More of the good things to come - pensions

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Juat another harbinger of our bright and prosperous future....(under any political leadership) Now we get to pay for all of our own pensions in arears. One good deal after another. I keep telling my son ...stay out of debt. Will that save him? Will it just make him a smaller cash cow to be milked later? Why should he miss out on the fun of self destructive spending habits when "they" have to do something to save the lemmings from marching to the sea??

Pension funds used to be a place to hide the baloney ..until they were deemed an asset instead of a shelter ..then there was a wholesale emptying of them to "minimum required amounts" (I forget when ..the 80's maybe). Our shepherds decided that this money was needlessly being restricted from the economy (and therefore taxation) ..and applied a legislative inducment to have it released. Now we're paying for it.


Debt Doubles at Agency that Insures Pension Plans
By MARY WILLIAMS WALSH

Published: November 16, 2004


The federal agency that insures pension plans said yesterday that its deficit, already at the highest in its history, had doubled in its last fiscal year, to $23.3 billion.

Over a 12-month period, the agency, the Pension Benefit Guaranty Corporation, incurred losses of $12.1 billion, according to the agency's audited annual report for fiscal 2004. Much of the loss was a result of pension fund failures in the airline industry.

The agency, created in 1974 to be the federal safety net when pensions fail, has now lost an average of $10 billion a year for the last three years, according to one estimate. The mounting losses come at a time when the agency is responsible for paying the pensions for more than one million people covered by pension plans that failed.

The agency's executive director, Bradley D. Belt, called on Congress yesterday to address the situation quickly, "so the problem doesn't spiral out of control." He said that the Bush administration was preparing a plan for a comprehensive overhaul of the pension system, which it would propose early next year.

The Pension Benefit Guaranty Corporation is paid premiums by companies that offer traditional pension plans. But it does not have the legal authority to raise those premiums or take other fundamental steps to bring its finances back into balance. Such measures would have to be enacted by Congress.

Congress, however, has not addressed the problems of America's pension system in a comprehensive way since the late 1980's, when a number of large steel companies with traditional pension plans defaulted. Since then, lawmakers have made some lesser amendments to the system, but even those have been made with great difficulty. The issues involved are complicated, and any true pension reform will be costly to someone - either companies, workers or the federal government.

Experts warn that waiting will not make the troubles go away. The system of regulating and insuring traditional pensions called defined-benefit pensions is increasingly resembling the system that did the same for the savings and loan industry two decades ago.

Congress had difficulty correcting that system's structural problems as well. As a result, there were delays and missteps, and the problems had years to grow and deepen. In the end, the entire system collapsed in 1989 and Congress had to authorize a federal bailout that cost about $200 billion.

"The Pension Benefit Guaranty Corporation is living on borrowed time," said Representative George Miller, a California Democrat who has followed the troubles in the pension system closely. He issued a statement yesterday saying the possibility of "an S.& L.-style taxpayer bailout of the agency to the tune of billions of dollars has increased."

In announcing the pension agency's latest financial results, Mr. Belt, the executive director, said that it was not running out of cash. With reserves of $39 billion, he said, it should be able to keep sending retirees their pension checks "for a number of years," even if Congress does nothing.

The problem is that the pensions the agency must pay retirees are much larger than the reserves, Mr. Belt said. The pensions owed retirees measure $62.3 billion in today's dollars.

Unless the agency finds a way to close the gap between the $39 billion that it has and the $62 billion that it owes, it will run out of money at some point. In that case, either retirees will be denied their benefits, or else Congress will have to appropriate money for a bailout.

Mr. Belt also noted that the agency's problems were worsening at a time when the general economic environment has been improving. He said the agency now faced $96 billion worth of risk from companies that are "reasonably possible" to default on their pension promises. The comparable number a year ago was just $82 billion.

The pension agency identifies such companies by looking at their corporate credit ratings, together with the weakness of their pension funds.

The agency does not identify the companies whose pension plans it expects to take over. Still, it is clear that the airline industry was responsible for much of the agency's loss for the fiscal year.


US Airways three pension funds are expected to cost the agency $2.1 billion. And United Airlines, a unit of UAL, recently announced that it would terminate all four of its pension plans as part of its efforts to emerge from bankruptcy. Taking over United's pensions alone will cost the agency an estimated $6.3 billion, by far the biggest pension insurance claim ever made by a single company. Accounting rules require the agency to book that loss in its fiscal 2004, even though it has not yet taken over United's plans.


Even before yesterday's announcement, analysts were warning that the pension agency needed help. Douglas J. Elliott, president of the Center on Federal Financial Institutions, said that if Congress took corrective action quickly, the cost would be small relative to the cost of a bailout some time in the future. The center is a nonpartisan research institute that examines the federal government's various lending and insurance programs.

Mr. Elliott said that the agency's new numbers brought its average losses to more than $10 billion a year for three years.

"This is a trend," he said. "This isn't something where you can just say, 'Well, that was a bad year, thank goodness we're over it.' "

In addition, the agency's fiscal 2004 was a year of general improvement in overall economic and financial conditions, Mr. Elliott said. Had interest rates not changed slightly in the agency's favor, its losses would have been even larger.

Congress is not expected to address the pension agency's problems in the current lame duck session because it already has a full workload. But some members said yesterday that they were concerned about the strength of the nation's pension system and hoped to introduce legislation early in 2005.

"This issue has wide-ranging implications on retirees, employers, workers, taxpayers and the government," said Representative John A. Boehner, the Ohio Republican who is the chairman of the House Committee on Education and the Workforce. Mr. Boehner said in a statement that he planned to introduce a bill in 2005 that would address what he called "systemic pension underfunding problems."

The Education and Workforce Committee has already held hearings on the problems of the pension system and possible remedies. Mr. Boehner said that in addition to making sure companies set aside enough money for their pensions, the bill would require companies to disclose clear information about their pension plans and pay adequate insurance premiums for their coverage.

In addition to the premiums it collects from companies, the pension insurance program receives the assets from the failed pension funds it takes over and invests them. It does not currently receive money from income tax receipts.

The insurance premiums have not been increased since 1994 and are thought to be inadequate relative to the amount of insurance coverage companies receive. United Airlines, for instance, has paid about $50 million in insurance premiums over the years, for coverage of its $6.3 billion claim.

Pension specialists also point out that the premiums do not have anything to do with the amount of risk companies bring to the pension insurance program. Companies with pension plans that do not have adequate funds do pay higher premiums than companies with strong plans. But that way of operating does not account for one of the most important signs of whether the plan will collapse or not: the company's own health.

A strong company with an unhealthy pension plan poses nowhere near the risk of a weak company with an unhealthy pension plan.

Mr. Boehner has suggested finding a way to distinguish between weak and strong companies, and charge higher premiums to the companies that pose greater risk.
 
Unfortunately the grasshopers all fiddled in the 70's and 80 and thought winter could never come. It's here and both grasshopper and ant will die.
 
quote:

Originally posted by XS650:
I hope I misread you on the IRAs, because IRAs are no safer than any other legitimate investment.

XS650 you are correct, an IRA can lose money just like a regular stock on Wall Street. But my dad sold all of his Pan Am stock rolled it into an IRA composed of 100% cash. Eventually he did start to invest in stocks and did very well. The day Pan Am ceased all operations, he told me there were many people crying at the Miami hub. Was it because they lost their job...or was it because their savings for retirement went down the drain??
frown.gif


It was only a matter of time before US Air, United, Delta.....and any other big company here in America stop contributing to pension/retirement plans. After 25 years flying, he was very happy to retire & leave the airline industry.
 
quote:

Originally posted by ediamiam:
I think the key here is to have a balanced portfolio and not have more than 10% in any particular stock.

Some pretty sharp people make that number as small as 4% or 5%.
 
I go for the "broad spectrum" approach to retirement money. Every sector has it's quench and purge, so I buy when some things are out of vogue and cheap. Sooner or later they come around in the full cycle of things.
 
quote:

Originally posted by Dan4510:
None are safe from tax law changes either. This is the saddest of it all. Work, pinch pennies and save and in one fell swoop your money is now the money of the great sweating herd.

Dan


There was an idea floating to apply a "one time" tax to 401K's. That idea expired when Bush won the 2000 election and there never was enough support in Congress (translation - not enough democrats. Only the "rich" have 401K's don't you know).

The idea might come back later, depending on future elections and if the runaway liabilities of Social Security and Medicare can be tackled in the next 4 years - or more than likely not.

I might take a full time teaching position next year - and legally ESCAPE the Social Security Ponzi fraud
grin.gif
 
quote:

Originally posted by keith:
I might take a full time teaching position next year - and legally ESCAPE the Social Security Ponzi fraud
grin.gif


I haven't given any money to social security in quite a while. It's really nice when I see my net pay on my check. $50 goes to my pension and that's gonna pay me more than social security ever thought of. The best part is that I don't have to wait until I'm 65 to get it.
 
Thats why you need to be a disciplined investor....and not to rely just on your company's pension. Luckily my wife and I both have a 401K, IRA, and we like to put a little money into the stock market. Every week get into the habit of saving at least 10% of your income for retirement.

My dad worked for National Airlines & Pan Am for 25 years. In the late 80's Pan Am gave all their employees the option of rolling the value of their stock into an IRA. My dad told all of his friends to take advantage of this option, cause if Pan Am ever got into financial problems, the stock would plummet. Everyone told my dad that he was crazy .....and they would sell the stock when it hit 50, 60 dollars.
shocked.gif
My dad laughed and told all the people he worked with that they are making a BIG mistake by not playing it safe with their retirement $$$......and an IRA is 100% safe. Four years later Pan Am went bankrupt and these people were left with thousands of shares of worthless Pan Am stock.

I guess you could say that my dad was the ant getting ready for the winter, while his coworkers were the grass hoppers.

[ November 16, 2004, 12:45 PM: Message edited by: LT4 Vette ]
 
quote:

Originally posted by LT4 Vette:

My dad worked for National Airlines & Pan Am for 25 years. In the late 80's Pan Am gave all their employees the option of rolling the value of their stock into an IRA. My dad told all of his friends to take advantage of this option, cause if Pan Am ever got into financial problems, the stock would plummet. Everyone told my dad that he was crazy .....and they would sell the stock when it 50, 60 dollars.
shocked.gif
My dad laughed and told all the people he worked with that they are making a BIG mistake by not playing it safe with their retirement $$$......and an IRA is 100% safe. Four years later Pan Am went bankrupt and these people were left with thousands of shares of worthless Pan Am stock.


7 years ago, shortly before I retired we were given the option of trading off the company stock in out 401k plans. I got rid of mine as fast as were were allowed to, about a 2 week span of trading a few percent of the stock a day. I got out at an average price of about $85. I just checked and today the stock is at $46 and there have been no splits.

I knew several people who had over a million $ in company stock that decided to not sell it. About a month after I dumped mine it started dropping and has never recovered. At least the company didn't go bankrupt, so the stock holders just lost 1/2 or more of their money.

As ine LT4 owner to another, I hope I misread you on the IRAs, because IRAs are no safer than any other legitimate investment.
 
None are safe from tax law changes either. This is the saddest of it all. Work, pinch pennies and save and in one fell swoop your money is now the money of the great sweating herd.

Dan
 
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