Pension Under-funding Is the Emerging Global Dragon

[54anickel]

Great SS is heading for the dumpster, the 401Ks aren't doing the greatest and "hubby's" pension is going nowhere fast. I hear retirement is way over-rated anyway. :eyes:


http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_wasik&sid=ajeUHoiExDro

May 31 (Bloomberg) -- Pension plan funding across the world is much like a dragon that has just begun to emerge from its cave.

Spurred by stock market declines, poor investment decisions,aging populations and underfunding of defined-benefit pension plans, the beast is beginning to inflame the political process.

Politicians who admitted skipping pension payments are at the center of a major political scandal in Japan, for example. In the U.K., the government is considering a new pension insurance program called the Pension Protection Fund.

In the U.S., intense political pressure created an opposite result: companies in financial distress were allowed an $80 billion break from plan funding over the next two years.

More transparency on pension accounting will certainly help both private and public pensions across the world. Yet the sword of Damocles may hang over thousands of pension plans simply because of the way private plans are funded.

more...

[Warpy]

1. Right, and boomers over 45

have had most of their pension contributions over the years stolen, as they've left a job and the pensions were not portable and their contributions just evaporated, added to the bottom line of company profit for the year they left.

I love these 30 somethings who are all hot to trash social security, thinking they'll all get rich and retire by the time they are 50. The looks on their faces when they hit 50 and they aint rich yet should be priceless.

[54anickel]

3. Yep, Hubby's pension was with the union in the beginning. Then years

ago the company insisted they could take better care of it. They took good care of it alright, down to $30 per year of service. If he makes it to the end (without being laid off) he'll have 43 years of service. A guy at another company in town that stayed with the same union pension will get over 5,000 per month vs hubby's less than $2,000.

[The Backlash Cometh]

2. And to think that those boomers were gung-ho with the Republican

policies that destroyed social programs. I bet they're sorry now that they helped destroy safety nets that they're going to need when their pension plans go belly up.

[Frodo]

4. That should be one problem that fixes itself.

The real "underfunding" problem in pensions is due to such low interest rates. The amount a company needs to have in their pension fund is based on future benefit calculations and current interest rates. When rates are low (especially when they are substantially lower than you expect them to be over the next 30 years) a company needs an outrageous pension fund to say they are "fully funded".

Keep in mind this ignores how the money is ACTUALLY invested. They could be fine by any reasonable calculation, but because they need to use the government mandates rate they are "underfunded".

As rates climb back up (but future pension liabilities hardly change), most companies will climb back to "fully funded". If we see really high inflation rates it will actually improve that situation (but everything else may go in the crapper).

[54anickel]

5. Did the house ever get that bill passed last year that would allow

companies to assume the higher return based on high-grade corporate bonds instead of the current formula that uses the 30 year treasury? It was going to be temporary - I think 3 years. The claim was that it would free up cash for other corporate uses.

I'll grant that low interest rates have contributed to the underfunding problem, but they are NOT the real problem. Companies have been raiding pensions ever since Raygun "allowed" it.

Yep, creative math will fix this mess.

[swinney]

6. How Pension Fund money is invested.

Try having large firm (27,000 jobs)pension money in it's own stock.

It went from $40 to $8 per share.

Try eating that lemon.

[Frodo]

7. That would be illegal.

A company pension fund can not legally be invested in company stock.

They also can't require 401(k) money to be in company stock, though they CAN place their "match" there for a period of time if they offer one. I think there was an attempt to make even that illegal a couple years ago - I don't remember how far that got. I think it was Boxer and Corzine.

8. Another side effect of low interest rates--thanks Frodo <eom>