Pension Time Bomb Article

[Mountain_Mike]

A sobering article....

America's pension time bomb
Commentary: Workers, employers, taxpayers, governments. Meet the key players in the coming battle.

By Geoffrey Colvin, FORTUNE senior editor-at-large
January 13, 2006: 11:03 AM EST

NEW YORK (FORTUNE) - Some of the nastiest conflicts in America's future have recently begun to reveal themselves. Let's call them, broadly, the pension wars.

They will be fought on a wide range of battlefields, involving not just workers and their employers but also governments at all levels, regulators, accountants and taxpayers. And these wars will be bitter -- because the combatants will be desperate.

A hint of what's to come could be seen in the New York City transit strike. Most of America didn't notice exactly what sparked the first such strike in 25 years, costing businesses, individuals and the city hundreds of millions of dollars. The answer is pensions. The transit authority and the workers were agreed on virtually everything except how much new employees would contribute toward their pensions--6 percent of wages vs. 2 percent -- and neither side felt it could give an inch on that.

The reasons illustrate the larger problem. The transit authority, like many private and public employers, is watching its pension costs rocket as longer-living retirees increase in number. That burden will become unbearable. On the other side, union members are watching employers nationwide dumping or cutting their pensions just as Social Security starts to look shaky. They figure retirement security is the one thing they cannot sacrifice. Result: war.

New York's transit strike also illustrates an important reason that the pension wars weren't headed off long ago. The truth about pensions has been systematically hidden, with all parties collaborating in the deceit. Public-employee pensions have never been accounted for like those run by private employers. No government is required to tell you its pension liability the way, say, General Motors is, on the theory that governments can always just extract more money from the taxpayers to pay retirees.

But this year the Governmental Accounting Standards Board, which sets the rules for the public sector, is changing its regulations. State and local governments will now have to reveal their pension liabilities, which may be underfunded by $1 trillion or more.

Private employers, while required to account for their pensions, have played sophisticated games with the numbers -- all within the rules. For example, they can assume the pension fund increased in value when it actually declined. They can assume it will continue increasing in value at a rate that is almost certainly way too high. They can even jack up their reported profits based on that assumed, though nonexistent, increase in pension-fund value.

But eventually actual dollars must be paid out, a prospect that has seriously spooked private employers. Just this month IBM (Research) announced that it would join the long list of companies (Verizon, Hewlett-Packard, Motorola) that have frozen their pension plans, instead increasing 401(k) contributions for employees. And the 18-month negotiation between UPS and its pilots has come down to just two points: whether outsourced pilots overseas must be union members, and (you guessed it) pensions.

The pension wars will inevitably include Congress, which is working out a way to increase funding for the federal Pension Benefit Guaranty Corp., now deeply in the red as huge companies like UAL, parent of United Air Lines, dump their pension plans on it. Since the PBGC is an insurer, the logical move is to raise the premiums companies pay, especially for the riskiest plans.

But if Congress mandates a premium hike, as it probably will, then more companies will just dump their plans on the PBGC, redoubling the need for more funds, leading to more premium hikes, and so on. If you can see any way taxpayers will not get billed for a giant bailout, please e-mail Congress immediately.

And then there's the greatest pension crisis of all: Social Security. We've stayed in denial thanks to the so-called trust fund, that magical place where the plan's annual surpluses are sent to be invested until we need them. But since those surpluses must by law be invested in government bonds, they have simply been handed over to the U.S. Treasury and spent by Congress.

The trust fund is in fact meaningless, a bit of marketing hooey cooked up in the '30s. When Social Security's annual surpluses end in just six or seven years, the battle over whose ox to gore in order to cover the plan's obligations will be truly epic.

The hard reality is that for decades we haven't told ourselves the truth about pensions. Now, as the first baby-boomers turn 60, we must finally confront reality -- and absolutely no one will like it. In New York last month, transit workers and management compromised; employees will make small contributions toward health insurance premiums but will keep one of the richest retirement deals around.
Soon those compromises simply won't be affordable. And that's when the pension wars will explode.

http://money.cnn.com/2006/01/13/news...tune/index.htm

[brewer12345]

Heh, I can't wait to see which localities and states have big holes. If NJ or Monmouth County do, I may seriously consider relocating down the road.

[jug]

Originally Posted by Mountain_Mike

A sobering article....

America's pension time bomb
Commentary: Workers, employers, taxpayers, governments. Meet the key players in the coming battle.

By Geoffrey Colvin, FORTUNE senior editor-at-large
January 13, 2006: 11:03 AM EST

NEW YORK (FORTUNE) - Some of the nastiest conflicts in America's future have recently begun to reveal themselves. Let's call them, broadly, the pension wars.

They will be fought on a wide range of battlefields, involving not just workers and their employers but also governments at all levels, regulators, accountants and taxpayers. And these wars will be bitter -- because the combatants will be desperate.

A hint of what's to come could be seen in the New York City transit strike. Most of America didn't notice exactly what sparked the first such strike in 25 years, costing businesses, individuals and the city hundreds of millions of dollars. The answer is pensions. The transit authority and the workers were agreed on virtually everything except how much new employees would contribute toward their pensions--6 percent of wages vs. 2 percent -- and neither side felt it could give an inch on that.

But eventually actual dollars must be paid out, a prospect that has seriously spooked private employers. Just this month IBM (Research) announced that it would join the long list of companies (Verizon, Hewlett-Packard, Motorola) that have frozen their pension plans, instead increasing 401(k) contributions for employees. And the 18-month negotiation between UPS and its pilots has come down to just two points: whether outsourced pilots overseas must be union members, and (you guessed it) pensions.

The pension wars will inevitably include Congress, which is working out a way to increase funding for the federal Pension Benefit Guaranty Corp., now deeply in the red as huge companies like UAL, parent of United Air Lines, dump their pension plans on it. Since the PBGC is an insurer, the logical move is to raise the premiums companies pay, especially for the riskiest plans.

But if Congress mandates a premium hike, as it probably will, then more companies will just dump their plans on the PBGC, redoubling the need for more funds, leading to more premium hikes, and so on. If you can see any way taxpayers will not get billed for a giant bailout, please e-mail Congress immediately.

And then there's the greatest pension crisis of all: Social Security. We've stayed in denial thanks to the so-called trust fund, that magical place where the plan's annual surpluses are sent to be invested until we need them. But since those surpluses must by law be invested in government bonds, they have simply been handed over to the U.S. Treasury and spent by Congress.

The trust fund is in fact meaningless, a bit of marketing hooey cooked up in the '30s. When Social Security's annual surpluses end in just six or seven years, the battle over whose ox to gore in order to cover the plan's obligations will be truly epic.

The hard reality is that for decades we haven't told ourselves the truth about pensions. Now, as the first baby-boomers turn 60, we must finally confront reality -- and absolutely no one will like it. In New York last month, transit workers and management compromised; employees will make small contributions toward health insurance premiums but will keep one of the richest retirement deals around.
Soon those compromises simply won't be affordable. And that's when the pension wars will explode.

http://www.osc.state.ny.us/pension/


Check out the NYS pension system and see for yourself if this guy knows what the hell he is tawking about

jug

[brewer12345]

NYS' pension is well run, and if you believe the annual report, is pretty well funded. I suspect they are the exception, and I bet a lot of counties and municipalities are badly underfunded.

[jug]

To say the pension cost are rocketing is alarmist and shows a lack of research on the authors part.

The NYS and NYC pension systems have been funded with both employer and employee contributions for years.

The only time such funding was suspended was a short period in the late 90's when the market brought the holdings up and actuarily called for no funding. The market went back down, then the "Norm" of funding resumed.* This fellow didnt mention that.* The City and State has been funding for years, lean and fat, and did not put a dent in operations.

The secret to these pensions systems is that no one can get their hands into them.* Governor Cuomo many years back wanted to raid the NYS pension sys to fund state operation, it was a no go, this money was earmarked for the employees

Any good actuary worth his salt knows that you can project well into the future different scenarios and schemes, but for the most part future liabilities are very predictable via mathematics.

This is all a bunch of crap, the pension systems of private entities were looted by corporate thieves and in the case of state or cities, were also looted or mismanaged.* The New York Systems are a symbol of what can be accomplished when things are managed well and not looted too badly.

Underfunding means LOOTING of your workers, that along with incompetence by upper management = pension shortfall.* Its not as hard as they make it, and this mantra about pensions is agains what the boys who are LOOTING want you to beleive
jug

Looking at de beavers on de broads

[kz]

Same goes for Wisconsin's pension system. Well funded and well run. A recent newsletter, though, gave some insight into the next 10, 20 and 30 years and how many more retirees there will be in the system compared to currently. I found it very interesting along with the comfort of knowing our state pensions should be very secure for many, many years to come.

[Mountain_Mike]

Yeah, this commentary is pretty alarmist. His illustration about the NY subway workers strike over the possibility of paying 6% toward their pensions just goes to show that someone is aware of the problem, and is attempting to solve it.

I sometimes get tired of all the articles that seem to "blame" the baby boomers on projected problems such as this. I think those who are in good pension plans and/or who saved enough will be fine. There are more people in the "baby boomer" age, so thus there will be more irresponsible people in that age range.

[region2]

Northwest Airlines Pilots, voting yesterday, agreed to freeze their DBP as of 1/31/06. A DCP will be set up immediately with an automatic 5% employer contribution. Further DCP details are pending more negotiations.

Another one bites the dust.

[setab]

If I were a cynical person, I would say this is more alarmist disinformation to justify companies which want to dump their pension plans in favor of even more obscene profits for the top management. *And, oh by the way, it is only called "looting" if pension plans are in the private sector. *Federal pension and 401K plans are routinely used to cover budget shortfalls. *Of course, the money is always paid back with interest...at least so far.

setab

[HFWR]

Of course, the money is always paid back with inflation interest...at least so far.

[alphabet soup]

Geoffrey Colvin, a columnist for Fortune, has little credibility. His employer, Fortune, has been a shill for the wealthy oligarchy who run this country from its start.

As I've noted before, all the alarmist bleating in the media is the gradual brainwashing of the little people so they will passively accept the f***king they're going to get.

[youbet]

Originally Posted by Mountain_Mike

Just this month IBM (Research) announced that it would join the long list of companies (Verizon, Hewlett-Packard, Motorola) that have frozen their pension plans, instead increasing 401(k) contributions for employees.

Just to set the record straight, Motorola did not freeze their DBP pensions.* What they did do was change the rules for new hires.* New hires receive no DBP pension and instead get a higher rate of 401k matching.* Existing employees continue with DBP pensions and the lower rate of 401k matching.