Cracks in the Pension Safety Net System?
According to two separate news accounts, cracks may be appearing in the pension back-up systems for the United States and UK, respectively. Already jittery taxpayers may look at these warnings with heightened alarm.
In "Pension Agency Sounds Alarm on Big Three," Wall Street Journal reporter John D. Stoll (November 28, 2008) writes that the Pension Benefit Guaranty Corporation ("PBGC") is worried that large automakers may offer early retirement or buyout deals to some plan participants, at the expense of those who remain. Stoll adds that a year-end accounting by General Motors ("GM") has its pension plans "overfunded by $18.8 billion," but recently reported that "its plan for hourly workers was underfunded by $500 million because of restructuring expenses." The Toronto Star suggests funding woes for GM's Canadian pension plan. (See "GM Canada's pension plan troubled before market collapse" by James Daw, November 15, 2008.)
In "Pension lifeboat may be sunk by wave of firms being liquidated" (November 28, 2008), Phillip Inman and Simon Bowers - reporters for The Guardian - write that "The Pension Protection Fund (PPF), which has already rescued more than 66 retirement schemes, may be forced to increase its levy on profitable companies to boost its finances or risk a government bail-out if more companies go bust." With the collapse of Woolworths and other troubled companies, this UK counterpart of sorts to the PBGC may find itself in a postion of having to pay out more each year than it takes in.
This day after American Thanksgiving, known as "Black Friday" for shopping jaunts, may be the day the bell tolled for two of the world's largest concentrations of private pension schemes.
Editor's Note: On November 17, 2008, a PBGC press release describes a reduction in its deficit as a snapshot number, influenced by events that may not repeat themselves.
<< The PBGC’s insurance program for single-employer pension plans reported a deficit of $10.7 billion, a $2.4 billion improvement over last year’s $13.1 billion shortfall. The deficit of the insurance program for multiemployer pension plans was cut in half to $473 million, a $482 million improvement from the $955 million deficit reported a year earlier. 'The PBGC’s lower deficit is good news, although it is important to remember that the deficit number is only a snapshot of where we stood on September 30,' said Director Charles E.F. Millard. 'Successful negotiations with companies in bankruptcy protected workers’ pensions and sliced hundreds of millions of dollars in liabilities off our books. Favorable interest rate changes reduced liabilities, and our careful stewardship of the PBGC’s investments limited losses to 6.5 percent of assets. Although the current turbulence in our economy will mean a challenging environment in 2009, the PBGC has the resources to meet its commitments to America's retirees for many years to come.' The decline in the deficit in the single-employer program was primarily due to a $7.6 billion actuarial credit from a favorable change in interest factors, $1.4 billion in premium income, credits of $826 million from completed and probable terminations and $649 million in favorable actuarial adjustments. These amounts were offset by investment losses of $4.2 billion and a $3.4 billion actuarial charge due to passage of time. Total return on invested funds was -6.5 percent. >
According to Wall Street Journal reporters, James R. Hagerty and Aparajita Saha-Burna, musical chairs are moving at the nation's giant mortgage house. Besides a new chief business officer and CFO, the former Senior Vice President for Credit Risk Oversight takes the lead on all things risk. Exiting the company is the former Chief Risk Officer ("CRO"). (See "Fannie Mae Names New Officers in Shake-Up, August 28, 2008)
