Sunday, December 21, 2014

Is ANY Pension Safe?

First, another question: Should someone (who's preparing for retirement) take a lump sum payment from their pension plan and have it deposited into a ROTH IRA account — or should they take a monthly payment?

From CNN Money in January 2014:

To make sure your pension plan isn't on the brink of running out of money, and your benefits aren't at risk, do some research. Request a copy of your plan's annual report, called a form 5500. Look for the funding ratio, or the amount of money that the plan has set aside to pay its future obligations. Typically, a healthy pension fund will have a ratio of at least 80%. Even if your plan becomes insolvent, the Pension Benefit Guaranty Corp., which insures private pension plans, will take over and pay your benefits. But there is an annual limit to what it will pay (in 2014, nearly $60,000 for single-employer plans). If you're in a significantly under-funded plan and your promised pension is larger than that limit, a lump sum could be a safer option.

But that was then, and this is now. With a new provision in the recent spending bill that puts pensions at risk, now what should we do?

Under certain conditions, a "rider" in the new spending bill would allow the pension benefits of current retirees (who are not 80 or disabled pensioners*) to be reduced in an effort to financially strengthen distressed multi-employer pension plans. Some labor unions supported the provision because it would strengthen distressed plans, while others did not (due to the possible benefit reductions). The Service Employees International Union (SEIU) and several other unions actually support the rider.

* Under the proposal, pension funds would have to fall below certain benchmarks of financial security before they could consider major benefits cuts to retirees under 75 and marginal cuts to those between 75 and 80. (What are these "benchmarks" now?)

The rider in the new spending bill will allow pension plans that are projected to run out of money in the next 10 to 20 years to cut the benefits they pay to both current and future retirees. The Department of Labor has a list of endangered pensions who received critical status notices.

Republican Minnesota Rep. John Kline put in this horrible rider in the spending bill — and the provision, which primarily affects major unions’ retirement plans, has never been introduced into the House or Senate on its own. And this assault on workers' pensions is bipartisan: California Democratic Rep. George Miller helped Kline craft the bill that allows for these pension cuts.

Almost everyone — including opponents of the "rider" — expected the measure to be added as an "amendment" to the budget bill by the House Rules Committee (The committee defeated an attempt to make the pension bill a stand-alone amendment with a free-standing vote.)

Democratic Rep. Collin Peterson, representing Minnesota's Seventh District, cited the measure as one reason he will vote against the overall budget bill. “I’ve had it with them legislating in appropriations bills,” Peterson said. “Some people’s pensions could be cut by 50 percent. That’s a pretty big deal.”

AARP, the Pension Rights Center and other retiree advocates are outraged. Karen Friedman, the Pension Rights Center’s policy director, complained that “retirees never had an opportunity to examine or be consulted on the bill.” The larger problem, she said, is that “this sets a precedent for cutting Social Security and single-employer plans."

CNN reports that "many of these plans have struggled in the last decade as they grapple with an aging workforce and major investment losses from the recession. But most, if not all of those losses, have since been fully recouped — many all-time record highs have been set in the stock markets over the past two years. The Dow Jones rose from 6,600 in March 2009 to over 17,000 this month — up over 140%.

IBTimes: Will the Dow Jones pass 18,000 in 2014? Last week U.S. stocks skyrocketed in what was the Dow Jones's best one-day point gain since Nov. 30, 2011, and the best one-day gain for the S&P 500 of 2014. The Dow came within a mere 10 points of 18,000 on December 5th year, a psychologically important milestone. And if the current rally continues, it is on track to break that level, possibly by the end of the year. (The top 10% owns 80% of all stocks and the top 1% owns 50%)

The Pension Benefit Guaranty Corporation (PBGC), the government agency that insures pension plans, said its reserves are dangerously low. (But why are their reserves dangerously low?) The PBGC projects that more than 10% of the roughly 1,400 multi-employer pension plans, which cover more than 1 million workers and retirees, currently meet this criteria.

Some ask, why not make employers contribute more to these "under-funded" pension plans? Maybe because, increasing the contribution levels of the employers (so that the funds are properly funded) might not be the one and only solution. Pension funds are invested in private equity pools, hedge funds and stock markets — and there is a massive amount of manipulation in those markets (and why Democrats don't want to see the GOP "privatize" Social Security).

And that's why these pension funds should be backstopped by a government guarantee, just like the big bank's risky and reckless gambling with derivatives is (again) backstopped by the government in the new spending bill. So guaranteeing the viability of these pension funds WOULD probably be the one and only real solution for protecting retirees. But instead, the new spending bill does the exact opposite. It allows the banks to have another government bailout* (if they are ever needed again) — but not our pensions funds.

* Our individual bank accounts are insured by the FDIC for up to $250,000 — but the banks themselves are backstopped by the government for hundreds of billions (Google "TARP"). Is there any justifiable reason for this?

And to make matters worse, the PBGC's multi-employer insurance program is itself projected to run out of money in the next decade unless changes are made — meaning: workers and retirees in failing plans could be left with no benefits at all!

And pensions aren't the only thing working Americans have to worry about...

The next Republican budget will look a lot like those written by exiting House Budget Committee chairman Paul Ryan (R-WI). That would mean eliminating deficits in 10 years by calling again for massive cuts to the federal Medicare and Medicaid programs.

Rep. Tom Price (R-GA), who takes the reins of the U.S. House budget panel in January, told reporters he will “build on” Ryan's proposals by devising ways to put more federal benefits programs under the control of states. Ryan will take over as chairman of the tax-writing House Ways and Means Committee (So expect more tax cuts for the very wealthy — such as a lower capital gains and corporate tax rate — while our impoverished seniors struggle with meager Social Security COLAs).

The Republican-controlled Congress can now advance policies pioneered by Paul Ryan, including his controversial Medicare plans. Those plans would cut Medicare by limiting beneficiaries to a set amount of money every year to buy private health care insurance.

But didn't Tea Party protesters once chant: "Keep your hands off my Medicare!"? Maybe they should have added: "And keep your hands of my pension too!"

As an aside: How's the U.S. Post Office's pension doing these days?

Related: Pensions ask retirees to pay back tens of thousands


  1. The top three banks are holding $182 trillion in derivative contracts, up from $158 trillion in 2008. To gain final passage of the new spending bill that guts the Dodd-Frank act, it took dozens of high-pressure phone calls to Democrats from President Obama and from Jamie Dimon, the CEO of JPMorgan Chase — the only financial house with more derivatives exposure than Citigroup.

    Al Jazeera -- Cramming the CRomnibus: Rushed spending bill creates systemic moral hazard

    (* The government will again backstop those derivative contracts, but now, not our pensions.)

  2. Citibank lobbyists wrote the provision in the spending bill that allows for this...

    "Give me control of a nation's money and I care not who makes the laws." ~ A quote that was attributed to banker Mayer Amschel Bauer (founder of the Rothschild family)

    "Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world."

    "If you rob a bank, you get 20 years. If the bank robs you, the CEO gets $20 million." (JPMorgan CEO Dimon got a $20 million bonus)

    "As through this world I've wandered I've seen lots of funny men. Some will rob you with a six gun and some with a fountain pen." ~ Woody Guthrie

  3. the US is a corporate fascist state. Not a democracy. Now with the head of the New York Police Union declaring that they are a wartime police department is there any doubt that blood will be shed?

    as always Bud great writing and analysis. Thanks.

    1. Patrick Lynch, the police union's president, was making a political statement against mayor Bill de Blasio because of the mayor's inflammatory statements that incited protests against the NYPD — which ultimately led to the assassination of two NYC police officers while they were sitting in their car.

      From a statement by Lynch: “At least two units are to respond to EVERY call, no matter the condition or severity, no matter what type of job is pending, or what the option of the patrol supervisor happens to be. In addition, absolutely NO enforcement action in the form of arrests and or summonses is to be taken unless absolutely necessary and an individual MUST be placed under arrest. These are precautions that were taken in the 1970’s when Police Officers were ambushed and executed on a regular basis. The mayor's hands are literally dripping with our blood because of his words actions and policies — and we have, for the first time in a number of years, become a ‘wartime’ police department. We will act accordingly.”

      The 1970’s was when a group called the Weather Underground was conducting a campaign of bombings in NYC (mostly targeting government buildings, along with several banks). Former members of the group also robbed a Brink's armored car in 1981, which resulted in the deaths of three people (including Waverly Brown, a black police officer on the Nyack police force). Bill Ayers, co-founder of the Weather Underground, was a supporter of President Obama.

    2. Guess we'll have to agree to dis-agree on this one. To be honest, I'm surprised inner city residents haven't acted out much sooner in violent ways towards the police. How much can an oppressed minority take without acting out violently? ... I'm sure you know the statistics on young male african american unemployment. It ain't pretty.


    3. I'm writing a post on this now: I wrote:

      "I can't speak to the actual statistics of the number of young unarmed black men (being demographically in proportion to the whole population) who are being unjustifiably "profiled" for police stops or being killed by white cops — but I assume the FBI has all that data."

      If you have a government link to the numbers, let me know. (But not a newspaper report.)

  4. Looking forward to your post Bud. I just think all this violence boils down to the incredible income inequality and the complete destruction of middle class jobs in our country. OWS happened and was crushed. Apparently, at the time JP Morgan Chase donated $4.6 million to the NYPD. I can imagine it only getting worse when the GOP take over next year. The ruling class will use this as another issue to divide the working class. That's the way it always works.

    I miss the country I grew up in.

    1. Good quote...I'll use it in my post ;)