someone painted "KKK" across it. Others added inscriptions to the facade; at the base of the second story, well above the artwork, was the warning, "When you take someone's life you forfeit your own!"

The manager of Jazzie's 100% Hand Car Wash, just across 23rd from the shrine and the vacant lot on the corner, said motorists frequently pulled over in front of the building.

"They took pictures," said Marcus, who doesn't use his last name. He'd seen large enough turnouts every Nov. 5 that he knew without checking it was the anniversary.

For those who saw Green as a victim of police aggression, the date was important. For those who saw the police officers as political chum tossed to the sharks, the remembrances were grating.

Mayor Coleman Young declared on television that Green was "literally murdered by police." Among the movies shown to sequestered jurors was "Malcolm X," which opens with footage of the Rodney King beating in Los Angeles.

The trials of officers Larry Nevers, and Walter Budzyn, long since released, were clearly compromised. But Nevers, who died in February, and Budzyn were convicted again on retrial, both of involuntary manslaughter — a verdict that managed to anger partisans on both sides.

The divide only widened with the years, and in the middle of it stood the storefront. While nearby abandoned buildings were burned or crushed, it remained untouched, whether out of respect or random chance.

Sometime Monday, its number came up. The portrait is nowhere to be seen; it might be buried, or early scavengers might have carried away its broken pieces.

Ross Miller of Dearborn, a photographer who builds pathways at his home from pieces of Detroit flotsam, pulled to the same curb Monday that Malice Green did.

He found a chunk of wall that bore the date of the officers' original convictions and loaded it into the back of his Volvo station wagon. "Do you see any pieces with his face on it?" he asked.

Around back, Jones and two colleagues weren't being so selective. One of them backed up to a gap in a stand of trees in a blue Ford pickup with a wooden tailgate, and they began tossing bricks into the bed.

There will most likely be fury when word spreads that the shrine has been demolished. But on a steamy Detroit afternoon amid the settling dust, there was only opportunity.


From The Detroit News: http://www.detroitnews.com/article/20130710/METRO01/307100025#ixzz2YfWL3fIj

This happened around the time of the LA Riots.  Coleman Young's statements, highlighted above, were made before the investigation into the incident began.  He also warned of riots in Detroit it the "Wrong" verdict was reached in the trial.

[The Minsky Moment]

  Obviously defined benefit plans would be expensive if you intentionally or unintentionally underfunded them in the past, because now you have to fund them for both the current workers and the past workers, but that's just a sign of badly designed DB plan.

Or it could be a sign of unanticipated changes in interest rates.

[Caliga]

Malice    I like his mom's style.

[Jacob]

Or it could be a sign of unanticipated changes in interest rates.

Yeah, as I understand it - and I'm getting to the limit of my second-hand knowledge here - a lot of the problems DB plans have been facing, at least in Canada, is that the regulations require plans to have very high asset levels vs liabilities to be in compliance due to the very low interest rates, making them more expensive than they needed to. There's some movement to address that at the moment and take some of that pressure off.

[Admiral Yi]

Yeah, as I understand it - and I'm getting to the limit of my second-hand knowledge here - a lot of the problems DB plans have been facing, at least in Canada, is that the regulations require plans to have very high asset levels vs liabilities to be in compliance due to the very low interest rates, making them more expensive than they needed to. There's some movement to address that at the moment and take some of that pressure off.

Only way you can do that is to raise interest rates.

[Jacob]

There's some movement to address that at the moment and take some of that pressure off.

Only way you can do that is to raise interest rates.

No, not at all. You can also change the way solvency liability is calculated (and that is in fact the remedy that's being implemented).

Most DB plans (Canadian ones at least) have more than enough funds to remain a going concern (i.e. continue to pay out pensions to its members) when comparing assets vs liabilities. This calculation does depend on the interest rate, but a broader band of assumptions can be used.

However, when calculating solvency liability (i.e. whether enough money is on hand to right now to wind the plan up) a different calculation is used, and the impact of low interest rates is much greater resulting in a much higher (and onerous) asset requirement.

[MadImmortalMan]

Only way you can do that is to raise interest rates.

"Highly accommodative monetary policy for the foreseeable future is what's needed,"

So the Fed is killing the pensions on purpose.

[derspiess]

Malice    I like his mom's style.

My favorite kids' names from when I worked at the DNA lab:  Nemesis and Chewbacca

[CountDeMoney]

Malice    I like his mom's style.

My favorite kids' names from when I worked at the DNA lab:  Nemesis and Chewbacca

I bailed out a Dacron once.

[crazy canuck]

There's some movement to address that at the moment and take some of that pressure off.

Only way you can do that is to raise interest rates.

No, not at all. You can also change the way solvency liability is calculated (and that is in fact the remedy that's being implemented).

Most DB plans (Canadian ones at least) have more than enough funds to remain a going concern (i.e. continue to pay out pensions to its members) when comparing assets vs liabilities. This calculation does depend on the interest rate, but a broader band of assumptions can be used.

However, when calculating solvency liability (i.e. whether enough money is on hand to right now to wind the plan up) a different calculation is used, and the impact of low interest rates is much greater resulting in a much higher (and onerous) asset requirement.

The problem with that kind of policy is what happens when a company no longer exists, its plan is underfunded and all the beneficiaries get much less than they thought they would?   As Yi has argued, in the kind of policy enviornment you say is coming, employees would likely be better off with defined contribution plans so they can manage their own retirement funds rather than run the risk of an underfunded plan delivering less than they would have recieved in a DC plan.

As a practical matter the only people who are immediately impacted by these new accounting rules will be governments since they are the only onces left with significant DB plans and so it doesnt really matter that much - government DB plans will always be funded because the government will always be a going concern.

But these new rules might also encourage private sector companies to start up DB plans again and employees might have the illusion of security which does not necessarily exist.

[Jacob]

Unions will also be affected, as they have a bunch of DB plans as well.

As to whether this change will result in illusory security or not is not something I'm qualified to really argue.

So I asked my wife... and she said that in this VERY PARTICULAR case it's true, but...

Most DB plans these days are not single employer plans (so you need more than one company bankruptcy to trigger the scenario in question, and that makes it less likely);

Secondly, most DC plans are - by the measures applied to DB plans - underfunded as well. Most people don't contribute more money to their plan when their investments turn negative (or merely under perform) for example; they usually just hang on and hope that things will turn around soon, or maybe they'll shuffle their investments around hoping to trigger a better performance.

As well, most people, even the ones who get a good return on their DC investments don't really know where that leaves them - if you retire with $100K or $500K or 2$M in your DC account, what does that mean? Some people understand, but many do not.

But yeah, if the choice is between a DB plan that's underfunded and being wound up and paying out less than promised against a well managed DC plan, then the DC plan is better.

But on a society level DB plans tend to be much better managed compared to DC plans. For the elite - like derspiess et. al. - DC plans are preferable; but on a society level requiring people to be good financial planners and investment managers to retire comfortably means that most people won't retire comfortably. Most people simply don't have the required skills.

As an aside, apparently these days there are also hybrid plans that combine both DB and DC - but they are even more expensive than pure DB plans.

From an employer side, DC is obviously better than DB because it's cheaper. For some employees, a DC plan is better too because they happen to be good managers of their money; that's not most employees though, and that will result in significant hardship in retirement for many people.

[crazy canuck]

Yeah, the reason most plans are not now single employer plans is for exactly the reasons we have been discussing - risk and cost.

[derspiess]

Malice    I like his mom's style.

My favorite kids' names from when I worked at the DNA lab:  Nemesis and Chewbacca

I bailed out a Dacron once.

Nice one, but it could probably use some apostrophes.