'Lock-box' doesn't sound so stupid anymore . ..

in General Discussion edited January 2014
I guess now that the federal Pension Gaurantee Corporation has found its 4 Billion Dollar surplus has become a 1-2 Billion defecit due to CORPORATE SCANDALS . . . you know, those guys that get the tax break . . .yeah them, their theiving and coniving with investor (that's you and me) money

I bet a lot of older people, retirees, who voted for Bush are thinking twice now . .

<a href="http://www.nytimes.com/2003/01/25/business/25PENS.html"; target="_blank">NYTimes (requires FREE and painless registration)</a> Article: $8 Billion Surplus Withers at Agency Insuring Pensions


  • Reply 1 of 5
    brbr Posts: 8,395member
    Next time link from google news. No reg required.
  • Reply 2 of 5
    murbotmurbot Posts: 5,262member
    $8 Billion Surplus Withers at Agency Insuring Pensions

    The federal agency that insures the pensions of some 44 million Americans has been pounded by a succession of big corporate bankruptcies and has burned through its entire $8 billion surplus in one year.

    The agency, the Pension Benefit Guaranty Corporation, provides protection to retirees in case of a failure, much as the Federal Deposit Insurance Corporation protects depositors when a bank fails. Though it can continue to make its current payments, the agency is expected to disclose a deficit of $1 billion to $2 billion at the end of this month.

    Its soundness is likely to deteriorate further in the coming months, as more bankrupt companies find themselves unable to fulfill their promises to tens of thousands of present and future retirees. US Airways, United Airlines and Kmart are among the companies struggling to emerge from bankruptcy protection under the weight of large underfunded pension plans.

    An awareness of the pension agency's rapidly diminishing strength is already fueling a debate in Washington about whether the guaranteed retirement benefits of millions of Americans are at risk and, if so, who should pay to make them airtight.

    Businesses support the agency's operations by paying premiums for each person covered by the insurance, and they are sure to resist any increase. The decisions are difficult. Postpone the increase and the pension system could be imperiled, but increase it too sharply and companies might decide to stop offering pensions altogether.

    "You can get this wrong in both directions," said Damon A. Silvers, associate general counsel at the A.F.L.-C.I.O.

    Among the remedies being discussed are charging all companies with pension plans higher premiums, requiring them to fund their plans more fully, making the companies with the shakiest plans pay the most and changing the way the agency invests its money.

    Traditional company pension plans became commonplace after World War II and are estimated to be the second-largest source of income today for elderly Americans, after Social Security. But employers offer them voluntarily, and over the last decade many have been switching to 401(k) plans, which are simpler and generally cheaper to administer because employees set aside the money and decide how to invest it themselves.

    For workers, traditional pensions are considered more reliable than 401(k) plans, because pensions provide a predetermined monthly check from retirement to death and are guaranteed by the government.

    The Pension Benefit Guaranty Corporation was created in 1974 to take over insolvent pension plans and keep paying benefits when a company could not. A retiree whose plan is taken over keeps getting monthly checks, but the amount may be smaller, because the government limits the amount it insures. The current maximum is about $3,600 a month for those older than 65 at the time of the takeover, and less for those who are younger. As of 2001, the agency had $22 billion in assets and was responsible for paying the pensions of 624,000 current and future retirees. It paid more than $1 billion in stipends that year.

    The agency has weathered deficits in the past, its finances worsening when stock prices have fallen or when very large corporations have collapsed. In 1992, after it shouldered $1.4 billion in unfunded claims from Pan American World Airways and Eastern Air Lines, there were warnings that the agency itself might go broke, much as the Federal Savings and Loan Insurance Corporation had done a few years earlier.

    Steps were taken to strengthen the agency and make it harder for companies to run their pension plans into the ground. Rising stock prices further bolstered the agency in the latter half of the 1990's, and the warnings of a disastrous S.& L.-style collapse died away.

    Now, those warnings have returned, as the gap has soared between what companies have promised to pay in pensions and the funds they have set aside to do so. At the end of last year, the gap was estimated to be $300 billion. During the agency's previous crisis, in 1993, the funding gap peaked at $109 billion.

    Stock prices are down again, and interest rates are unusually low. Normally, stock prices and interest rates move in opposite directions. When they both go down at the same time, it is particularly painful.

    In pension accounting, the lower the interest rate, the greater the future obligations. That is because of the difficulty of setting aside enough money to cover future payments, which loom large if interest is accruing at only a few percent a year, and has nothing to do with any increase in the number of retirees or their benefits.

    "This is really the first time the P.B.G.C. has been faced with this confluence of events," said Mark A. Oline, a managing director of Fitch Ratings. Mr. Oline monitors airlines, which make up a large part of the pension agency's workload. The last time a three-year bear market coincided with low interest rates was 1939 to 1941, he said, and the agency did not exist then.

    "The big question is, if all of a sudden these liabilities have become so enormous, how is this situation addressed?" Mr. Oline said.

    Although the Pension Benefit Guaranty Corporation is a government agency, its work is financed entirely by companies, not general tax revenues. Companies pay $19 per person covered each year, or more if a pension fund is underfunded. The basic rate has not changed since 1991.

    That means that if the agency's troubles worsen, businesses will be asked to pay higher premiums, put more cash into their own pension plans or both. The agency is also considering a new way of assessing premiums, making the companies with the weakest pension funds pay the most.

    Any of those changes would require Congressional action and would be controversial. Already companies are struggling with their own pension deficits, and are finding they must pay millions of dollars to keep their plans compliant with the current rules.

    "The well-funded employers don't want to pay a lot of money to bail out the employers whose pension plans have fallen," said Judith F. Mazo, director of research at the Segal Company, a benefits consulting firm, and a member of the pension agency's advisory committee.

    At the same time, Ms. Mazo said, the companies with the shakiest pension plans will protest if their premiums go up, saying they obviously do not have the cash. If they did, they would have put it into their pension plans.

    For now, most big companies with pension plans are taking the position that the current troubles will pass on their own.

    "There is no crisis whatsoever," said Janice M. Gregory, vice president of the Erisa Industry Committee, a group that lobbies on behalf of the largest corporations on pensions and other issues regarding employee benefits.

    As members of the Erisa Industry Committee see it, interest rates are sure to rise again. Then the balance-sheet values of future liabilities will shrink, and much of the pension agency's deficit will disappear.

    In addition, Ms. Gregory said, businesses anticipate further relief through an initiative by the Treasury Department to change the interest rate that companies use for their pension calculations. In the past, they used the 30-year Treasury bond as a benchmark, but the government announced in early 2000 that it would stop issuing those bonds. Businesses want to switch to a high-quality corporate bond as the benchmark. That rate would be higher, shrinking future pension liabilities.

    Such a change would be subject to approval by Congress.

    In the meantime, Ms. Gregory noted, the pension agency has more than enough cash on hand to make its current payments. It takes in some $800 million each year in premiums.

    "That gives them a cushion to cover any additional new claims that come in," Ms. Gregory said. "The P.B.G.C. is in good shape."

    That view is firmly countered by some financial analysts. Zvi Bodie, a professor of finance at the Boston University School of Management who was invited to present his position to the pension agency, wrote an academic paper in 1996 laying out a "possible doomsday scenario" ending with an enormous taxpayer bailout.

    Ominously, some of what he foreshadowed has already happened: a sharp and prolonged drop in stock prices, a proliferation of pension-plan underfunding and several large pension defaults.

    Professor Bodie says the agency should begin charging premiums based on the riskiness of a company's pension portfolio. He has also spoken to the agency's advisory committee about the merits of investing the agency's own trust fund in fixed-income securities. The agency's board voted in 1994 to permit its trust fund of seized plan assets to be invested up to 100 percent in stocks, but the agency is considering scaling back. The money from premiums is invested in government securities.

    Much of the agency's surplus disappeared early last year when it assumed the pension plans of the LTV Corporation, the large steel company. LTV had already been through one bankruptcy and pension trusteeship, in 1986. After LTV reorganized, the pension agency forced it to take back its pension obligations ó only to watch the company file for Chapter 11 protection again in 2000.

    In March 2002, the pension agency assumed LTV's pension payments for a second time, wiping out $1.6 billion of its surplus. In December, the agency assumed $1.1 billion in unfunded pension claims from National Steel, and later that month, it took over Bethlehem Steel's pension plans, for an estimated $3.7 billion.

    Until last year, the agency's largest case was the 1991 takeover of Pan Am's pensions, for $841 million.

    The big pension plan failures show no sign of stopping this year. US Airways' reorganization plans depend heavily on the airline's ability to cope with some $3.1 billion in pension contributions due over the next seven years. The airline has been seeking government permission to stretch the payments out over 30 years.

    "The minute you grant that, you'd have all the other airlines lining right up," Mr. Oline of Fitch Ratings said, "and some other industries after that, asking for the same thing."
  • Reply 3 of 5
    finboyfinboy Posts: 383member
    [quote]Originally posted by pfflam:

    <strong>I guess now that the federal Pension Gaurantee Corporation has found its 4 Billion Dollar surplus has become a 1-2 Billion defecit due to CORPORATE SCANDALS . . . you know, those guys that get the tax break . . .yeah them, their theiving and coniving with investor (that's you and me) money

    I bet a lot of older people, retirees, who voted for Bush are thinking twice now . .


    Especially when they're assaulted by fear-mongers on a daily basis. I'm sure this will be featured prominently in the news for a few days as the Left's wonks get out and spread the word.

    This has nothing to do with the "lock box." But don't let simple things such as facts get in the way of scaring old folks. Ask Erskine Bowles how well that works.

    Same old same old. When you have a hammer, everything looks like a nail.

    Now, there might be a problem lurking with the PBGC. Even so, using it to scare folks or gain political power over the weak is beneath contempt. Especially since Dems and Republicans will have to eventually (when the truth slips out) share the blame.

    [ 01-25-2003: Message edited by: finboy ]</p>
  • Reply 4 of 5
    thegeldingthegelding Posts: 3,230member
    [quote] Even so, using it to scare folks or gain political power over the weak is beneath contempt. <hr></blockquote>

    it is even further beneath contempt to lie to gain political power and use that lie to bomb and kill citizens in other countries...like saying Iraq has nuclear weapons based largely on aluminum rods that, it has been discovered much to the chagrin of the Bush administration, can't be used to enrich uranium...but then bush is a moral pro-life man...he would never lie to kill would he???

    and to think we were so worried about a president who lied about a blow job or two...now we might we have a president who lies to start a war....g
  • Reply 5 of 5
    scottscott Posts: 7,431member
    [quote]Originally posted by pfflam:


    <a href="http://www.nytimes.com/2003/01/25/business/25PENS.html"; target="_blank">NYTimes (requires FREE and painless registration)</a> Article: $8 Billion Surplus Withers at Agency Insuring Pensions</strong><hr></blockquote>

    I already did it for everyone

    login: aimember

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