US businesses ask Congress for relief on pensions

[Zoocat]

This is really disturbing A sign of things to come?

"Fifteen U.S. business groups have asked legislators to provide relief on a pension plan funding law to help companies avoid having to freeze or end pension plans that may be inadequately funded because of the financial crisis.
They want Congress to lower levels at which pension plans must be funded and to clarify whether they could smooth out the market values of pension plan assets over several years in financial reports."

US businesses ask Congress for relief on pensions - Forbes.com

[Tadpole]

And after kicking the can down the road, then what? Ah, kick it again. Ummm, I see more crises in the future.

[Westernskies]

Another good argument against the handout bailout. Where do you stop? Suddenly, everyone wants a free wheel of cheese in their favorite flavor.

[ziggy29]

Quote:

Originally Posted by Westernskies Another good argument against the handout bailout. Where do you stop? Suddenly, everyone wants a free wheel of cheese in their favorite flavor.

When all is said and done, I feel like every financial entity will be bailed out except my 401K...

[Notmuchlonger]

Lets just bail everyone out. If we pass it down to the younger generations. Ill be dead and wont care. WHOO WHOOO! Good livings for me. Screw the rest!

[youbet]

Quote:

Originally Posted by ziggy29 When all is said and done, I feel like every financial entity will be bailed out except my 401K...

Silly boy..... they'll be doing the bailouts with our 401k $$ !

[chinaco]

I would not be in favor of propping up companies pension plans. IF the company fails, there are mechanisms to deal with it today (PBGC).

If companies cannot afford to pay for traditional pensions... then the employee will have to fund it. If the company cannot be competitive in attracting employees because of the lack of those benefits... they will have to work it out.

[frayne]

Pension plans at Standard & Poor's 500 companies were overfunded by $63 billion last year and are on track to be underfunded by more than $219 billion this year, according to S&P.

Whoa !

[OAG]

Kind of a hijack and diversion going on but I think it is germaine. Forget the pension funds (PBGC is there for the "average" Jane and Joe). Then they need to take the $25B already available for the US Auto Companies and LEND it to the UAW so they can pay for "promised" medical care and let the pensions go to the PBGC. Then let GM go down if they cannot compete (which is pretty obivious). Harsh, yes, but they need to draw the line some place. Besides I suspect there is a lot more "Union protection" going on behind this "special lame duck session" they are calling for today to "save" the US Automakers. THIS IS A FIGHT THAT NEEDS TO BE FOUGHT NOW! Otherwise we go to pensions, credit card, airlines, and who knows what else is "down the line". Just my opinion (which, like other parts of the anatomy everyone has).

[chinaco]

The Blue Collar middle-class have been losing ground on their standard of living for the last 25 or 30 years.

The White Collar middle-class are losing ground on their standard of living.

It will be a tough pill to swallow for many.... since they have been living beyond their means.

The American middle-class will either lose certain benefits altogether and fund insurance and retirement themselves (or at best employees will paying more as the employer pays less). Plus most Americans have a standard of living based on borrowing which will probably decrease (on the consumer goods side).

[Culture]

Quote:

Originally Posted by ziggy29 When all is said and done, I feel like every financial entity will be bailed out except my 401K...

Well said. This is especially ironic for those of us without a pension. We are being asked to "contribute" extra to bail out those with corporate pension plans. Where will this contribution come from for most people? For our retirement savings, which is generally first on the list of cost cutting, as it is not a present expense.

Thus, my private funded retirement is going to be cut, in order to fund the corporate pension of others. Crazy stuff.

One lesson that I am learned from the events of this year, both economic and political, is that no politician has any interest in helping me or my business. Politicians are only looking out for those that represent significant voting blocks or campaign contributors. Since I am neither, I am viewed solely as a source of tax revenue. This has significantly changed how conduct business, as well as my political view. I am now 100% in the libertarian camp (well, lets just say minimum practical government camp. We do need a government and some taxes, perhaps 40-60% of what we have today).

[cashbalancetrouble]

Writing based on ten years of experience. The government cares little about the common man when it comes to pensions. This 'bailout' of pensions is to ease funding requirements so the top executives getting the huge pensions will still be able to take their lump sums. Pension plans after the Pension Protection Act of 2006 are required to have adequate funding or the lump sum distributions are not allowed and you need to take the monthly payments option.

Between 1990 and 2006 many traditional pensions were converted to cash balance formulas. This harmed many older workers by converting late in their career when they were already counting on a promised benefit only to have the rug pulled out from under them. There have been a dozen or so lawsuits that started prior to 2006. The most notable against IBM. IBM won and the older workers got screwed. One by one the companies have until most recently it has been judged Cigna had misled its older employees about the effects. After ten years this is still under appeal.

So what did Congress, our beloved government do, they passed the PPA of 2006 to decide how the conversions should be done in the future, but actually said for those conversions prior to 2006, we will let the courts decide. Well, from one who was lied to and cheated out of 40% of my pension, my little case of $140K couldn't attract an attorney and would have taken 10 plus years to get through court with most likely the same outcome as 90% in favor of the corporation. The EEOC passed on getting involved because of the controversial aspects, the Treasury and IRS said it was wrong but if we do get involved, and they did, we can't ever tell you the outcome. (Yeah that's our stupid system of privacy for the accused.)

So why the conversions in the first place? In the 1970’s, companies were being purchased when the pension plans were over funded. The pension plan was terminated by the new owner, most often a rich individual, and the excess funds went to the owner at regular tax rates. CONGRESS STOPED THIS FOR ABOUT 20 YEARS BY IMPOSING A 50% TAX ON THE EXCESS FUNDS. In the 1990’s, it started again when a loop hole was found that the tax would only be 25% if you did not terminate the pension plan but only convert it. In my case, first the Company started an incentive plan for executives for ECONOMIC VALUE ADDED. A fancy name for increased profits. At the corporate level, my employer counted airline discounts for all the corporation and things like that. When the $200 million dollar pension excess came, that was counted also as an economic value added. The CEO received a $51 million dollar bonus for that year which I will die believing including 40% of my pension. He was the highest compensated CEO for a couple of years. He stated once, “The thing I like about our compensation system is that you’re not moving the goalposts in or out; they are what they are. Pay people for results, and the response can be stunning.”

STUNNING! Sorry for the long post / rant.

[dex]

Quote:

Originally Posted by OAG Kind of a hijack and diversion going on but I think it is germaine. Forget the pension funds (PBGC is there for the "average" Jane and Joe). Then they need to take the $25B already available for the US Auto Companies and LEND it to the UAW so they can pay for "promised" medical care and let the pensions go to the PBGC. Then let GM go down if they cannot compete (which is pretty obivious). Harsh, yes, but they need to draw the line some place. Besides I suspect there is a lot more "Union protection" going on behind this "special lame duck session" they are calling for today to "save" the US Automakers. THIS IS A FIGHT THAT NEEDS TO BE FOUGHT NOW! Otherwise we go to pensions, credit card, airlines, and who knows what else is "down the line". Just my opinion (which, like other parts of the anatomy everyone has).

I think you are saying let GM fail. I agree with that; it is only postponing the inevitable, creating future problems if it is saved and giving preferential treatment to the workers only because they are a union instead of individual workers.

However I think GM & the unions will get money someway. With the Dems in control and the POTUS from a state near Michigan it will happen.

In the late 70s early 80s much of the rust belt were allowed to go out of business - the auto industry is the last remaining giant of the bunch. JFK was taking about nationalizing the steel industry because it was raising prices and the number of industries/people that relied upon it; 20 yrs later and now it isn't a factor.

In the 30s the US raised tariffs that made the depression worse.
Giving money to GM/unions is the new raising of the tariffs.

[dex]

Quote:

Originally Posted by cashbalancetrouble The government cares little about the common man when it comes to pensions.

The government cares little about the common man.

It is a mistake to think it does care because it forms incorrect thinking i.e. government will protect your interest. The common man must look at how the government will hurt him and act to protect himself.

[kcowan]

Think of the pension funds like your own portfolio. Now if your portfolio is down by 30%, the legislation would demand that you top it up back to 100%. So you would need to sell your house and cars and other assets to top it up. Companies are in the same jam. If they are forced to get the pension portfolio compliant during this down period, they will have to sell corporate assets to do so. This is not good for their ongoing businesses and all they are asking for is more time to get compliant.

[shotgunner]

How much longer will it be before State Retirement systems can not meet their obligations because of the economic downturn and ask for bailout? I understand some companies and organizations are too big to let fail but right now it seems there are lots of competing hands being held out for government help.

[laurence]

Good post kcowan on the particulars of this case. In general though, I'm curious as to what happened that pensions became untenable for most companies. My company has been playing the "pension modification" game for the last 4 years. First they were grandfathering out versions of the pension, so at this point new hires get a puny pension but a little more in their 401k match. But now they are tweaking the formula on us old timers as well with no seniority privilege. Used to be your pension would be a % of an average of your last 3 years of salary. Now they are moving it to a longer date range every year so that 7 years from now it will be based on an average of your last 10 years. Think of how much less money you made ten years ago! To boot, they eliminated your leftover vacation as a calculation for time served (you still get the pay, but not the pension boost - some people at work have 600 hours because they are sick in the head). I have been signing off on a ton of early retirements because the change takes effect Jan 1 and people will actually make less each year they stay on. Some of these lucky ducks are then being brought back on as consultants...it's not what you know, it's who you know.

[hankster]

A change to my company pension, i.e. freeze, etc., is one of my greatest fears and certainly one of the greatest threats to FIRE. At age 50 with 27 years of service, I'm just nearing the point where the pension formula really starts to make great gains in my favor. A "lost decade" in equities plus a pension freeze would put the final nail in the coffin of my ER
At least an ER with the standard of living I would prefer.

[utrecht]

I wonder why so many of these pension plans are in such big trouble? Maybe there is alot of mismanagement going on in the pension funds just like in the companies thenselves? Isnt it a conflict of interest to allow the same company that funds the pension to manage the pension? The company should only be making their financial contributions and then have no other dealings with the pension fund and no access to the money.

My pension fund has pretty close to the same amount going in each year between employer and employee contributions as we have being paid out in benefits. Its pretty hard to get in trouble if thats the case. We dont need hardly any investment returns at all to keep the fund growing. Add to that the fact that the funds returns have handily beaten the overall market returns over the long term and have beaten it every single year for the past 10 years (in up AND down markets) and you can see why its so strong. Why cant these other pension funds do the same thing?

[laurence]

Are you saying your pension fund manager has proven Bogle and 4 pillars wrong and that you can outperform the market in the long term?