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EJ
08-30-09, 01:40 PM
http://www.itulip.com/images/elderlypoor300.jpgCorporate Pension Fund shortfalls weigh on recovery (Update 2)

Dr. William Strauss heads up FutureMetrics.com (http://www.futuremetrics.net/), a group of economists and business experts who provide economics, statistics, finance, and accounting analysis and forecasting to businesses and government. Dr. Strauss sent me the firm’s August 2009 Pension Status Report yesterday. I found it so startling that I thought I’d better pass on the highlights to you right away, along with a summary of the email discussion that he and I had on it.

Corporate pension funding shortfalls are a major operating cash flow problem for the corporations that experience shortfalls because by law corporations must finance pension funds to 100% over time. Pension fund shortfalls were problematic for most companies even before the financial crisis. Post crisis, the number of pension funds that are not 100% or better funded has increased from 67.6% in FY 2008 to 92.7% in FY 2009 ending in June. The median funded level is a mere 46%.

The pension funding shortfalls crisis initially appeared between 2002 to 2003 from a combination of falling stock prices and interest rates. The combination turned thousands of previously fully funded pension plans into underfunded plans.

Why? A pension plan’s liabilities are for payments that are made decades in the future. To evaluate the adequacy of a plan’s funding, discount obligations to a present value.
Background: Present value is calculated on the assumption that a dollar received today, as income or other payment, is worth more than a dollar that is received in the future. A dollar received today can be put to work immediately whereas a dollar received in the future cannot be put to work earning money until a future date. If the dollar earns four percent today and in the future, $1 today will return $1.04 in one year, so $0.96 today is $1 in the future. In a low interest rate environment, this fact is critical: the higher the rate of interest, the lower the present value today. Conversely, the lower the rate of interest, the higher the present value today.
Now consider the pension fund obligation versus the asset value side of the funding equation, the money that the pension fund earns versus the money the pension funds owes.

The value of a dollar owed decades from tomorrow is a smaller obligation than a dollar owed tomorrow. But expand the time frame out to decades and the level of obligation compounds with each passing year. When interest rates are low, as they are today, pension funding calculations do not discount a pension’s future obligations nearly as much as when interest rates are high. As a result, the net present value of the obligations increases in a low interest rate environment.

An adequate funding level requires that either asset values rise from increased contributions and rising stock prices, or liabilities decline via rising interest rates or greater participant attrition. An environment of low interest rates and low stock prices is a double whammy for pension funding because the net present value of liabilities increases as the net present value of assets falls.

As bad as the 2002 to 2003 period was for pension funds, the current crisis is nearly three times worse from a returns perspective, with no letup in sight.

http://www.itulip.com/images/PFannualizedreturn.gif
Falling stock prices and low interest rates hammers return on corporate pension fund assets.
Estimated annualized are -23% for the median pension fund versus -8% at the bottom of the previous crisis.





Pension Fund Exposure

What's the total under funded pension plan exposure for U.S. corporations? What percentage of pension funds are underfunded and how much money does the aggregate level of underfunding represent?

Corporate pension funds appear to have been in decent shape before the financial crisis. FutureMetrics’ analysis shows that even before the crisis the majority of pension funds were in trouble.

The first chart below shows the distribution of funded levels for the 2007 and 2008 cohorts for July 2008 to June 2009 fiscal year ends. The chart also shows the best-fit probability distribution.

http://www.itulip.com/images/fPFfundingdistribution2008.gif


FY 2008



http://www.itulip.com/images/fPFfundingdistribution2009.gif
FY 2009





Dr. Strauss says, "We recalculate the funds’ liabilities using our proprietary algorithm which uses a benchmark discount rate based on U.S. long treasuries and the median of firms’ salary inflation rates. You will note in the chart that compares the discount rate assumptions with long treasuries (page 9) that firms are discounting very aggressively. The reported median funded level is 69% (page 4). After our “adjustment” we calculate the median funded level at 46%!

From a total dollar liability standpoint, only 32.4% of the funds were 100% or better funded in 2007. That fell to 6.3% in 2008. That means that 92.7% of corporate pension funds are under-funded.

The shortfalls must, by law, be paid by corporations, so 92.7% of U.S. corporations with pension fund obligations will have to divert cash into pension funds and away from operations or investing in growth. That has implications for the financial health and long run viability for U.S. corporations, particularly those that are already in trouble financing debt and other obligations.

I asked Dr Strauss if he'd run the numbers for us to estimate the total shortfall in dollars so we can estimate the total liability to corporations' cash flows. His reply starts off: “These are big numbers.”

Aggregate total pension liability for all U.S. corporate pension funds, based on data from plans representing 92% of U.S. corporate pension assets, is $1.48 trillion while aggregate total assets is $1.15 trillion, leaving a shortfall of $325 billion.
There are two possible outcomes for unfunded pension liabilities.

One, markets recover to 2007 levels to bring pension fund asset levels back up to even FY 2008 levels when 32.4% of the funds were 100% or better funded versus 6.3% in 2009. That will allow more companies to meet their pension fund obligations. We believe that this scenario is unlikely as the debt financed FIRE Economy continues to deteriorate over the next ten years. Even if that does happen, that still leaves 67.6% of plans under funded. That’s the best case.

Two, markets will not recover and pension fund promises will not be kept. More firms will go bankrupt and allow the Pension Benefit Guaranty Corporation (PBGC) to compensate pensioners. But the level of payouts that the PBGC makes are typically much lower than the original pension promises. Recent airline bankruptcies are indicative. At the time the PBGC took over Delta Airline’s pension plan, for example, it had $1.7 billion in assets and more than $4.7 billion in liabilities. The PBGC's estimated that it is liable for only one third of the $3 billion shortfall. Back of the envelope, pilots who worked for Delta for decades will receive about half the money they expected to receive, that is, their own money.

Firms that do not go bankrupt have to finance shortfalls out of operating cash flow. Two obvious questions arise. One, how can firms rehire if they are diverting funds to finance pension fund obligations? And two, how much of a liability does this represent?

If 92.7% of U.S. corporations have pension funds that are less than 100% or better funded, and the total aggregate shortfall is $325 billion, and total quarterly after tax profits of all corporations in Q1 2009 (according to the U.S. Department of Commerce: Bureau of Economic Analysis) is $1.05 trillion ($4.2 trillion annualized), and Q1 2009 Corporate Net Cash Flow (BEA) is $1.5 trillion ($6 trillion annualized), then the total aggregate unfunded pension fund liability represents 8% of profits and 5% of cash flows annually.

Medical Pensions: 81% underfunded

Pension plan underfunding is a serious problem, but medical pensions funding is worse.

Strauss explains why: “Corporations can walk away from medical pension promises without any real legal impact. That is why they are so unfunded. But as you rightly point out, that will shift more of the burden to the government programs.”

http://www.itulip.com/forums/../images/PFfundinglevelspercentiles.gif
Even the 95th percentile medical pension funds are less than 60% funded






The aggregate total medical retiree benefit obligation based on 92% of U.S. corporate pension assets is $318 billion, but aggregate total assets is only $62 billion. The shortfall is $256 billion, or 81% of liabilities.
Only 35% of medical pension plans have any funding. The other 65% have no assets at all. Of those that are funded, 39.7% are than 25% funded, and only two firms are funded greater than 100%.

http://www.itulip.com/images/PFmedicalfunded.gif
Only 35% of medical pension plans have any funding. The other 65% have no assets at all.





In the coming years, corporate pension fund shortfalls will consume operating cash flows. This will reduce hiring and slow recovery. In the long run, as taxpayers, we will likely pick up that tab for underfunded medical pensions in the coming years. Then again, compared to the $9 trillion in deficits that the CBO recently estimated for the next ten years, this latest represents another two or three shovels full of public debt heaped on top of a mountain of it that started life as a private sector commitment.

Click on the link August 2009 Pension Status Report (http://www.futuremetrics.com/PensionPapers.htm) to read the full report.

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doom&gloom
08-30-09, 03:53 PM
what about STATE and Municipal pension funds? We taxpayers are REALLY on the hook for those.

ThePythonicCow
08-30-09, 03:58 PM
Click on the link August 2009 Pension Status Report (http://www.futuremetrics.com/PensionPapers.htm) to read the full report.Looking at that report, it seems that two of the best retirement funds for 2008 were Merrill Lynch and Morgan Stanley.

What the heck? I thought those two guys blew up last year.

P.S. I wasn't looking at that report, but at another report on that site: The Annual Best and Worst Pension Plans for 2008. Sorry for the confusion.

skidder
08-30-09, 03:58 PM
Yeah, this ought to be fun to watch!
Exacerbating this whole debacle is the fact that most funds have an assumption for future growth of the pension fund of around 8-10%. Sure, no problem. Sign those managers up for gamblers anonymous.

Then let's add in how the Fed's have helped out corporations with their tax laws.
Overfund the pension and get hit with a penalty. So, during the heyday of the stock market going wild, what do you think the companies were doing with regard to funding? That's right, they were intentionally holding back funding that could have gone to pensions because they would be hit with a penalty if the pension over-performed. Why would the U.S. gov't do this? TAXES! Pension payments are pre-tax.
The gov't intentionally puts corporations in a box vis-a-vie tax policy. Typical crap from the tit-heads that put out policy.

"
Research Project # 16: Tax Policy and Occupational Pension Plans



Research Project # 16: Tax Policy and
Occupational Pension Plans
Research Paper: Impact of Tax Policy on Coverage
and Funding of Corporate‑Sponsored Pension Plans
Researcher: Jinyan Li
October 2007
Executive Summary
Corporate-sponsored defined benefit (<ACRONYM title="Defined Benefit">DB</ACRONYM>) plans and defined contribution (<ACRONYM title="Defined Contribution">DC</ACRONYM>) plans are referred to as “registered pension plans” (<ACRONYM title="Registered Pension Plan">RPP</ACRONYM>s) under the Income Tax Act. The decline in <ACRONYM title="Defined Benefit">DB</ACRONYM> coverage and the under-funding of <ACRONYM title="Defined Benefit">DB</ACRONYM> plans have been well reported elsewhere. This Report examines the extent to which tax policy has contributed to these problems in the case of corporate-sponsored <ACRONYM title="Defined Benefit">DB</ACRONYM> plans. It relies primarily on existing empirical data and secondary literature.
Part 2 of this Report discusses whether the decline of the coverage of corporate <ACRONYM title="Defined Benefit">DB</ACRONYM> plans is related to, or caused by, major changes in tax policy, such as the universal contribution limit for all tax-assisted retirement saving plans, the contribution limits, and reductions in tax rates for individuals and corporations.
The Report concludes that the 1991 tax reform has clearly reduced the relative advantage for <ACRONYM title="Defined Benefit">DB</ACRONYM> plans by integrating the tax treatment of <ACRONYM title="Defined Benefit">DB</ACRONYM> plans, <ACRONYM title="Defined Contribution">DC</ACRONYM> plans and <ACRONYM title="Registered Retirement Savings Plan">RRSP</ACRONYM>s and by increasing the tax-sheltered contributions to <ACRONYM title="Defined Contribution">DC</ACRONYM> plans and <ACRONYM title="Registered Retirement Savings Plan">RRSP</ACRONYM>s. Empirical data show an increase in <ACRONYM title="Defined Contribution">DC</ACRONYM> plans and <ACRONYM title="Registered Retirement Savings Plan">RRSP</ACRONYM> coverage during the era of decline in <ACRONYM title="Defined Benefit">DB</ACRONYM> coverage. It is clear that tax policy has encouraged the expansion of <ACRONYM title="Registered Retirement Savings Plan">RRSP</ACRONYM>s and <ACRONYM title="Defined Contribution">DC</ACRONYM> plans. However, it is not clear whether, or if so, to what extent, such expansion has occurred at the expense of <ACRONYM title="Defined Benefit">DB</ACRONYM> plans. It is true that small <ACRONYM title="Defined Benefit">DB</ACRONYM> plans have tended to disappear, and some may have been replaced by a <ACRONYM title="Defined Contribution">DC</ACRONYM> plan or group <ACRONYM title="Registered Retirement Savings Plan">RRSP</ACRONYM>, but the question remains whether these <ACRONYM title="Defined Benefit">DB</ACRONYM> plans would have disappeared regardless of the option of <ACRONYM title="Defined Contribution">DC</ACRONYM> plans or group <ACRONYM title="Registered Retirement Savings Plan">RRSP</ACRONYM>s. <ACRONYM title="Registered Retirement Savings Plan">RRSP</ACRONYM> contributions made by individuals who are not covered by <ACRONYM title="Defined Benefit">DB</ACRONYM> plans (e.g., new workers, part-time workers, the self-employed, and workers in smaller firms) are not resulted from shifting from <ACRONYM title="Defined Benefit">DB</ACRONYM> plans. Therefore, the growth of <ACRONYM title="Registered Retirement Savings Plan">RRSP</ACRONYM>s and <ACRONYM title="Defined Contribution">DC</ACRONYM> plans may represent additional retirement savings, especially in cases where individuals with higher earnings tend to contribute to both <ACRONYM title="Registered Pension Plan">RPP</ACRONYM>s and <ACRONYM title="Registered Retirement Savings Plan">RRSP</ACRONYM>s.
Lowering marginal tax rates for individuals and corporations can be a double-edged sword. Lower tax rates result in more after-tax income, and thus more funds available for making contributions. On the other hand, the value of the tax assistance is determined by the marginal tax rate. Lower rates mean less value for the tax assistance, and thus, less tax incentive. There is no conclusive empirical evidence, however, on the extent of the decline in <ACRONYM title="Defined Benefit">DB</ACRONYM> coverage being related to the lowering of tax rates.
Part 3 discusses the role of tax policy in respect of the funding of <ACRONYM title="Defined Benefit">DB</ACRONYM> plans. More specifically, it examines the role of the 10 per cent surplus rule, the lack of flexibility in funding <ACRONYM title="Defined Benefit">DB</ACRONYM> plans, and the foreign property rule.
The effect of the 10 per cent rule is to deny corporate sponsors their tax deductions for the contributions to “over-funded” plans, resulting in a “tax cost” to the employer (the amount is dependent on the applicable corporate income tax rate). The purpose of this rule is to allow moderate amount of surplus to be retained in a plan while limiting the government revenue cost associated with deferrals of tax on amounts over and above those required to fund the promised pension benefits. Empirical evidence shows that:

It is not clear that the 10 per cent rule is the sole, or major, cause of contribution holidays taken by corporate sponsors in the late 1 990s;
there is no observable relationship between the number of contribution holidays taken by plan sponsors and plan funding ratios;
the percentage of under-funded plans that did not take contribution holidays was sometimes greater than those that did take contribution holidays between 1994 and 2003;
****but 45 per cent of under-funded plans would have completely eliminated their current actuarial deficit if contribution holidays had not been taken.****

MY ASTERISKS ABOVE!

Overall, the 10 per cent rule is counter-intuitive: it does not encourage companies to “save for rainy days”; it is, thus, not an effective “smoothing” mechanism.
The Income Tax Act currently recognizes <ACRONYM title="Defined Benefit">DB</ACRONYM> plans and <ACRONYM title="Defined Contribution">DC</ACRONYM> plans and provides limits on various aspects of a <ACRONYM title="Defined Benefit">DB</ACRONYM> plan that can be registered for tax purposes. It does not encourage any innovation in designing corporate pension plans, such as “cash balance plans” recognized by the US Pension Protection Act of 2006. A cash balance plan may violate the benefit accrual requirements for <ACRONYM title="Defined Benefit">DB</ACRONYM> plans.
Part 4 of the Report suggests a re-evaluation of the pension tax policy in light of changing environment for corporate pension plans. Although no exact data can pinpoint the impact of the 10 per cent surplus rule on the funding status of <ACRONYM title="Defined Benefit">DB</ACRONYM> plans, this rule is too rigid and fails to function as a buffer for companies whose financial position changes dramatically from year to year. The surplus limit may be raised. In light of the increasing popularity of <ACRONYM title="Defined Contribution">DC</ACRONYM> plans and remaining relative advantages of <ACRONYM title="Defined Benefit">DB</ACRONYM> plans in managing pension risks, it is also worth considering to reform the tax rules so that they can accommodate “cash-balance” plans that have features of both <ACRONYM title="Defined Benefit">DB</ACRONYM> plans and <ACRONYM title="Defined Contribution">DC</ACRONYM> plans."

My parting comment would be all companies are going to have "dramatically changing financial positions" in an economic crisis which encapsultes all the years since 2000. The freaking morons in charge of tax policy could care less about ensuring companies have a workable solution to pension funding, it's all about feeding the beast.
http://www.pensionreview.on.ca/images/toparrow.gif (http://www.pensionreview.on.ca/english/summaries/16Li2.html#top_of_page)

ThePythonicCow
08-30-09, 04:00 PM
what about STATE and Municipal pension funds? We taxpayers are REALLY on the hook for those.
Not to mention federal ! Those guys are the only fund legally running at what amounts to zero funding ... for Social Security and Medicare.

dummass
08-30-09, 04:34 PM
Excellent anaysis, but the underfunded pension problem will have a solution, if recent events portend anything. The plan, as shown, is to simply steal the assets of the troubled corporations and default on the bond holders and the pensioners, alike. There is no problem--we have no rule of law.

Http://hiddenmysteries.net/geeklog/article.php?story=20090724094306459&mode=print

doom&gloom
08-30-09, 04:47 PM
Not to mention federal ! Those guys are the only fund legally running at what amounts to zero funding ... for Social Security and Medicare.

The Feds will just (try to) print their way out ofit, or absorb it into that
fiasco they call HC "reform" to make it more of a "pay as you go program".

But the states cannot print so they will tax tax tax till the cows come home.

Chris Coles
08-30-09, 04:47 PM
This is just another example, a good one at that, of how the FIRE economy simply does not work.

rabot10
08-30-09, 05:23 PM
How many years? Seems to me just one maybe two. What do you think?

ThePythonicCow
08-30-09, 05:34 PM
How many years? Seems to me just one maybe two. What do you think?
How many years for what? It's difficult to see what your eyes were looking at when you posted that query over the internet :D.

ThePythonicCow
08-30-09, 05:43 PM
But the states cannot print so they will tax tax tax till the cows come home.Some of the states can't do that. There is an upper bound to what rate you can tax your citizens and actually increase tax revenue. Past that point, tax revenue declines due to a cratering "legal" economy and due to what economy there is moving out of state or onto the black market or underground.

States such as California have huge pension fund liabilities and hopelessly declining tax revenues.
http://www.deltadickshow.com/Screwed_-_2.jpg

At least the federal government can tax cow farts if they get desparate (dang, that's not a joke (http://bungalowbillscw.blogspot.com/2008/12/big-mac-carbon-tax-aka-cow-fart-tax.html).)

bpr
08-30-09, 06:09 PM
Excellent anaysis, but the underfunded pension problem will have a solution, if recent events portend anything. The plan, as shown, is to simply steal the assets of the troubled corporations and default on the bond holders and the pensioners, alike. There is no problem--we have no rule of law.

Http://hiddenmysteries.net/geeklog/article.php?story=20090724094306459&mode=print

There is another solution, hyperinflation. Even if the return on assets is lower than inflation, the liabilities can be funded with depreciated dollars.

jpatter666
08-30-09, 06:24 PM
There is another solution, hyperinflation. Even if the return on assets is lower than inflation, the liabilities can be funded with depreciated dollars.

Yep. That's what happened in Russia as I understand.

"Here's your monthly pension. Have a nice cup of coffee."

What I expect to cause massive howls of rage will be when the government cancels adjusting federal pension benefits for inflation.

Disclaimer: my Dad's going to be one of those. I'm trying to prepare them.

Jim Nickerson
08-30-09, 06:36 PM
There is another solution, hyperinflation. Even if the return on assets is lower than inflation, the liabilities can be funded with depreciated dollars.

There is another solution. Pandemics.

Charles Mackay
08-30-09, 06:53 PM
There is another solution. Pandemics.

Did EJ's state of Mass. pass that law $1000/day fine if they don't vaccinate? or was that a hoax?

bpr
08-30-09, 07:01 PM
There is another solution. Pandemics.

Eek. I'll take hyperinflation for 100 trillion.

doom&gloom
08-30-09, 07:06 PM
reminds me of this...

http://www.financialsense.com/Experts/2004/Kotlikoff.html

Lawrence Kotlikoff on FSN discussing Social Security and Medicare shortfalls some years ago. Back then the numbers were only many trillions smaller, no great deal I guess. Still well worth a listen...

ThePythonicCow
08-30-09, 07:06 PM
Did EJ's state of Mass. pass that law $1000/day fine if they don't vaccinate? or was that a hoax?
You are referring to Massachusetts Bill 2028 (http://www.mass.gov/legis/bills/senate/186/st02/st02028.htm). The Massachusetts Senate passed it unanimously a few days ago and the House will likely consider it this coming week.

doom&gloom
08-30-09, 07:07 PM
You are referring to Massachusetts Bill 2028 (http://www.mass.gov/legis/bills/senate/186/st02/st02028.htm). The Massachusetts Senate passed it unanimously a few days ago and the House will likely consider it this coming week.

land of the free, huh? :rolleyes:

jk
08-30-09, 08:00 PM
hey, between the pensions and the medical coverage we're only talking about $0.5 trillion.

seriously, when i saw the $325billion shortfall for the pensions, my thought was "only $325billion?" i've become inured to these numbers.

goadam1
08-30-09, 08:28 PM
Isn't Japan's long bear market really just a generational bubble ahead of the US? I think it is mostly demographics driving Japan's slow growth. The die-off of the Boomers will bankrupt America. Just wait until the flower children vote themselves free hips and new stem cell grown organs.

Besides, just double down in the ponzi market.

Calpers is:

Big as California’s budget woes are today, so are the problems lurking in its biggest pension fund.


Under Joseph A. Dear’s leadership, the Washington State public pension fund gained a reputation as a daring investor.

The fund, known as Calpers, lost nearly $60 billion in the financial markets last year. Though it has more than enough money to make its payments to retirees for many years, it has a serious long-term shortfall. Meanwhile, local governments in the state are pleading poverty and saying they cannot make the contributions that would be needed to shore it up.

Those problems now rest largely on the slim shoulders of Joseph A. Dear, the fund’s new head of investments. He is not an investment seer by training, but he thinks he has the cure for what ails Calpers, or the California Public Employees’ Retirement System, the largest in the nation with $180 billion in assets.

Mr. Dear wants to embrace some potentially high-risk investments in hopes of higher returns. He aims to pour billions more into beaten-down private equity and hedge funds. Junk bonds and California real estate also ride high on his list. And then there are timber, commodities and infrastructure.

That’s right, he wants to load up on many of the very assets that have been responsible for the fund’s recent plunge. Calpers’s real estate portfolio has tumbled 35 percent, and its private equity holdings are down 31 percent. What is more, under Mr. Dear’s predecessor, Calpers had to sell stocks in a falling market last year to fulfill calls for cash from its private equity and real estate partnerships. That led to bigger losses in its stock portfolio.

Mr. Dear remains a believer. Private investments, he asserts, will over the long haul outperform stocks by three percentage points a year, and that is necessary to keep Calpers on track to returning its goal of 7.75 percent annual returns.

“Three percent on a portfolio as large as ours makes a material difference,” he said.

If he can inch Calpers’s investment performance up, many problems will disappear. If not, Calpers may end up in an even bigger financial squeeze than it is today.

metalman
08-30-09, 08:34 PM
hey, between the pensions and the medical coverage we're only talking about $0.5 trillion.

seriously, when i saw the $325billion shortfall for the pensions, my thought was "only $325billion?" i've become inured to these numbers.

here's what i thought...

when benny boy bailed out the banks after they f&cked up and failed, the boyz still got their $3M ave. bonus... sanctity of contracts and all that.

but when airline pilots put their own $$$ into a co. pension plan for 30 yrs and the airline f&cks up and fails, the pilots get thrown under the bus... get 1/2 of their own f&ckig earned salary back! :eek::eek:

what happened to sanctity of contracts for them?

guess the owners figure the pilots are too old to shoot straight.

<object height="344" width="425">


<embed src="http://www.youtube.com/v/hYIC0eZYEtI&hl=en&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" height="344" width="425"></object>

jk
08-30-09, 08:47 PM
here's what i thought...

when benny boy bailed out the banks after they f&cked up and failed, the boyz still got their $3M ave. bonus... sanctity of contracts and all that.

but when airline pilots put their own $$$ into a co. pension fund for 30 yrs and the airline f&cks up and fail, the pilots get thrown under the bus. they get 1/2 of their own f&ckig earned salary money back! :eek::eek:

what happened to sanctity of contracts for them?

guess they figure the pilots are too old to shoot straight.

<object height="344" width="425">


<embed src="http://www.youtube.com/v/hYIC0eZYEtI&hl=en&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" height="344" width="425"></object>
that carlin clip is right on. only a comedian is allowed to say those things to large groups. and only a comedian gets listened to at all, saying things like that. and, unfortunately, a lot of good it does. [i'm getting depressed reading itulip tonight.] nobody is laughing, but otoh no one is yelling about "class warfare" either.

mmr
08-30-09, 09:23 PM
It looks like about 70% of Morgan Stanley's pension fund was allocated to fixed income during 2008 (i.e., they went long Treasuries as soon as they saw what was coming.) I also wouldn't be surprised if they were shorting other financial stocks.

My favorite part of the report was the chart showing the assumed long-term rate of return for the top 100 pension funds - the median in 2008 was 8.25% annually. Dow 36000, here we come!

bcassill
08-30-09, 11:32 PM
Can anyone say, Ka-Boom? The illusion of financial solvency for these programs finally comes to an end. In the face of a rapidly aging population, these programs were dead before the ink even dried on the pension agreements. It is likely that Social Security and Medicare are in the same fix. At least I feel better knowing that we are in better shape than other advanced economies (including India and China) when it comes to the economic impact of an aging population.

santafe2
08-30-09, 11:39 PM
here's what i thought...

Thanks for posting that infamous Carlin stand-up. It's the way this country works. He's not so much blaming as explaining. In the US you're either winning or you're losing. There is no in-between, this is not Sweden. Outside of your family and close friends, everyone here wants to eat your lunch. It is the thing that makes us great and awful at the same time.

I appreciate EJ's article but it's not surprising, we're the best pick-pockets in the world. It's going to get a lot worse for anyone in the US who has assumed we are a decent country with rules we'll honor. As a culture, we've always taken what we want and this won't be any different. I'm not blaming, just explaining.

Jim Nickerson
08-30-09, 11:43 PM
There is another solution, hyperinflation. Even if the return on assets is lower than inflation, the liabilities can be funded with depreciated dollars.

There us another solution, cell phone induced brain tumors.

http://newsjunkiepost.com/2009/08/28/senate-hearing-on-brain-cancer-risks-from-cell-phone-use-nears-as-new-study-is-released/

I love to take a photograph
So mama don't take my mobilephone away

Mama don't take my mobilephone away
Mama don't take my mobilephone away
Mama don't take my mobilephone away

Mama don't take my mobilephone
Mama don't take my mobilephone
Mama don't take my mobilephone away

Mama don't take my mobilphone
Leave your boy so far from home
Mama don't take my mobilephone away
Mama don't take my mobilphone
Mama don't take my mobilephone away

jtabeb
08-31-09, 12:57 AM
Yep. That's what happened in Russia as I understand.

"Here's your monthly pension. Have a nice cup of coffee."

What I expect to cause massive howls of rage will be when the government cancels adjusting federal pension benefits for inflation.

Disclaimer: my Dad's going to be one of those. I'm trying to prepare them.

Well they JUST Did EXACTLY that for social security.

jtabeb
08-31-09, 01:13 AM
How many years for what? It's difficult to see what your eyes were looking at when you posted that query over the internet :D.

6-12 months. The kicker I think is the lack of any ATTEMPT at this point to try to keep the curtain covering things up.

When the put-up jobs are so blatent that joe-6 pack can see through it, you know the jig is about to be up, soon.

I said back in Jan that we had 6 months, and 6 months later we get the "Potempkin Recovery", I would therefor say that we are already dead in the water, they are just trying to find the right way to break it to the mass public. That's all this recovery has been, bid time to find a better way to cushion the blow. Only problem is, that the can't find any cushions because it just gets worse and worse by the day. So Now THEY are REALLY scared. Because of their delay tactics, things are revealing themselves MUCH more quickly and the situation is beyond irrepariable, so they do what any good politician does. LIE, JUST LIE and don't admit anything. They will keep doing this until we are eating sawdust and blood omelets (like my wife's grandmother did while she was in hiding in Nazi Germany before getting caught and placed in a concentration camp).

The lies will only get bigger and bigger and even more disconnected from realty.

1984? Shit, how about 2010.

cbr
08-31-09, 01:19 AM
i can speak with some authority on this, though i did not work directly on the pension funds issue, i juggled other interrelated senior management issues for a fortune 500 and can tell you a few things:

1) the entire basis for my going there was to carry out a non-union international subsidiary growth plan to a level that dwarfed the historical union multi employer pension obligations and domestic cost structure problems.

2) these obligations were the elephant in every room, with stock prices in 04-07 wildly unreflective of the $4b underfunded pension liability staring the company's future in the face.

3) the strategy was begun far too late, and though it was a good concept, I have moved on and the company will make it, if at all, by a belated but diligent effort by senior management combined with a macro rebound (not likely) as well as the miracle of market share inertia.

4) the stock price has crashed, the PBGC refused to face its own reality as of the time i was there, competitors who bought out of the multi employer fund at huge cost during the bubble peak were ironically forced to support our efforts, but ultimately the stock price is now 5% of what it was, and the pensioners will likely receive $1200 per month from the PBGC instead of the $5500 per month they planned their lives on. If the PBGC finds a source for its ever growing obligations.

tastymannatees
08-31-09, 01:43 AM
Can anyone say, Ka-Boom? The illusion of financial solvency for these programs finally comes to an end. In the face of a rapidly aging population, these programs were dead before the ink even dried on the pension agreements. It is likely that Social Security and Medicare are in the same fix. At least I feel better knowing that we are in better shape than other advanced economies (including India and China) when it comes to the economic impact of an aging population.

So it looks like virtually every state, local, federal, corporate retirement program is basically kaput.

The dollar devalues and it get's worse, stocks fall some and it gets even worse, unemployment rises some more and it gets worse. Add in some big tax increases and it's going to be what you can pull out of a garbage can for a while.

Wetback in reverse. I'll need some flotation device to get me and my gold across the Rio Grande. Chile looks better and better all the time.

Chris
08-31-09, 03:09 AM
From a total dollar liability standpoint, only 32.4% of the funds were 100% or better funded in 2007. That fell to 6.3% in 2008. That means that 92.7% of corporate pension funds are under-funded.

Apologies for my pedantry but shouldn't that be 100 - 6.3 = 93.7% of corporate pension funds are under-funded?

jpatter666
08-31-09, 06:45 AM
Well they JUST Did EXACTLY that for social security.

They got the elephant's nose under the tent. No raise for a year (or two) isn't the same as canceling.

And for me, the relevant one would be the military pensions (which would directly relate to you, yes?)

jiimbergin
08-31-09, 08:34 AM
hey, between the pensions and the medical coverage we're only talking about $0.5 trillion.

seriously, when i saw the $325billion shortfall for the pensions, my thought was "only $325billion?" i've become inured to these numbers.

It would have been much worse if over the last 20 years companies did not terminate their defined benefit plans in favor of defined contribution plans.:D

jim

thriftyandboringinohio
08-31-09, 09:34 AM
this latest represents another two or three shovels full of public debt heaped on top of a mountain of it that started life as a private sector commitment.





I'd love to see a top-level analysis of this mountain - how much private debt is being transfered to the public, the biggest categories within it, and a time line for the trends of this shifting.

In my mind, it amounts to a looting of the US treasury - privatizing profits and socializing losses.

dbarberic
08-31-09, 09:38 AM
I've been asking myself, why now, and why the push for massive health care legislation. Its almost like this administration is trying to slam it though. Nothing gets done in Washington without the push for lobbyists, so who benefits? After all, if there were still a ton of money to be made in private health care insurance, then the FIRE industry would never let it be privatized.

I think this report answers that.

Under funded medical pensions? Push the liability onto the government through a national healthcare plan.

seanm123
08-31-09, 09:50 AM
The solution to the pension shortfall is the Life Clock.

http://www.boingboing.net/logan.jpg

When your Life Clock turn black you report for last day
where you become reborn in the Carousel


http://blogs.amctv.com/scifi-scanner/logans-run.jpg

The irony here is that the movie Logan's Run was filmed in a shopping mall, the Dallas Market Center.

thriftyandboringinohio
08-31-09, 09:57 AM
here's what i thought...

when benny boy bailed out the banks after they f&cked up and failed, the boyz still got their $3M ave. bonus... sanctity of contracts and all that.

but when airline pilots put their own $$$ into a co. pension plan for 30 yrs and the airline f&cks up and fails, the pilots get thrown under the bus... get 1/2 of their own f&ckig earned salary back! :eek::eek:

what happened to sanctity of contracts for them?


It's always amazed me that retirement plans are not treated seriously as contracts. One can work a lifetime, get pension plans in writing in detail, have money change hands, and then POOF! Corporation can change the plan from generous to stingy (or gone altogether), and just walk away laughing, and one is just out of luck.

ThePythonicCow
08-31-09, 10:28 AM
6-12 months. The kicker I think is the lack of any ATTEMPT at this point to try to keep the curtain covering things up.

When the put-up jobs are so blatent that joe-6 pack can see through it, you know the jig is about to be up, soon.

But do we joe-6-packs see and revolt, or does the prospect of that scare the powers that be into cracking down harder or running another even more flagrant false flag operation to motivate more war?

metalman
08-31-09, 10:42 AM
i can speak with some authority on this, though i did not work directly on the pension funds issue, i juggled other interrelated senior management issues for a fortune 500 and can tell you a few things:

1) the entire basis for my going there was to carry out a non-union international subsidiary growth plan to a level that dwarfed the historical union multi employer pension obligations and domestic cost structure problems.

2) these obligations were the elephant in every room, with stock prices in 04-07 wildly unreflective of the $4b underfunded pension liability staring the company's future in the face.

3) the strategy was begun far too late, and though it was a good concept, I have moved on and the company will make it, if at all, by a belated but diligent effort by senior management combined with a macro rebound (not likely) as well as the miracle of market share inertia.

4) the stock price has crashed, the PBGC refused to face its own reality as of the time i was there, competitors who bought out of the multi employer fund at huge cost during the bubble peak were ironically forced to support our efforts, but ultimately the stock price is now 5% of what it was, and the pensioners will likely receive $1200 per month from the PBGC instead of the $5500 per month they planned their lives on. If the PBGC finds a source for its ever growing obligations.

the only thing better than the articles on itulip are the comments from experts with first hand experience... who either corroborate or contradict the argument.

this gives me an idea. :cool:

how many public companies are out there with under funded pension obligations not priced into the stock yet? they'd make great short ops, no? as for timing, what causes shareholders to realize there's a problem?

when did shareholders of the company you worked for realize the problem and push the share price down 95%? thx!

jk
08-31-09, 11:47 AM
1. pension accounting has always been bogus. during the last boom the way it worked was that companies used assumptions of 8-10% annual returns. [isn't that what you always make in the stock market?] and when the stock market went up, the pension fund holdings did too. they then took money OUT of "overfunded" pensions and added it to profits. and of course that meant a. higher stock prices to goose executives' options, b. bonuses for such high "profits."

2. corporate funded health insurance has long been a competitive disadvantage for american companies. iirc, gm used to have about $1500 of health insurance in the price of every car. national health insurance is a competitiveness issue!

3. defined benefit pension plans are disappearing fast. companies which have them are terminating them in large number, so that pensions going forward are all defined contribution. because the companies don't want the liability, and besides, people are such good investors.:rolleyes: too bad social security wasn't privatized like W wanted, then the banks and brokers could have been making more money and wouldn't have needed bailouts. and, again, people are such good investors!

jtabeb
08-31-09, 12:32 PM
But do we joe-6-packs see and revolt, or does the prospect of that scare the powers that be into cracking down harder or running another even more flagrant false flag operation to motivate more war?

He who places his faith in the the proles is misguided. Saw that in a movie once, called 1984 I think.

Although I HOPE AND PRAY THAT a more civilized and thoughtful response is generated (Like persistent debt deflation as we go through a real reform process). I know that ain't gonna happen. But I believe in god, so I get to pray and that's what I do when everything else is so black that I can't see my hand in front of my face.

To Quote MC Hammer:

"That's why we prey, PREY, prey, PREY, we got to prey just to make it today"

And ain't that the truth.

hayekvindicated
08-31-09, 02:01 PM
It's always amazed me that retirement plans are not treated seriously as contracts. One can work a lifetime, get pension plans in writing in detail, have money change hands, and then POOF! Corporation can change the plan from generous to stingy (or gone altogether), and just walk away laughing, and one is just out of luck.

Back in the day when I was a complete greenhorn at investing (as opposed to now when Im only a partial greenhorn) and started working in the City of London, I was advised by my "independent" financial advisor (all of us make mistakes, thankfully I got rid of that parasite in 2006), to invest in my employer's pension scheme (because of the "beneficial tax treatment"). Although I understood nothing of the market back then, my first reaction was "horeshit. If I can't touch my money until Im 55, it ain't worth nothin'." I bailed out and never invested a dime in the thing.

I have always been amazed at the level of trust people have in pension plans. There is no doubt that all working people need to prepare for retirement. However, I never trusted the finance industry for anything and found their formulas quite amusing - my independent financial advisor came up with all kinds of charts showing how much money I'd need. I thought to myself, "its about time I got rid of this monkey. Let him con others who believe him. Im out".

cobben
08-31-09, 03:19 PM
"The solution to the pension shortfall is" :

Ättestupa

2077

snakela
08-31-09, 05:01 PM
He who places his faith in the the proles is misguided. Saw that in a movie once, called 1984 I think.

Although I HOPE AND PRAY THAT a more civilized and thoughtful response is generated (Like persistent debt deflation as we go through a real reform process). I know that ain't gonna happen. But I believe in god, so I get to pray and that's what I do when everything else is so black that I can't see my hand in front of my face.

To Quote MC Hammer:

"That's why we prey, PREY, prey, PREY, we got to prey just to make it today"

And ain't that the truth.


Didnt hammer blow all his money and go bankrupt?

There's got to be a more apt song somewhere. Probably with lyrics that include "Oh boy we are so f*cked"

flintlock
09-01-09, 09:45 AM
here's what i thought...

when benny boy bailed out the banks after they f&cked up and failed, the boyz still got their $3M ave. bonus... sanctity of contracts and all that.

but when airline pilots put their own $$$ into a co. pension plan for 30 yrs and the airline f&cks up and fails, the pilots get thrown under the bus... get 1/2 of their own f&ckig earned salary back! :eek::eek:

what happened to sanctity of contracts for them?

guess the owners figure the pilots are too old to shoot straight.

<object width="425" height="344">


<embed src="http://www.youtube.com/v/hYIC0eZYEtI&hl=en&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></object>

Thanks for posting that Carlin video.

Sad thing is, if I were to walk out my front door and say this to a neighbor, 90% would look at me as if I were crazy and brand me a nut job radical. :D The sheep have been programmed. "They can't handle the truth".

vinoveri
09-01-09, 11:02 AM
.
Sad thing is, if I were to walk out my front door and say this to a neighbor, 90% would look at me as if I were crazy and brand me a nut job radical. :D The sheep have been programmed. "They can't handle the truth".

Or perhaps worse, they can handle the truth, and are OK with it, and it is us who cannot handle THAT truth!

FRED
09-01-09, 09:09 PM
here's what i thought...

when benny boy bailed out the banks after they f&cked up and failed, the boyz still got their $3M ave. bonus... sanctity of contracts and all that.

but when airline pilots put their own $$$ into a co. pension plan for 30 yrs and the airline f&cks up and fails, the pilots get thrown under the bus... get 1/2 of their own f&ckig earned salary back! :eek::eek:

what happened to sanctity of contracts for them?

guess the owners figure the pilots are too old to shoot straight.

<object height="344" width="425">


<embed src="http://www.youtube.com/v/hYIC0eZYEtI&hl=en&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" height="344" width="425"></object>

Don't mind me. Just trying out my new stamps! :D


http://www.itulip.com/images/oligarchrejected1.gif

Chris Coles
09-02-09, 03:45 AM
Fred,

Well, in a sense, yes; but in fact No!

My objection is not anything to do with the humour, which I very much appreciate; but with the underlying philosophy. The fact is this thread has brought us all to the very nub of the whole FIRE economy's reason for existence. The video shows us something that great comedians have always been famous for... bringing the truth to the surface so that we can all understand it.

Alright, try looking at this in another way. Someone tell me of a previous case of such a vitriolic diatribe against the workings of a supposedly free nation? Moreover, one where we all instantly understood the true meaning? I cannot think of such. That single video tells us that the United States is not a free nation, is not seen as being such by the ordinary citizen either. To my mind, that is the most profound aspect of the video.

Considering that the one pillar the US has stood upon for the better part of the last Century is that it is supposed to be a free nation; then that single video has quite profound implications for the future status of the US in its international dealings with the rest of the planet. For if indeed, it is NOT a free nation, then everything the nation has done and the way it has gone about doing becomes the focus for a reality check.

As a nation, the US has strutted around the planet claiming to be the arbiter of the idea of freedom stemming from ??????

Interesting thought, is it not?

With the very greatest of respects Fred, a rubber stamp does not do it. You need to start shouting, out loud.

Chris
09-02-09, 06:00 AM
I know iTulip do not give investment advice but hypothetically if one was nearing retirement age - say in 5-10 years - would it be prudent to extract ones (remaining) wealth from pension funds now instead of waiting to find out that there isn't any money in it when the time comes to extract it?

xear
09-02-09, 09:22 AM
A man wakes up after being in a coma for 20 years. He calls his bank and discovers his personal savings account is now worth one million dollars. He can't believe his good fortune and the wonders of compound interest. Just then the operator interrupts his phone conversation: "please deposit one 20million dollar coin for the next 3 minutes."

dummass
09-02-09, 10:04 AM
<embed src="http://www.youtube.com/v/hYIC0eZYEtI&hl=en&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" height="344" width="425"></object>

You Tube Sensorship!
http://www.youtube.com/watch?v=9dY4WlxO6i0&NR=1/COLOR]

Chris Coles
09-02-09, 11:00 AM
Last night, here in the UK More Four put this up. It does the job much better, but is 1 hr, 33 minutes.

The Shock Doctrine.

http://video.google.com/videoplay?docid=-4231109320246838401

Sorry about that, I meant this one from More 4.

http://www.channel4.com/programmes/the-shock-doctrine/4od#2934729

If you have difficulties, go back to the front page for watch it again here: http://www.channel4.com/more4/truestories/

Or this: http://www.channel4.com/programmes/the-shock-doctrine

ThePythonicCow
09-02-09, 12:45 PM
Last night, here in the UK More Four put this up. It does the job much better, but is 1 hr, 33 minutes.You're a tease, Chris. Channel 4 only allows viewing in Great Britain.

There is hope however. Is the following youtube video set the same thing, Chris: http://www.youtube.com/user/TheShockDoctrine1 ?

ThePythonicCow
09-02-09, 01:32 PM
Naomi Klein, quoting Milton Friedman, on TheShockDoctrine1 video I linked above:

Only a crisis, actual or perceived, produces real change.In September of 2001, America "needed" a real change, an increase, in its military presence in the oil and gas rich regions of southern Asia and the Middle East. A crisis occurred.

It would seem America now needs real change in its spiraling debt. Americans must become poorer. I wonder what the crisis will be.

Chris Coles
09-02-09, 01:34 PM
Thanks for that WrigglyCow, exactly right.

But is it ever going to be shown in the USA?

I would suspect that some people will go to almost any lengths to get it cut off. It really is shocking. VERY thought provoking.

ThePythonicCow
09-02-09, 01:54 PM
Thanks for that WrigglyCow, exactly right.
Good. You're welcome.

But is it ever going to be shown in the USA?
The movie, no.

The reality, likely, soon.

santafe2
09-03-09, 03:08 AM
You Tube Sensorship!

Not really. Warner Music Group is on a rampage. Over a million videos have been removed from Youtube including kids singing songs that WMG owns. If you want to get up in arms, don't shoot the messenger. I avoid buying music or other content they own.

Here's a fun little video that will introduce another point of view:
http://www.youtube.com/watch?v=k6r0pm4CJM4


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Chris Coles
09-03-09, 03:59 AM
Thank you Santafe2; absolutely fabulous.

I'm not going to stand this any more!

Yes, right on man.

dummass
09-12-09, 09:04 AM
That helps to explain it; I wasn't sure if it was an international thing.
I'm mad as hell and I'm not going to take it anymore!

Slimprofits
09-29-11, 09:57 AM
Federal retirement plans almost as costly as Social Security (http://www.usatoday.com/news/washington/story/2011-10-11/federal-retirement-pension-benefits/50592474/1)

By Dennis Cauchon, USA TODAY


The federal government hasn't set aside money or created a revenue source similar to Social Security's payroll tax to help pay for the benefits, so the retirement costs must be paid every year through taxes and borrowing.

The government paid a record $268 billion in pension and health benefits last year to 10 million former civil servants, military personnel and their dependents, about $100 billion more than was paid a decade earlier after adjusting for inflation. And $7 billion more was deposited into tax-deferred accounts of current workers.

In addition, the federal government last year made more than a half-trillion dollars in future commitments, valued in 2010 dollars that will cost far more to pay in coming decades. Added last year:

•$107 billion in retirement benefits accumulated by current workers.

$106 billion in new benefits granted to veterans.

•More than $300 billion in the snowballing expense of previous retirement promises that have no source of funding.

In all, the government committed more money to the 10 million former public servants last year than the $690 billion it paid to 54 million Social Security beneficiaries.
The retirement programs now have a $5.7 trillion unfunded liability, compared with a $6.5 trillion shortfall for Social Security. An unfunded liability is the difference between a program's projected costs and its projected revenues, both valued in today's dollars.

USA TODAY's analysis is the first comprehensive calculation of how much the government spends on benefits for retired federal workers. The $275 billion paid last year — roughly two-thirds cash, one-third medical benefits — are spread over dozens of overlapping programs in many departments and agencies.