Your pension could be at the center of America's next financial crisis

[timo2]

This is a concern, and why, at retirement, one might consider a delayed annuity or some other investment set aside to cover themselves just for this possibility. This would also cover future changes in social security like reduced spousal benefits, higher part B premiums, and the chained CPI.

 

[Sunset]

I see a few smaller funds collapsing due to a bad year of returns. Those funds will put pressure on the PBGC which will in turn raise rates on other pensions which are underfunded. That will cause more funds to collapse (and the market will get more unstable as investors either are withdrawing more to make up for lost pensions, or are trying to figure out the winners and losers inthe pension collapse. At this point, Illinois or Calpers will have signs of collapse, and the tax burdens of California and Illinois will increase dramatically. This will lead to more flight from taxes, causing the Feds to step in. This is when the effect on the entire population will be most likely. Fed taxes will rise, "entitlements" will increase, inflation will rear its very ugly head, and the 30's will return. The only way out of it is a major global war to ramp up the economic war engine, and reduce the population. At this point the best currency you could have will be food and ammo! (just kidding).

How will this affect me? I have no pension, so the collapse of the markets is when I will be hit, and I have 3 sons who are in their 20s who would likely be cannon fodder in any war.

The pension condition of various states, especially CA and IL are poor , but it will not go to Zero, they will either increase general State taxes or revise the pensions to pay out at a reduced rate. The number of people affected in each state is probably a minority of each states population.

This is not a problem or issue for the Fed's, so I disagree that the Feds will be involved, just imagine the public outcry (revolt) of Citizens of stable States, paying for the inflated promises given to Sunny CA, or IL residents.

The war that is next could be a new Civil War, to free tax dollars.

 

[Chuckanut]

Very sad.

 

[W2R]

Very sad.

Makes me more angry than sad. If I was younger I'd be halfway looking for a lynch mob to join. I know zero about pensions but what has happened to pensions in our lifetimes just seems so reprehensible to me. Such misery.

 

[Walt34]

Makes me more angry than sad. If I was younger I'd be halfway looking for a lynch mob to join. I know zero about pensions but what has happened to pensions in our lifetimes just seems so reprehensible to me. Such misery.

I tend to think that it was almost inevitable. I'm lucky, I have a COLA'd pension but that plan was born out of the post WWII economic expansion in the 1950's-60's and the optimism that created. They thought the party would never end but of course it did. It's nearly fully funded but I have to wonder if it is sustainable because there is a good chance that I will be paid in retirement far more, and for a longer time, than I earned while working even accounting for inflation and investment returns. For DW that is almost a certainty barring early illness.

They don't offer that plan anymore, it was changed in the 1980's and has been changed a couple of times since. There is still a pension but it is much smaller than it was, there is a cap on COLAs, and defined contributions are a much larger component. But this is made clear from day one for new hires.

Historically "retirement" was something that only the very wealthy could afford - as I understand it people worked for as long as they were physically able to and then were either cared for by family or went to... wherever and were true charity cases.

What I agree is reprehensible is the lack of notice as retirement plans were changed or eliminated, leaving a lot of people like Blue Collar Guy's BIL swinging in the wind without time or opportunity to prepare for the changes. He will also probably have to work for as long as he is physically able to. The accountants had to know that was coming.

 

[mickeyd]

We have a number of DB-like Plans that continue to pump it cash throughout the month~SSA, US military, VA, school retirement, US corporate pension. If these all fail, our only fallback is our VG stash, but if the above fails, how secure is our VG stash?


Time to make me another drink...

 

[CDRE]

The Pension Protection Act of 2006 will help prevent a "crash" for corporations. I'm not aware of any such law for public/government pensions.

 

[Blue Collar Guy]

it doesnt cover multi pensions

The Pension Protection Act of 2006 will help prevent a "crash" for corporations. I'm not aware of any such law for public/government pensions.

my brother in law, a real knock around blue collar truck driver nyc guy, pension was after 30 years about 3400 a month, it was one of those multi union type deals so long story short, he gets about 700 bucks a month now he collected 3400 for about 2 years then they lowered it to 1800 for 4 years and this year he gets the great news that 700 bucks is now he number. so as he is in his late 50's he gets a trucking company warehouse supervisor job, calls it 5 1/2 days a week(but works mon-fri and about 7 hours on saturday) makes about 85k , thats before taxes, oh i forgot the 700 pension so add that to it, thats what happened to his multi union trucking pension, he was crushed when he got the news,
PS he just moved to north carolina to follow the new job, his whole future got destroyed, no pension insurance for those thoudands of guys

 

[jollystomper]

Another factor in my (hopefully wrong) view that a "wealth tax" may be closer on the horizon than we think. Along with "means testing" for many things like pensions, SS, Medicare, etc.

 

[Blue Collar Guy]

dont man the suicide hotline

Another factor in my (hopefully wrong) view that a "wealth tax" may be closer on the horizon than we think. Along with "means testing" for many things like pensions, SS, Medicare, etc.

with all ur good news ur gonna have everyone jumping off the roof

 

[gerntz]

I suspect the biggest impact on the population at large will be increased taxation to pay for some or all of the shortfall. It would be prudent to examine such matters when determining where to live in retirement.

That would be counter productive but doesn't mean politicians wouldn't panic and do it anyway.

 

[Chuckanut]

FWIW, had I been able to take my [-]gold and platinum[/-] pine and brass teacher's pension in my mid 50's it would also have been around $700 a month. Early retirement needs to be well thought out.

 

[Ted_Shepherd]

Possibly, although politicians will look at the numbers, and how many voters are not on pension vs giving the pensioner's a haircut.

I know I'll vote out any politician that taxes me extra to pay for the pensions that I don't get.

I am with you in the matter of voting. I take it that by "pensioners" you refer to retired civil servants. When we vote, it remains to be seen whether the elected officials or the civil servants are more powerful. Who rules, is it the electorate or is it government bureaucracies, the deep state?

 

[Just_Steve]

I am with you in the matter of voting. I take it that by "pensioners" you refer to retired civil servants. When we vote, it remains to be seen whether the elected officials or the civil servants are more powerful. Who rules, is it the electorate or is it government bureaucracies, the deep state?

I fear no state politicians because they cannot touch what has been earned in NY. All they can do is sell out the unborn.

[Membership in retirement systems; benefits not to be diminished nor impaired]
§7. After July first, nineteen hundred forty, membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired. (New. Adopted by Constitutional Convention of 1938 and approved by vote of the people November 8, 1938.) (Article V, Section 7) NYS Constitution.

 

[Blue Collar Guy]

I fear no state politicians because they cannot touch what has been earned in NY. All they can do is sell out the unborn.

[Membership in retirement systems; benefits not to be diminished nor impaired]
§7. After July first, nineteen hundred forty, membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired. (New. Adopted by Constitutional Convention of 1938 and approved by vote of the people November 8, 1938.) (Article V, Section 7) NYS Constitution.

My union sent me this. I was feeling good. Then my union sent me this tidbit,http://www.newyorkconcon.info/ every 10 or 20 years NY has a vote for a convention that can amend the constitution.The good news is, since 1938 the vote for a new constitution has been lower each time.

 

[Just_Steve]

My union sent me this. I was feeling good. Then my union sent me this tidbit,Home | The New York State Constitutional Convention Clearinghouse every 10 or 20 years NY has a vote for a convention that can amend the constitution.The good news is, since 1938 the vote for a new constitution has been lower each time.

For once I like ill informed voters. The majority won't vote for it because they don't understand it.

 

[OddGuy]

I worked for 12 years for a smallish (300 employees) but well-funded company that was a branch of a well-known national brand. They offered an interesting pension - every year, an amount equal to 15% of your gross was placed into a pension fund, vested at 20% a year. So if you were salaried at $40k, you'd also get $6k put in the pension.

The way it was handled felt a bit odd - apparently, it was a private investment firm that handled it, but I could never get solid information when I was employed as to how it was invested. I would get annual "statements", that amounted to a few lines of information about my particular pension (company letterhead of the company that employed me, "last year $x,000 was deposited into your pension. You are 80% vested.)

When I left, I requested the funds be rolled over into an IRA. The benefits person (not a department, a single person) thought I was nuts. The process took several months. As you can imagine, I wondered even more whether the whole thing was a scam. Eventually, a $150k-ish payment was made into my Fidelity account as a rollover IRA.

In the decade since, that $150k has doubled, and I'm relieved to not have the mysterious pension stress.

 

[braumeister]

I'm relieved to not have the mysterious pension stress.

I'm sure you made the smart move there.
Not being able to find out the details would have made me crazy.

 

[Ready-4-ER-at-14]

Illinois has some law at constitution level that protects pensions of unions and politicians.

Chicago has been raising all conceivable taxes to pay for decades of underperforming investments to pay city worker pensions. Spouse bought a 12 count case of fizzy water last week and new beverage tax was more than the cost of the water which was like .50 a bottle.

Fortunately I will do what is necessary to minimize these on us, but most do not have the resources to establish multiple residences.

When you mention private pensions, I was wondering how secure these are compared to insurance company annuities. Seems annuities have a bulk of the money in long term treasuries and are quite restricted in what they can buy.

 

[Chuckanut]

The way it was handled felt a bit odd - apparently, it was a private investment firm that handled it, but I could never get solid information when I was employed as to how it was invested. I would get annual "statements", that amounted to a few lines of information about my particular pension (company letterhead of the company that employed me, "last year $x,000 was deposited into your pension. You are 80% vested.)

Gosh, this sounds a lot like Bernie Madoff.

I am not saying the pension administrators did anything wrong, after all I literally know nothing about what happens to the funds.

But, it's important to not only avoid wrong doing but the appearance of wrong doing when handling other people's money. Even an honest person can get into trouble if they are doing things similar to what the bad guys do.


The pension person, if for no other reason than their own personal legal safety, should probably make things a lot more transparent.

 

[Spock]

for those with "over funded" pensions, what rate of return is that pension assuming and how likely is that to happen?
For awhile, pensions were claiming to be in better shape than they really were (thus needing less $ from their funders every year) by claiming rates of return that are no longer realistic.
zerohedge had an article today on how a few municipalities are starting to edge their rates of return downward.
Pension Ponzi Exposed: Minnesota Underfunding Triples After Tweaking This One Small Assumption... | Zero Hedge

 

[43210]

The solution is simple. Abolish pensions completely. You simply cannot have a system where people are "promised" some "defined benefit" regardless of contributions made, or investment returns. The financial burden ends up falling on people who have nothing to do with the pension, but have to suffer the consequences of "promises" made decades ago. This does real and significant damage to the surrounding economies. It's totally unfair. The article linked in the OP gets it exactly backwards. The damage does not come from pensions collapsing. The damage comes from propping them up.

 

[Another Reader]

The solution is simple. Abolish pensions completely. You simply cannot have a system where people are "promised" some "defined benefit" regardless of contributions made, or investment returns. The financial burden ends up falling on people who have nothing to do with the pension, but have to suffer the consequences of "promises" made decades ago. This does real and significant damage to the surrounding economies. It's totally unfair. The article linked in the OP gets it exactly backwards. The damage does not come from pensions collapsing. The damage comes from propping them up.

Let's abolish insurance as well, then. Because the premise is the same. Collect premiums (contributions) from a large group of people in an amount sufficient that when invested, the investments cover the payouts and pay a return if the plan is supposed to generate one. Lets have everyone contribute to a health savings account, a car savings account, and a house savings account. If they are lucky, they stay healthy, have no accidents, and their house does not burn down. If not, the cost is on them. That way people that "have nothing to do with the loss" don't have to pay for it.

Unfortunately, society as a whole will have to absorb the cost and damage to the economy in a different way. People will die because they can't get health care, no one will buy an expensive car or invest in their houses because of the risk. Then there is the "widows and orphans" problem because there is no life insurance.

It won't be pretty if these pension plans start to fail in large numbers. The poverty and social instability that will result will be monumental. A better solution is to re-do the math of pensions to be more realistic. Lower expectations of return and increase contributions. Absorb the cost of the old folks on their way out the door as part of the transition.

The taxpaying public will have to pay some of the cost of what the politicians promised in the past for the public plans. Get the politicians out of the public pension business so this does not happen again. Put the pensions in the hands of people that know how to run annuity businesses.

Maybe the voters will elect people in the future that aren't quite as generous with their money and their children's money. And maybe companies will rethink compensation and pensions so that some portion of compensation is invested automatically in an annuity like plan that is portable as people change jobs. Because if something doesn't change, we will all pay for the resulting mess.

 

[Taxman59]

The taxpaying public will have to pay some of the cost of what the politicians promised in the past for the public plans. Get the politicians out of the public pension business so this does not happen again. Put the pensions in the hands of people that know how to run annuity businesses.

Maybe the voters will elect people in the future that aren't quite as generous with their money and their children's money. And maybe companies will rethink compensation and pensions so that some portion of compensation is invested automatically in an annuity like plan that is portable as people change jobs. Because if something doesn't change, we will all pay for the resulting mess.

Well said. I think pensions were great when conceived, but like most things, the application is fraught with problems.
Politicians loved pensions because they could promise more $$$ to workers without any increased cash outlay. Then when the pension fund actually grew to a big number, they could reward friends with contracts to administer the plans, manage the money or become an employee of the plan itself. Unions loved it because they could say they won the labor battle and extracted more $$$ from the evil corporation while lining they own pockets with the money (mis)management. Corporations loved it since they could use the various assumptions in the plan to manipulate the tax deductions and required contributions. And to boot, if the plan didn't perform according to the plan, any excess $$$ could be siphoned off or an under-performing plan could be abandoned and dumped on the PBGC. Congress changed the law to prevent the over-funded plans from reverting back to the companies, so the companies responded by cutting contributions (law of unintended consequences)

To get out of this mess, set reasonable assumptions for future returns, with required 100% contributions for current liabilities and a 10 year plan to get back to 100% funding. Same rule for governments. Put personal liability on the plan managers and sponsors so they won't be overly tempted to fudge the numbers. For government plans, the liability should attach to the politicians in office when the under-funding occurs. That would scare most politicians! Also, put the plan managers and officers of the sponsors' benefit at risk for any shortfalls.

The company I worked for waited until the plan got 100% funded through investment returns and contributions then terminated it. I didn't agree with some of their assumptions, but they were mostly realistic (always shaded in favor of the company, but . . .). Employees rolled the $$ over into an IRA and no benefits were lost (earning future benefits was reduced relative to what they would have been, but nothing says that unearned benefits are guaranteed to never change).

Just my 2 cents

 

[Senator]

Like anything, if pensions fail the economy will recover. Taking away or cutting a pension fund by $1M is no different than taking away $1M from a different group of people and giving it to the pension funds, except ones there are always a middle layer that siphons off a bit.

In the federal governments case, money can be printed for the PGFC, SS or the many Federal pensions. In the States case, it is more difficult.

The real problem is that younger people do not have the higher paying jobs to continually fund the pension for the older workers. And the younger ones do not want to work...

Pensions work when you continually have a larger pool of workers.