MaydayMark

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Maybe we should all take a deep breath (and maybe get a dog?).

https://www.bloomberg.com/news/artic...-you-re-single

MM

Huh really

Looking at the DJIA historical chart indicates that the recovery in the DJIA from a downturn to pre-downturn levels can take a long time (5-7 years). Longtime being you retire at a peak then a downturn occurs within 3-4 years, it could be 5-7 years later until it recovers. What happens to your retirement during this period?

DLax85

Under a Variable Benefit Plan, it would go down if the plans return was less than the plan’s hurdle rate.

Of course, a retirement plan that is paying out benefits to retirees isn’t (hopefully) heavily invested in equities

It will be much closer to a 50/50 allocation between equities & bonds

This will of course dampen the downside risks if DJIA drops

However, it also dampens the upside benefit when DJIA rebounds

Hopefully, no one is expecting the fund to make long term, smoothed, average returns based on DJIA...or S&P500...or some other pure equities based benchmark

That’s not how our current A Plan is invested or should be invested

However, if the company’s contributions are Fixed and the fund drops significantly, what additional pressure will the fund managers be under to outperform the hurdle rate to restore previous benefit levels?

Will current retirees be patient and willing to wait?

What’s the mechanism to balance the needs of active employees vs retired employees?

Variable Benefit plans are labeled “variable” for a reason.

Let’s get all the details and think critically

Huh really

What will be the management fees? 0.1% or more like a actively managed fund? subtract that from the returns?

URL: https://www.thebalance.com/stocks-an...80-2013-417028

Return Data, 1928-2013

Once the sample is enlarged, the performance gap increases. The Federal Reserve Bank of St. Louis has measured the returns of stocks, Treasury bills, and 10-year Treasury bonds since 1928. Note that these represent different investments than those presented above since neither the S&P 500 or the Barclays Aggregate dates back that far. Three key takeaways are:

• Stocks averaged an annual return of 11.50% in the period from 1928-2013, while T-bills and T-bonds averaged 3.57% and 5.21%, respectively.
• $100 invested in stocks in 1928 would have grown to $255,553.31 by the end of 2013, while $100 in T-bills and T-bonds would have grown to $1,972.72 and $6,925.7940, respectively.

DLax85

I’ll accept the assumption the management fees will be the same as the fees incurred in our current A plan

However, you have a point - will the management of those fees/costs be a company concern/responsibility or the collective responsibility of the funds participants ?

Regarding the use of historical return rates by equities or bonds, I’m somewhat skeptical about assuming the future behaves like the past

I find equity returns from more than 25 years ago almost irrelevant because corporations and equity markets have changed so much

Similarly, more current bond fund returns, which have enjoyed over 15 years of liberal monetary policy, will be very difficult to replicate as interest rates move up from historical lows

I’m more intrigued by forecast, forward looking, Expected Return on Assets - equities and bonds - by truly independent sources

See other thread for the Expected Return on Assets used by FedEx’s own accountants and actuaries

DLax85

Forbes article from 3 weeks ago...

https://www.forbes.com/sites/baldwin.../#3e42c41d7c75

Hmmmm....what’s the VB hurdle rate?

DLax85

https://seekingalpha.com/article/410...ns-s-and-p-500

DLax85

https://www.cnbc.com/2017/07/31/ther...from-here.html

Huh really

I share Dlax's skepticism about future earnings. From one of his articles "The 3% forecast assumes, optimistically, that P/E ratios remain on a permanent high plateau. Robert Shiller, of Irrational Exuberance fame, is skeptical that they will do that. His recent bearishness has not yet been vindicated, but it might be, starting maybe next week or maybe in 2023. If multiples contract, you’ll get less than 3% a year over the next quarter century." Compounded with where the management fee comes from, this could be ugly. So, who bears this risk? We all need to seriously examine the details when they come out, as that is where the devil of it will be.

Personally, i think the train has left the station. All there is is the brakeman who is called "50%+1". This thing will be a huge pot of money which means a big pot of management fees. That is a strong incentive for any union to gets it's fingers in (local or national), or any one who can finagle a way to get a drop. And, everyone wants to save face. It takes a strong person to say, "I just wasted XX months/years of my life on XX and it was a bust". And, as for the company, this thing can be structured in the details so they really go for it on top of offloading the risk issue. Over the course of the last two decades and some, how many former union officers ended up in management? I not saying this is inherently bad, but if you could secure a different pension plan from the company that is better than our A plan, would you take those actions to do it?

DLax85

Projections From Vanguard - Apr 2017

Infographic: A breakdown of our 2017 economic and market outlook

https://institutional.vanguard.com/V...EMOinfographic

Historical Reurns 1926-2016

Fixed Income - 5.4%
Equities - 10.0%

Vanguard projections used in their Capital Markets Model which drive their retirement planning software

Fixed Income 1.5 - 2.5%
Equities 5.0 - 8.0%

A 60% Equities / 40% Fixed Income Plan would yield 3.6% - 5.8%

Their single value forecast - 5.5%

In a slightly more conservative 50% / 50% Fund allocation, driven by an institutional retirement plans responsibility to generate income to pay current retirees, the projected return range drops to 3.25 - 5.25%

This would drop the single value forecast to ~ 5.1%