Posted on 05/11/2016 7:17:03 PM PDT by buwaya
A vanity, I apologize if this is old news or if I am being pedantic.
We all know about the public pensions crisis, but the PRIVATE pension problem is under the radar. It probably shouldn't be, and it is also affected by government-corporate chicanery.
It seems that, because of the sluggish state of the economy and low interest rates, nearly all private pension funds, just like public ones, are in the red. There are various pension fund surveys; most show that private pension funds are on average only about 80% funded; in 2007 they were on average over 100% funded. This economy has kept nearly all private pension funds massively underfunded since 2007, with no improvement in sight.
One pension survey from an actuarial consulting outfit - well worth reading though its just part of the point.
http://us.milliman.com/PFS/
http://us.milliman.com/uploadedImages/Solutions/Products/pfs-assets/2148MEB_Figure_10_400.jpg
Not directly mentioned by Milliman -
Back in 2012, because of the ongoing problem in underfunded pensions, Congress passed an act that permitted companies to recompute their pension funding, and avoid paying into pension funds that were short - pretty much all of them.
I'm speaking of H.R. 4348 – Moving Ahead for Progress in the 21st Century (MAP-21) Act - signed into law 7/6/2012 - voted for by a Republican Congress (Republicans 224-14, Paul Ryan voted Yea), a Democratic Senate, and signed by Obama, more or less uncontroversially.
I started looking into this after reading a disclosure form letter from my pension fund (a defined benefit pension) which mentioned the recomputation.
What this does is it permits private pensions to use a 25-year average of interest rates as an assumption in forecasting future assets. Previous law required a two-year average of interest rates. A small thing? No, not really.
Using a 25-year average permits the use of 1990's-2000's interest rates to hike the forecast of future asset values. The effect is striking - these days a fund that is only 80% funded on the 2-year assumption is typically 100% funded on the 25-year assumption.
Thats a huge lot of money, about $300 billion at the moment, missing from private pension funds.
Who benefits from this? - Large employers. They can avoid funding pensions. If the funds are short come the day they are off the hook, they followed the rules, they complied. And they paid into the government Pension Benefit Guarantee Corp (an insurance scheme to guarantee pensions). Also good for profit reporting and stock prices. - The government - Pension funding is an expense, and not taxable. If it doesn't happen, more corporate income is taxable.
Who loses? - Pensioners, workers, taxpayers (who are likely to be on the hook due to government guarantees), all the rest of us, at some point, unless economic growth improves greatly, real soon.
This is a huge deal, to put it Trumpily, but totally under the radar. And its a completely bipartisan bit of chicanery.
Public pensions are underfunded too.
But the government just has to stick a gun in the peasants faces to fund them.
What is a private pension fund?
The old style company retirement plan.
Work for 30 (or so) years and you get x% of your pay.
The private version of public pensions.
Zero interest rates have destroyed pensions
Defined benefit employer run pension funds with or without employee contributions.
I’m guessing union run pension plans could be included also.
In the old days you could pretty much throw money any where and make money, 7 to 10 percent. Retired folks pretty much lived on the interest earnings from their savings on top of getting their pensions. Those days are gone, sigh. I used to get 7 or 8 percent annual interest on my CDs (certificates of deposit, generally 1 to 2 year terms). No longer happening. Young folks are waking to the reality that their generation is screwed when it's time for them to be seniors.
Some folks didn’t realize that your question was rhetorical. Good one.
The only practical way to get out of this is with massive inflation. My advice is to protect yourself from it if you can, because it is inevitable.
Just got a statement about my private pension, it is currently funded at 128%. The total pension fund is in the billions.
**************************************************************
It may be the best funded pension plan, among large employers in the U.S.
The company I work for is well over 100% funded. I think last report I saw was 118% and continues to grow. I guess I’m one of the lucky few
Check the assumptions in the statement on the interest rate period.
The best one quoted in the report I linked is funded @140% under the 2-year basis.
Check the assumptions.
25-year or 2-year?
Mine is supposedly >100% but under under the 2-year Calc (nice of them to disclose it) it’s in the 80+%, just a bit better than average.
My company froze our private pensions years ago. I will still draw one after I retire, but it will remain frozen at a specific amount that in 25 years will be peanuts after inflation.
Instead, now they make a one time annual disbursement to my 401K at a % of my salary commensurate with my pay grade, regardless of whether I contribute to the 401K or not.
Truth be told - I like the 401K option better because I have some measure of control over how it’s funded and what it’s invested in.
I’ve already thrown it away, I remember it gave a 2 or 3 year history and they were all more than 100%.
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