Jim Jubak on the PBGC and risk

[TickTock]

The year's scariest investing news - MSN Money

 

[W2R]

Anything jeopardizing pensions is pretty scary!

Looking on the bright side (if there is one), as I understand it the PBGC is going from 28% stocks, 72% fixed, to a new AA of 45% stocks, 55% fixed. The PBGC has to counter inflation, just as we (future) retirees will have to do. The new 45:55 AA (45% stocks, 55% fixed) will help them to keep pace with inflation, which may very likely be a significant factor at some point. 45:55 also happens to be the approximate, very conservative AA that I am planning for my ER, so I am putting my money where my mouth is.

 

[FinanceDude]

It shows me a few things:

1)PBGC is as underfunded as FDIC,except they face "real world" issues in that the insurance HAS been used in the past and will be in the future.

2)PBGC can't take many more big pension plans on from large companies going belly-up.

3)People are going to have to save MORE outside of their pensions, since when PBGC takes over a pension, in many cases it REDUCES the amount you would have gotten from the company pension..........

 

[Running_Man]

Anything jeopardizing pensions is pretty scary!

Looking on the bright side (if there is one), as I understand it the PBGC is going from 28% stocks, 72% fixed, to a new AA of 45% stocks, 55% fixed. The PBGC has to counter inflation, just as we (future) retirees will have to do. The new 45:55 AA (45% stocks, 55% fixed) will help them to keep pace with inflation, which may very likely be a significant factor at some point. 45:55 also happens to be the approximate, very conservative AA that I am planning for my ER, so I am putting my money where my mouth is.

The goal per the story though is not to keep pace with inflation but to maintain payouts for 10 years! I imagine their withdrawl rate must be in th 7-9 percent range. Any significant decline in the stock market in the coming years will ensure a bustout of this fund with that type of withdrawl rate.

 

[jazz4cash]

Even without the riskier AA discussed in the article, It seems to me that the concept of pension fund insurance is highly risky in an age where DBPs are going out of style. No new healthy companies are paying premiums into the plan because they all use DCPs for employee retirement savings.

 

[Culture]

Looking on the bright side (if there is one), as I understand it the PBGC is going from 28% stocks, 72% fixed, to a new AA of 45% stocks, 55% fixed. The PBGC has to counter inflation, just as we (future) retirees will have to do. The new 45:55 AA (45% stocks, 55% fixed) will help them to keep pace with inflation, which may very likely be a significant factor at some point.

I think you may be missing one thing here. I can afford to take risk with my investments, as I do not need the money. I have no debt, earn much more than I spend and even if I lost my business my assets would cover my spending at very small SWR. Thus, if the stock market has a bad run for 1o years, that is ok for me. I will not like it, but I will be ok.

You (Want2retire), can also probably carry through a downturn by cutting spending. You will not like it, but you will make it.

The PBGC, on the other hand, is broke. It spends more than it earns, is worth less than it owes, and cannot file for bankruptcy if it cannot meet it obligations. It cannot afford a 10 year downturn in the stock market.

Well, actually it can afford this, as they will just come and get the money from us. Wonderful!