Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

What's in the Future? Massive Liabilities (Private and Public Pension Liabilities)
Barron's ^ | 19 April 2007 | RANDALL W. FORSYTH

Posted on 04/21/2007 2:27:37 PM PDT by shrinkermd

AMERICA'S RETIREMENT FUNDS are a good-news, bad-news story. The biggest corporate pension funds are nearly fully funded for the first time in years. But the bad news is state and municipal pension plans face an unfunded liability of upwards of $1 trillion. And the worse news is the public sector has an additional unfunded liability half again as big for other post-retirement expenses such as health care, a staggering $1.5 trillion.

First, the good news from the private sector. The 100 largest corporate defined-benefit plans were nearly 100% funded on average in 2006, according to an annual survey by Seattle consultant Milliman. Boosted by strong stock-market returns and rising interest rates last year, these big retirement funds are in the best shape since 2001.

Early in the decade, pension funds were in the worst of all possible words. The bear market hammered the value of the funds' assets while the plunge in interest rates in the wake of the bubble's bust boosted the value of their liabilities. (The discounted present value of liabilities depend on the interest rate; lower interest rates results in a higher present value, and vice versa.)

At the end of 2006, the 100 biggest defined-benefit funds had an aggregate deficit of $4.3 billion, down $102.6 billion last year, and small amount compared to total assets of $1.3 trillion. So, no worries for Corporate America.

Would that the nation's largest states and cities could say that. According to a recent report by Moody's Investors Service, the 55 largest cities have seen their median actuarial accrued liability of $554 million in 2004, the most recent year for which data are available. That's up from $388 million in 1997.

(Excerpt) Read more at online.barrons.com ...


TOPICS: Business/Economy; Constitution/Conservatism; Editorial
KEYWORDS: pensions; safe
"...One way to "prefund" future liabilities would be to issue bonds and to use the proceeds to invest in stocks and bonds, building a nest egg to meet pension and retirement costs. General Motors did that a few years ago, effectively erasing its unfunded pension liability. Essentially, GM replaced a liability to employees with a liability to bondholders. States and cities could issue bonds -- taxable in this case, unlike most municipal bonds, whose interest generally is exempt from federal income taxes and often state and local income taxes.
1 posted on 04/21/2007 2:27:40 PM PDT by shrinkermd
[ Post Reply | Private Reply | View Replies]

To: shrinkermd

With regards to Social Serurity, if the retirement age can continue to be raised, early retirement be eliminated, and the earnings limit increased dramatically, than it will keep it solvent for a while. At the very least, it will give us time to figure out a way to restructure the system.


2 posted on 04/21/2007 2:34:33 PM PDT by Clintonfatigued (If the GOP were to stop worshiping Free Trade as if it were a religion, they'd win every election)
[ Post Reply | Private Reply | To 1 | View Replies]

To: shrinkermd

Hint: Never rely on a pension where someone has a choice to whether to fund it or not. Especially if they get to vote on it.


3 posted on 04/21/2007 2:57:12 PM PDT by Popocatapetl
[ Post Reply | Private Reply | To 1 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson