Actuarial Outpost
 
Go Back   Actuarial Outpost > Actuarial Discussion Forum > Pension - Social Security
FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions


Reply
 
Thread Tools Search this Thread Display Modes
  #611  
Old 12-15-2017, 05:57 AM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 81,672
Blog Entries: 6
Default

PBGC FEES

https://www.bloomberg.com/news/artic...unded-pensions

Quote:
Fees Rise for Underfunded Pensions
Shortfalls mean more risk for a company’s retirees and shareholders.

Spoiler:
The largest pension plans held by S&P 500 companies face a $348 billion funding gap. As a result, they’re paying higher annual fees to the U.S. Pension Benefit Guaranty Corp., the government agency that backstops plans. “There’s increased awareness that an underfunded plan imposes risk on employees, it imposes risk on shareholders, and it’s getting more expensive,” says Olivia Mitchell, a professor at the University of Pennsylvania’s Wharton School and executive director of the Pension Research Council.

The fees, called variable-rate premiums, are set by Congress and meant to encourage companies to set aside more money in their pension funds. They’ve more than tripled in four years for companies including General Electric Co. and Boeing Co., according to data obtained by Bloomberg News through a Freedom of Information Act request.

GE’s fees surged more than sixfold, to about $238 million, in 2017 from 2012, according to the PBGC data (that doesn’t include the agency’s flat-rate participation fees). Boeing’s bill was $151.7 million, about four times what it paid in 2014. GE and Boeing had the largest pension shortfalls among S&P 500 companies. GE, whose pension fund is short by about $31 billion, said in November it would borrow $6 billion to fund its plan. After Boeing’s fund fell short by about $20 billion at the end of 2016, the company said in July that it would add $3.5 billion of its shares to a scheduled $500 million pension contribution.

Employers have found it “more and more difficult to offer a pension,” says Dennis Simmons, executive director of the Committee on Investment of Employee Benefit Assets, an industry group. “Part of that is because of rising PBGC fees and more difficult regulations.” Booms and busts in the stock market have made it harder for companies to keep up with their contributions. The pensions have become “big, and they’ve been quite volatile since 2000, when we’ve seen some serious ups and downs in the market,” says Peggy McDonald, a senior vice president who works on pension risk transfers at Prudential Financial Inc.

The rising fees and pending Republican tax overhaul legislation are encouraging some companies to build up their funds. Because pension contributions are tax-deductible, it’s more valuable to contribute to a pension while tax rates are higher.

Employers with the 100 largest defined benefit plans added a combined $43 billion to plans last year, compared with just $31 billion the year before, according to Milliman, an actuarial company. Most are eager to get out of the pension business, preferring 401(k) plans, where the employee bears the risk of falling short at retirement. More are offloading their pension plans, paying insurance companies such as Prudential or MetLife Inc. to take them on instead. Such transactions could exceed $19 billion this year, according to industry group Limra. Only about two dozen companies in the S&P 500 have overfunded pensions. Nine of them are banks.

Offloading risk isn’t on the table for every company. Insurers don’t take on obligations from underfunded plans, McDonald says. That means companies need to better fund their plans, limiting those variable-rate premiums, before they can transfer the obligations. “In the short term, these PBGC premiums are having a really significant impact,” she says. “This is in a way an expense-management exercise.”

BOTTOM LINE - As the gap in pension funding grows, so does the cost to companies; some in the S&P 500 saw fees they pay to the government agency that backstops the plans more than triple in four years.

__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #612  
Old 12-15-2017, 03:00 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 81,672
Blog Entries: 6
Default

Quote:
Originally Posted by campbell View Post
http://pensionpulse.blogspot.ca/2017...-pensions.html

Quote:
Fees Rise for Underfunded Pensions?
Spoiler:
.....
Those PSGC premiums are having a significant effect but given America's looming corporate pension disaster and that the PBGC deficit in its insurance program for multiemployer plans rose to $65.1 billion at the end of fiscal year 2017 putting the program at risk of running out of money by 2025, there wasn't much of a choice but to increase premiums.

As far as the large companies cited in the article above, GE botched its pension math, one of many factors weighing down its share price this year:



But Boeing's huge pension gaffe has yet to come back and to haunt it as its share price keeps rising to record levels:



We shall see if this trend persists over the next year (I doubt it as the world economy slows) but what is clear is the longer Boeing's pension remains under water, the more expensive it becomes to maintain as PBGC raises its premiums.

There’s a limit to how long Boeing can put off underfunded liabilities. Over the next decade, the company expects to pay out about $46 billion to retirees.

Most companies are looking to shed their defined-benefit plans by cutting them to new employees or offloading them to insurers if they're fully funded.

The slow disappearance of workplace pensions is part of a larger problem of pension poverty because as more and more workers retire with little to no savings, it will impact aggregate demand and the economy.

On a positive note, the latest Milliman analysis shows corporate pension funding up $7 billion in November, $41 billion in past three months, fuelled by strong gains in stocks and relatively stable rates.

Of course, that could all change next year if the economy starts slowing and rates plunge to new lows.

This is why I agree with Congress which raised variable-rate premiums on all these companies with underfunded pension plans. It's better to prepare for the pension storm that lies ahead.

Below, Republican plans to overhaul the US tax system are stoking demand for longer duration on the part of corporate pension funds, adding fuel to the seemingly inexorable flattening of the Treasuries yield curve (clip from November 21st, 2017).

I think this whole thing of corporate pensions front-running the tax overhaul, driving the yield curve flatter is a bit overdone. The yield curve is flattening because the economy is slowing and inflation expectations keep dropping. There's nothing more to it.

__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #613  
Old 12-18-2017, 04:41 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 81,672
Blog Entries: 6
Default

RHODE ISLAND
ST. JOSEPH HEALTH SERVICES

http://www.golocalprov.com/news/kilm...before-failure

Quote:
Kilmartin Knew of St. Joseph’s Pension Collapse 10 Days Before Failure
Spoiler:
Special Investigator Max Wistow is blasting Rhode Island Attorney General Peter Kilmartin for failing to comply with previous court orders issued by Superior Court Judge Brian Stern to turn over key documents in the investigation into the failure of the St. Joseph Health Services pension fund. The fund was forced into a receivership on August 17, 2017 -- now four months ago.
Wistow says that Kilmartin is one of the biggest obstacles to his efforts to determine the cause of the biggest pension collapse in Rhode Island history. The pension fund is facing upwards of a $125 million deficit.

Wistow's frustration is beginning to boil over. He says Kilmartin is blocking tens of thousands of documents and that the one document that has been released that is not publicly available shows Kilmartin had advanced knowledge of the collapse.

The one document provided unveils that Kilmartin knew at least ten days before the pension fund was thrust into receivership. Thus, Kilmartin could have helped the investigative process for the past four-plus months.

On August 25, Kilmartin issued a statement that said in part:

The men and women who dedicated their careers working at St. Joe's expected that their pension would be there for them when they retired, and rightfully so. Many, if not most, live on fixed incomes and depend on that monthly pension check to survive. Just as state employee pensioners know all too well, it can be devastating to see your monthly income decrease precipitously because of broken promises.

These retirees deserve to know how this happened and what is being done to protect their investment. I urge the receiver of the pension fund and the Court to establish and maintain complete transparency throughout this process, and to consider every available option to regain financial viability of the pension fund.

Wistow told GoLocal in a phone interview on Friday night that, “the Attorney General, who should be assisting the investigation, but he is, in fact, one of the biggest obstacles.”

“We are being taken away from our effort to get to the bottom of this massive pension failure because we constantly need to go to court to fight with the attorney general,” said Wistow.

About the one document provided by Kilmartin that was not already public, “The document is an email demonstrating that the Attorney General knew of the insolvency of the pension funds at least 10 days before this receivership proceeding was even commenced on August 19, 2017,” writes Wistow’s office in the motion filed on Friday.

“Despite the inside and advance knowledge from over four months ago, the Attorney General protests it does not have time to identify and produce the requested documents.”

AG’s Delays Should Be Penalized
Wistow is asking Judge Stern on Monday at an emergency hearing to sanction Kilmartin and to force him to reimburse the receivership estate the cost of Wistow and his team of attorney that have had to spend the past six weeks trying to force the Attorney General to comply with a November 3 subpoena.

In an unusual situation, Wistow is charging the RI Attorney General is operating in bad faith.




Retirees filled a meeting with the receiver in Sept. They face cuts on February 1, 2018



Clock Ticks Towards Cuts

On Monday, Stern will hear Wistow and Kilmartin’s dueling motions. And, as Wistow continues to press both the Attorney General and the Diocese to comply with subpoenas, the clock ticks closer and closer to February 1, 2018. On that date, it is anticipated that court-appointed receiver Stephen Del Sesto will implement significant cuts to existing pension payments.

Of the more than 2,700 eligible plan participants, 1,229 presently receive payments. The average monthly pension payment paid is $694.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #614  
Old 01-02-2018, 01:46 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 81,672
Blog Entries: 6
Default

https://www.washingtonpost.com/busin...=.40d5994fde65

Quote:

‘I hope I can quit working in a few years’: A preview of the U.S. without pensions
Spoiler:
TULSA — Tom Coomer has retired twice: once when he was 65, and then several years ago. Each time he realized that with just a Social Security check, “You can hardly make it these days.”

So here he is at 79, working full-time at Walmart. During each eight-hour shift, he stands at the store entrance greeting customers, telling a joke and fetching a “buggy.” Or he is stationed at the exit, checking receipts and the shoppers that trip the theft alarm.

“As long as I sit down for about 10 minutes every hour or two, I’m fine,” he said during a break. Diagnosed with spinal stenosis in his back, he recently forwarded a doctor’s note to managers. “They got me a stool.”

Economy & Business Alerts

Breaking news about economic and business issues.

Sign up
The way major U.S. companies provide for retiring workers has been shifting for about three decades, with more dropping traditional pensions every year. The first full generation of workers to retire since this turn offers a sobering preview of a labor force more and more dependent on their own savings for retirement.

Years ago, Coomer and his co-workers at the Tulsa plant of McDonnell Douglas, the famed airplane maker, were enrolled in the company pension, but in 1994, with an eye toward cutting retirement costs, the company closed the plant. Now, The Washington Post found in a review of those 998 workers, that even though most of them found new jobs, they could never replace their lost pension benefits and many are facing financial struggles in their old age: 1 in 7 has in their retirement years filed for bankruptcy, faced liens for delinquent bills, or both, according to public records.


Those affected are buried by debts incurred for credit cards, used cars, health care and sometimes, the college educations of their children.

Some have lost their homes.

And for many of them, even as they reach beyond 70, real retirement is elusive. Although they worked for decades at McDonnell Douglas, many of the septuagenarians are still working, some full-time.

Lavern Combs, 73, works the midnight shift loading trucks for a company that delivers for Amazon. Ruby Oakley, 74, is a crossing guard. Charles Glover, 70, is a cashier at Dollar General. Willie Sells, 74, is a barber. Leon Ray, 76, buys and sells junk.

“I planned to retire years ago,” Sells says from behind his barber’s chair, where he works five days a week. He once had a job in quality control at the aircraft maker and was employed there 29 years. “I thought McDonnell Douglas was a blue-chip company — that’s what I used to tell people. ‘They’re a hip company and they’re not going to close.’ But then they left town — and here I am still working. Thank God I had a couple of clippers.”


Likewise, Oakley, a crossing guard at an elementary school, said she took the job to supplement her Social Security.

“It pays some chump change — $7 an hour,” Oakley said. She has told local officials they should pay better. “I use it for gas money. I like the people. But we have to get out there in the traffic, and the people at the city think they’re doing the senior citizens a favor by letting them work like this.”

Glover works the cash register and stocks goods at a Dollar General store outside Tulsa to make ends meet. After working 27 years at McDonnell Douglas, Glover found work at a Whirlpool factory, and then at another place that makes robots for inspecting welding, and also picked up some jobs doing *computer-aided *design.

“I hope I can quit working in a few years, but the way it looks right now, I can’t see being able to,” Glover said recently between customers. “I had to refinance my home after McDonnell Douglas closed. I still owe about 12 years of mortgage payments.”

For some, financial shortfalls have grown acute enough that they have precipitated liens for delinquent bills or led people to file for bankruptcy. None were inclined to talk about their debts.


“It’s a struggle, just say that,” said one woman, 72, who filed for bankruptcy in 2013. “You just try to get by.”


Charles Glover, 70, on Nov. 16 at the Dollar General in Catoosa, Okla. He works several shifts a week as a clerk. (Nick Oxford for The Washington Post)
A perk that became too costly
The notion of pensions — and the idea that companies should set aside money for retirees — didn’t last long. They really caught on in the mid-20th century, but today, except among government employers, the traditional pension seems destined to be an artifact of U.S. labor history.

The first ones offered by a private company were those handed out by American Express, back when it was a stagecoach delivery service. That was in 1875. The idea didn’t exactly spread like wildfire, but under union pressure in the middle of the last century, many companies adopted a plan. By the 1980s, the trend had profoundly reshaped retirement for Americans, with a large majority of full-time workers at medium and large companies getting traditional pension coverage, according to Bureau of Labor Statistics data.

Then corporate America changed: Union membership waned. Executive boards, under pressure from financial raiders, focused more intently on maximizing stock prices. And Americans lived longer, making a pension much more expensive to provide.


In 1950, a 65-year-old man could be expected to reach age 78, on average. Today, that *65-year-old is expected to live beyond 84. The extended life expectancy means pension plans must pay out substantially longer than they once did.

Exactly what led corporate America away from pensions is a matter of debate among scholars, but there is little question that they seem destined for extinction, at least in the private sector.

Even as late as the early 1990s, about 60 percent of full-time workers at medium and large companies had pension coverage, according to the government figures. But today, only about 24 percent of workers at midsize and large companies have pension coverage, according to the data, and that number is expected to continue to fall as older workers exit the workforce.

In place of pensions, companies and investment advisers urge employees to open retirement accounts. The basic idea is workers will manage their own retirement funds, sometimes with a little help from their employers, sometimes not. Once they reach retirement age, those accounts are supposed to supplement whatever Social Security might pay. (Today, Social Security provides only enough for a bare-bones budget, about $14,000 a year on average.)

The trouble with expecting workers to save on their own is that almost half of U.S. families have no such retirement account, according the Federal Reserve’s 2016 Survey of Consumer *Finances.

Of those who do have retirement accounts, moreover, their savings are far too scant to support a typical retirement. The median account, among workers at the median income level, is about $25,000.

“The U.S. retirement system, and the workers and retirees it was designed to help, face major challenges,” according to an October report by the Government Accountability Office. “Traditional pensions have become much less common, and individuals are increasingly responsible for planning and managing their own retirement savings accounts.”

The GAO further warned that “many households are ill-equipped for this task and have little or no retirement savings.”

The GAO recommended that Congress consider creating an independent commission to study the U.S. retirement system.

“If no action is taken, a retirement crisis could be looming,” it said.


Coomer makes a pot of coffee at his home in Wagoner after a day of work at Walmart. “As long as I sit down for about 10 minutes every hour or two, I’m fine,” he says of working eight-hour shifts with the condition spinal stenosis. (Nick Oxford for The Washington Post)
‘We were stunned’
Employees at McDonnell Douglas in the early ’90s enjoyed one of the more generous types of pensions, those known as “30 and out.” Employees with 30 years on the job could retire with a full pension once they reached age 55.

But, as the employees would later learn, the generosity of those pensions made them, in lean times, an appealing target for cost-cutters.

Those lean times for McDonnell Douglas began in earnest in the early ’90s. Some plants closed. But for the remaining employees, including those at the Tulsa plant, executives said, there was hope: If Congress allowed the multibillion-dollar sale of 72 F-15s to Saudi Arabia, the new business would rescue the company. In fact, the company said in its 1991 annual report, it would save 7,000 jobs.

To help win approval for the sale, Tulsa employees wrote letters to politicians. They held a rally with local politicians and the governor of Oklahoma. Eventually, in September 1992, President George H.W. Bush approved the sale. It seemed the Tulsa plant had weathered the storm.

The headline in the Oklahoman, one of the state’s largest newspapers, proclaimed: “F-15 Sale to Saudi Arabia Saves Jobs of Tulsa Workers.”

But it hadn’t. Within months, executives at the company again turned to cost-cutting. They considered closing a plant in Florida, another in Mesa, Ariz., or the Tulsa facility. Tulsa, it was noted, had the oldest hourly employees — the average employee was 51 and had worked there for about 20 years. Many were close to getting a full pension, and that meant closing it would yield bigger savings in retirement costs.

“One day in December ’93 they came on the loudspeaker and said, ‘Attention, employees,’ Coomer recalled. “We were going to close. We were stunned. Just ran around like a bunch of chickens.”

A few years later, McDonnell Douglas, which continued to struggle, merged with Boeing. But the employees had taken their case to court, and in 2001, a federal judge agreed McDonnell Douglas had illegally considered the pensions in its decision to close the plant. The employees’ case, presented by attorneys Joe Farris and Mike Mulder, showed the company had tracked pension savings in its plant closure decisions.

The judge found McDonnell Douglas, moreover, had offered misleading testimony in its defense of the plant closing. The judge, Sven Erik Holmes, blasted the company for a “corporate culture of mendacity.”

Employees eventually won settlements — about $30,000 was typical. It helped carry people over to find new jobs. But the amount was limited to cover the benefits of three years of employment — and it was far less than the loss in pension and retiree health benefits. Because their pension benefits accrued most quickly near retirement age, the pensions they receive are only a small fraction of what they would have had they worked until full eligibility.

“People went to work at these places thinking they’ll work there their whole lives,” Farris said, noting that the pensions held great appeal to the staff. “Their trust and loyalty, though, was not reciprocated.”


Ray walks through a collection of junk that he recycles at his home in Claremore. (Nick Oxford for The Washington Post)
Dreaming of work
The economic effects were, of course, immediate.

The workers, most of them over 50, had to find jobs.

Some enrolled in classes for new skills, but then struggled to find jobs in their new fields. They wondered, amid rejections, whether younger workers were favored.

Several found jobs at other industrial plants. One started a chicken farm for Tyson. Another took a job on a ranch breaking horses.

The Post acquired a list of the 998 employees, reviewed public records for them and interviewed more than 25.

Of those interviewed, all found work of one kind or another. Yet all but a handful said their new wages were only about half of what they had been making. Typically, their pay dropped in half, from about $20 per hour to $10 per hour.

The pay cut was tough, and it made saving for retirement close to impossible. In fact, it has made retirement itself near impossible for some — they must work to pay the bills.

A few said, though, they work because they detest idleness, and persist in jobs that would seem to require remarkable endurance.

Combs, for example, works the graveyard shift, beginning each workday at 1:30 a.m. His days off are Thursday and Sunday. He worked 25 years at McDonnell Douglas, and more than 20 loading trucks.

He shrugs off the difficulty.

“I don’t want to sit around and play checkers and get fat,” Combs says. “I used to pick cotton in 90-degree heat. This is easy.”


Coomer relaxes at home with his wife Ellen after working at Walmart. While he seems to enjoy working at Walmart, Cooomer says he really loved working at McDonnell Douglas and had his eye on his pension during his 29 years there. (Nick Oxford for The Washington Post)
Coomer, too, even if he would have preferred to retire, seems to genuinely enjoy his work. At Walmart, his natural cheerfulness is put to good use.

“Hi, Tom, how are you?” a customer on a motorized scooter, one of many who greet him by name, asks on her way out.

“Doing good . . . beautiful day,” he says, smiling warmly.

Later he explains his geniality.

“I like to talk to people. I like to visit with them. I can talk to anyone. I’ve always been like that, since I was a kid.”

When he sees someone looking glum, he tells them a joke.

Why does Santa Claus have three gardens?

So he can hoe, hoe, hoe.

“People really like that one,” he says.

Coomer grew up on a farm in Broken Arrow, got married when he was 17 — his wife was 15 — and says he’s always liked work.

“I really loved working at McDonnell Douglas,” he says. One time, he says, he worked 36 days straight: 11 hours on the weekdays and eight hours on Saturdays and Sundays. He joked the factory was his home address. All along, for his 29 years there, he had his eye on the pension. And then, for the most part, it was gone.

After the plant closed, Coomer worked as a security guard. Then he worked for a friend who had a pest-control company. When that slowed down, he picked up seasonal work at the city, doing some mowing and chipping.

Then came Walmart.

Soon, he said, he expects to cut back from full-time to about three days a week.

Along with his Walmart check, he gets $300 a month from the McDonnell Douglas pension. Had he been able to continue working at McDonnell Douglas, he calculates that he would have gotten about five times that amount.

“After they shut the plant down, I would dream that I was back at McDonnell Douglas and going to get my pension,” Coomer recalled. “In the dream, I would try to clock in but I couldn’t find my time card. And then I’d wake up.”

In the dream, he would have retired years ago.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #615  
Old 01-08-2018, 07:55 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 81,672
Blog Entries: 6
Default

EPISCOPAL CHURCH

https://www.ai-cio.com/news/episcopa...ponsible-fund/

Quote:
Episcopal Pension Invests in Socially Responsible Fund
Church Pension Fund contributes to $75 million clean technology fund.


Spoiler:
The $13 billion Church Pension Fund (CPF), a financial services organization that serves the Episcopal Church, has invested $17 million in the Social Investment Managers & Advisors (SIMA) Off-Grid Solar and Financial Access Senior Debt Fund I.

The $75 million fund will provide loans to microfinance institutions, distribution companies, and manufacturers in the off-grid solar sector located in sub-Saharan Africa, as well as in South Asia.

“This investment will enable customers of solar energy to lease on an affordable installment basis and will impact the lives of more than 1 million people while reducing carbon dioxide by 4 million tons,” said Asad Mahmood, CEO of SIMA, in a statement.

According to SIMA, off-grid solar is growing at 55% per year, and as much as 85% of people in Asia and sub-Saharan Africa do not have electricity and have to burn fossil fuels for light. It also said that compared to burning kerosene, solar lighting results in improved health, longer business and educational hours, improved safety and quality of life, and deep environmental impact.

The SIMA transaction follows recent investments made by the CPF into socially responsible funds such as the Cheyne Social Property Impact Fund, the Avanath Affordable Housing Fund, and the Developing World Markets’ Off-Grid, Renewable and Climate Action Impact Note.

CPF said its socially responsible investing (SRI) strategy focuses on investments that offer attractive risk-adjusted returns, while at the same time providing a positive social impact. The fund said it currently has approximately $1 billion of invested or committed capital in socially responsible investments spread out among 25 countries. CPF’s SRI-related investments focus on economically targeted initiatives such as urban redevelopment, affordable housing, sustainable agriculture, and microfinance, as well as environmental programs such as sustainable forestry, clean technology, and green buildings.

“This investment represents our second investment focused on the off-grid solar sector as market conditions in this space remain extremely strong,” said Roger Sayler, CIO of CPF.

“This investment offers us the opportunity to provide funding for much-needed financing while also earning a competitive rate of return,” he said, adding that “today more than 2.2 billion people across the world still live without reliable access to energy, and the underlying need for off-grid renewable energy still far outpaces the availability.”


__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #616  
Old 01-09-2018, 10:35 AM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 81,672
Blog Entries: 6
Default

ARCONIC

http://wvik.org/post/pension-changes...rkers#stream/0

Quote:
Pension Changes for Some Arconic Workers
Spoiler:

Arconic plans to freeze pension plan contributions for U.S. workers, and instead make contributions to a 401(k) plan for employees.

The company says the freeze only applies to the accrual of benefits for about 7,900 salaried employees plus hourly employees who are not members of a union. Retirees who are already collecting benefits will NOT be affected.

Arconic employee benefits accrued through the end of March will still be available upon retirement. The new policy goes into effect on April 1st.

The maker of aluminum parts for the aviation and automotive industries was created after Alcoa split into two companies in 2016.

The Davenport Works plant in the Quad Cities employs a total of about 2,600 employees.

The move should help the company save money. Arconic expects a liability decrease of about $140 million from the pension freeze.

(Previous version)

NEW YORK (AP) _ Arconic will freeze pension plan contributions for U.S. workers and instead make contributions to a 401(k) plan for employees.

The company says the freeze only applies to the accrual of benefits for about 7,900 U.S. employees. Benefits accrued through March 31st will still be available upon retirement. The new policy goes into effect April 1st. There is no impact to retirees already collecting benefits.
The change affects workers at the Davenport Works, in Riverdale.
The maker of aluminum parts for the aviation and automotive industries was created after Alcoa split into two companies in 2016. It expects a cost savings of about $140 million from the pension freeze.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #617  
Old 01-09-2018, 12:26 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 81,672
Blog Entries: 6
Default

https://www.plansponsor.com/tax-refo...rated-funding/

Quote:
Tax Reform Fuels DB Plan Accelerated Funding
Michael A. Moran, with GSAM, says the firm expects voluntary contribution activity to continue into 2018, as defined benefit plan sponsors claim a deduction at their former, higher tax rate.

Spoiler:
Since, under tax reform, the corporate tax rate will be lower in the future than what had previously been in effect, more voluntary defined benefit (DB) plan contribution activity is expected, according to Michael A. Moran, managing director and chief pension strategist with Goldman Sachs Asset Management (GSAM).

In a Q&A on GSAM’s website, Moran explains that contributions to corporate DB plans are generally tax deductible up to certain limits. For plan sponsors that were contemplating making a contribution in future years, some decided to accelerate that contribution into 2017 in order to reap the benefits of getting the tax deduction at a higher rate. GSAM observed that Kroger and Valvoline are two examples of companies that explicitly cited potential corporate tax reform as one of the reasons for making a voluntary contribution earlier in 2017.

According to Moran, since plan sponsors can under certain circumstances make a contribution up to eight and one-half months after the end of the year and still have it count as a deduction for the previous tax year, the firm expects voluntary contribution activity to continue into 2018 where sponsors claim a deduction at their former, higher tax rate.

In addition, changes to repatriation rules under tax reform may make foreign cash more accessible for U.S. multi-nationals, which may enable them to continue to make voluntary contributions in the future. Moran says estimates of total overseas cash for U.S. companies have been in the range of $1 to $2.5 trillion.

He points out there have been several other factors which have also provided plan sponsors with an incentive to put more money into their plans sooner rather than later, including Pension Benefit Guaranty Corporation (PBGC) premiums.

Increased contribution activity leads to higher funded ratios which may be a catalyst for more de-risking activities, according to Moran. This may take the form of increased allocations to long duration fixed income, to better match plan liabilities, as well as more risk transfer activities since better funded plans make it easier for the plan sponsor to transfer liabilities to a third-party insurance company.

However, he notes that some DB plan sponsors may not find a borrow-to-fund strategy as compelling as before the enactment of tax reform. “In particular, for certain companies, interest deductions are generally limited to 30% of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) for tax years beginning before 1/1/2022, and to 30% of Earnings Before Interest and Taxes (EBIT) for subsequent tax years. Given this, the ability to use existing corporate cash for pension funding may become more critical,” he says.

Moran also warns that increased flexibility around cash may mean that some U.S. multi-nationals may not need to issue as many bonds going forward to fund buybacks, dividend increases, capital expenditures, etc. “Just as more corporate DB plans are looking to add long-duration fixed income to their portfolios as funded ratios move higher from contribution activity, the new supply of long duration fixed income securities may decline,” he says.


__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #618  
Old 01-16-2018, 12:16 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 81,672
Blog Entries: 6
Default

UNITED KINGDOM
CARILLION

https://www.economist.com/news/brita...nd-viable-long

Quote:
Carillion’s collapse raises questions about pension protection
Workers will keep most of their benefits. But is the protection fund viable in the long term?
Spoiler:
THE collapse of Carillion, Britain’s second-biggest construction company, may mean that many of its workers lose their jobs. But the pension rights of its 20,000 Britain-based employees should largely be preserved, thanks to the Pension Protection Fund (PPF), a private scheme funded by a levy on member companies. When a firm with a salary-linked pension scheme goes to the wall without enough assets to carry on paying retirees, the PPF steps in. Those already in retirement get their pensions met in full, although future increases may be limited, while those who have yet to reach retirement age receive 90% of their benefits, up to a cap of around £35,000 ($48,000) a year.

Carillion has a complex structure covering 14 different pension schemes. If all of them end up with the PPF, the fund may be on the hook for almost £900m. That would be the biggest single claim yet on the scheme, which was set up in 2005. Fortunately it is 122% funded by its own calculations, according to its most recent annual report, with £6.1bn in reserves.



Nevertheless, the PPF still faces some tricky long-term questions. As of November 2017, the schemes that it covers had a collective deficit of £103.8bn. In its latest financial year, the PPF raised £585m from its levy, and paid out £661m in compensation. Modern companies in fast-growing industries like technology tend not to offer schemes linked to a worker’s final salary; the companies covered by the PPF tend to be in older industries, some of which (retailing, for example) are in decline. Over time the pool of contributing companies will shrink.

There is no imminent problem; the scheme had accumulated £28.7bn in assets as of March 2017, and buoyant markets will have pushed that figure higher by now. But a recession that drove a lot of companies to the wall and sent markets lower would make the scheme’s finances look less rosy. Carillion’s collapse, like that last year of BHS, a big retail chain, raises questions about whether the pensions regulator should be tougher with companies and stop them accumulating deficits on this scale.



http://www.bbc.com/news/business-42690807

Quote:
Carillion fallout: 'They've literally locked the gate'
Spoiler:
Construction and services company Carillion has collapsed, putting thousands of jobs and pensions at risk.

The firm is involved in major public projects such as the HS2 high-speed rail line and manages public service contracts including schools and prisons.

Employees and sub-contractors alike have reacted to the news, worried about their wages, pensions and hundreds of thousand of pounds owed in contracts.
.....
Martin, Manchester
"The pension is one of the things I was intending to withdraw.

"It was estimated at £43,000, which may be small to some people but it's a lot for me.

"We haven't even contacted Carillion with regards to withdrawing it. I think I'd be lucky to even speak to anyone, it was bad enough when I was just getting my estimates.

"It's a big disaster. I heard recently they were struggling but I didn't know it was that bad. Their ability to repay the money and what it might have done to the share value, I don't know.

"I had my money from another company transferred to the Carillion pension fund as well. It looks as though it was a really bad decision. There's no way I could have known.

"This pension was all I had to fall back on, now it's in doubt. I haven't a clue what I'll do if it doesn't come."

https://www.fnlondon.com/articles/ca...-fail-20180115

Quote:
Pensions lifeboat reassures Carillion workers their money is protected
Construction giant, which said it will go into compulsory liquidation, has more than 28,000 members across its pension schemes
Spoiler:
The UK's pensions lifeboat has sought to reassure the more than 28,000 members of Carillion's pension scheme about their future payouts after the construction and outsourcing giant announced it would go into liquidation.

In a statement this morning, the Pensions Protection Fund said: "We can confirm that we have been notified of the liquidation. We know this news will raise serious concerns for all people involved. We want to reassure members of Carillion’s defined benefit pension schemes that their benefits are protected by the PPF."

The statement comes after Carillion said it will go into compulsory liquidation after crisis talks at the weekend failed.



The company, its creditors and the government were trying to find a way to save the company, which runs public services at prisons, hospitals and schools, and is a key contributor to the building of the HS2 high-speed rail line.

READ Marshall Wace and BlackRock gain from Carillion woes

"In recent days however, we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision," Philip Green, chairman of Carillion, said in a statement.

The move puts thousands of jobs at risk; the company employs about 20,000 in the UK and uses thousands of subcontractors. Green said he understands the government will step in to fund the public services previously supplied by Carillion.

It also casts doubts on the ability of the firm to meet its pensions obligations. Carillion's defined benefit pension schemes have 28,561 members, of whom 12,410 are already claiming their pensions, according to its 2016 annual report.

The scheme have assets of £2.57bn and liabilities of £3.37bn, leaving a shortfall of £800m, according to the report. The shortfall has roughly doubled from a year earlier.

But according to a statement from insurer Royal London, the PPF will pay Carillion workers who have reached pension age 100% of their pensions; while those who are not yet retired will receive 90% of their pensions, with an overall cap applied for those with the largest pension pots.

READ BHS bailout lifts UK’s pensions lifeboat to record surplus

Steve Webb, director of policy at Royal London said: "Although there is a big shortfall across the Carillion pension schemes, the PPF is financially strong and will be able to pay out pensions in line with its normal rules. The deficit in the Carillion schemes will not sink the pensions lifeboat."

Tom McPhail, head of policy at fund platform Hargreaves Lansdown, said pension scheme members could expect Carillion administrators and the PPF to work together to ensure there is continuity of payments.

McPhail said: "The reported Carillion scheme deficit of £580m looks big, but thanks to prudent management in recent years the PPF currently has a surplus of over £6bn so they can absorb this hit if they have to.”
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #619  
Old 01-17-2018, 07:04 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 81,672
Blog Entries: 6
Default

UNITED KINGDOM
CARILLION

https://www.cnbc.com/2018/01/16/cari...-pensions.html

Quote:
Carillion’s collapse could highlight a much wider problem for UK pensions
Carillion's pension savers will see a minimum of a 10 percent drop in their retirement income
More broadly, the collapse of the firm should be a "wake-up call" for every U.K. pension saver, according to a financial consultancy
McPhail said that big insolvencies had raised awareness to the problem and more is now being done to protect future pensions

Spoiler:
Carillion's pension savers will see a minimum of a 10 percent drop in their retirement income, but more broadly, the collapse of the firm should be a "wake-up call" for every U.K. pension saver, according to a financial consultancy.

"The collapse of Carillion further underscores the colossal black hole in many defined benefit pension schemes. For instance, the combined deficit of the FTSE 350 firms has now reached 70 percent of their profits," Nigel Green, the chief executive and founder of deVere Group, told in CNBC via email. A defined pension scheme in the U.K., also known as a "final salary" pension, normally depends on an employee's length of service and their earnings at retirement.

The British multinational firm Carillion, which focuses on government contracts, entered into compulsory liquidation on Monday after its creditors refused to lend more money to the debt-laden firm. Shares of Carillion stopped trading as a result and its biggest creditors, including HSBC and RBS, traded lower on the news.


Photographer | Collection | Getty Images
Staff pensions schemes at Carillion are set to take a hit, but Green believes that the liquidation "should trigger alarm bells for pension savers across the U.K." as it puts a huge question mark over the fate of yet another major pension fund. He told CNBC that the funding gap for pensions has become deeper, which increases the chances that more and more people will not be able to receive their retirement benefits in full.

Carillion reportedly has roughly £1.5 billion ($2 billion) of debt, including a £580 million ($798 million) pension deficit.

Tom McPhail, head of pensions research at Hargreaves Lansdown, told CNBC Tuesday that the aggregated deficit on U.K. pension schemes at the moment is around £80 billion ($109.96 billion). He highlighted however that it had been as high as £400 billion ($549.81) a couple of years ago.

Hargreaves Lansdown: Pension system has worked with Carillion
6:49 AM ET Tue, 16 Jan 2018 | 03:42
"The deficits have swung quite a lot over the last few years, driven largely by interest rates, so low interest rates drive up the liabilities, which increase deficits. They are not as bad today as they were a couple of years ago, but around five out of six of the final salary, these defined benefits pension schemes in the U.K., are currently in deficit," he said.

As a result of the collapse of Carillion, the company's employees will now get their pension savings from the Pension Protection Fund (PPF) — a government supported fund that provides compensation to employees of insolvent firms. But according to Green, "it can be reasonably expected that those members who are not yet drawing their Carillion pension could now experience a drop of at least 10 percent to their retirement income."

He added in a research note Monday that there's a wider problem in the country after similar issues for firms like British retailer BHS and Tata Steel. Some workers saw their pension funds rescued by the PPF but without being given any other alternative.

"Whilst the PPF is an invaluable and necessary resource as it offers a buffer and layer of protection for members, there is, however, a maximum that any support of this nature can sustain in the longer-term. How many more major collapses could it take," Green said in the note.

Carillion a headache for the U.K., but European equity sentiment not hit Carillion a headache for the U.K., but European equity sentiment not hit
1:41 AM ET Tue, 16 Jan 2018 | 04:01
BHS collapsed in April of 2016 with a deficit of £571 million ($ 786 million). It was put into liquidation at the end of 2016 after the Pension Protection Fund said that this would be best outcome for the failed pensions. More recently, the British airline Monarch also collapsed and Toys R Us was saved from falling into administration in 2017 after a deal with the PPF.

McPhail added these insolvencies had raised awareness to the problem and more is now being done to protect future pensions.

"There's pretty robust regulation and it is being strengthened at the moment, so more pressure is being put on trustees and on the governance of these schemes to scrutinize the management of the schemes effectively. But it's not in a bad place at the moment and most of these schemes have in place deficit reduction programs," he said.


https://www.reuters.com/article/us-c...-idUSKBN1F51HP

Quote:
Breakingviews - Carillion pension hole is ominous for UK companies

Spoiler:
LONDON (Reuters Breakingviews) - Carillion’s pension hole is a wake-up call for UK companies and their banks. The construction firm, which went into liquidation on Monday, last year estimated the shortfall in its retirement fund at 587 million pounds. That liability has now been transferred to Britain’s Pension Protection Fund (PPF), which reckons the deficit is nearer 900 million pounds. That’s bad news for Carillion’s creditors – and an omen for companies with similar obligations.

A parking sign is seen on railings outside Carillion's headquarters after the company went into liquidation, in Wolverhampton, Britain, January 15, 2018. REUTERS/Darren Staples
Banks and bondholders which lent Carillion nearly a billion pounds are lining up to recover some of their claims from the company responsible for government contracts including prison repairs, school meals and building the HS2 high-speed railway. They face a tussle with Carillion’s 14 different pension funds, which have over 27,500 members.

The PPF – an industry funded scheme that steps in to guarantee pensions if a company collapses – values the liability according to section 179 of the UK’s Pensions Act. Even though the PPF typically applies a 20 percent haircut to retirement payouts its calculation uses UK government bond yields, which are at low levels. As a result, the shortfall is set to be more than one-and-a-half times Carillion’s most recent estimate, which was based on different assumptions. The PPF’s claim on Carillion’s assets will be almost as large as the company’s outstanding debt.

The scope for pension liabilities to soar when a company gets into trouble should sound the alarm for lenders and investors. Britain’s top 350 companies are estimated to have about 85 billion pounds in unfunded pension commitments, according to a report from London-based adviser Hymans Robertson.

The PPF has limited scope to pick up the tab for failed companies. At its latest update the fund had 30 billion pounds in assets and a 6 billion pound surplus. Taking on Carillion’s 14 different pension schemes will dent that; another six similar-sized corporate failures would wipe out the lifeboat’s reserves.

Carillion’s decision to keep paying bonuses to executives and dividends to shareholders despite its underfunded pension scheme is now under scrutiny. British companies with similar shortfalls should also expect tougher questions from their creditors and investors.


https://www.theguardian.com/business...r-on-carillion

Quote:
Pensions Regulator has questions to answer on Carillion
Carillion’s payments to shareholders look a bit generous when compared with those into its pension fund


Spoiler:
he Insolvency Service probably didn’t need to be told how to do its job, but there is no harm in the business secretary, Greg Clark, telling it to “fast-track” its investigations into the actions of Carillion’s directors and former directors. And, yes, it’s often sensible to give the Financial Reporting Council a prod. The accountancy watchdog is not known for its electric speed and we would all like to know more about why the auditor KPMG gave Carillion a clean bill of health in March last year.

But Clark may wish to dispatch his next letter to the Pensions Regulator, whose statements on Carillion read as extremely defensive.


After Carillion how many firms can the pensions lifeboat rescue?
Read more
Try this: “The level of dividends paid compared to the level of payments to the schemes was better than the average for listed companies and was considered acceptable in the context of the group’s reported profitability and trading strength at the time.”

That phrase “considered acceptable” requires explanation given that the deficit in the main funds was about £580m at last count. Carillion’s accounts show that it made deficit recovery payments of £47.4m in 2015 and £46.6m in 2016. But the dividends to shareholders were higher – £80m then £82.7m.

Q&A
What is a pensions deficit?

Show
We are always told that the Pensions Regulator lives in the land of the possible, that squeezing companies too hard on dividends can be counter-productive and that striking the right balance is important. Even so, £80m-ish in dividends and £47m-ish for the pension scheme looks the wrong way around. Carillion was an acquisition-hungry company in an industry not unused to corporate collapses.

“We are not prepared to comment further about our involvement unless it becomes appropriate to do so,” concludes the regulator. Take that as your cue, Mr Clark.


CBI is oddly quiet on Carillion collapse
Advertisement




Naturally, business lobby groups have had lots to say about the biggest UK corporate collapse in years – well, most of them anyway.

The Federation of Small Businesses was quick out of the traps to demand that Carillion’s suppliers should be paid and that government contracts should not be a love-in with big business. The Institute of Directors did an effective job of damning the “highly inappropriate” pay awards to Carillion directors.

And the CBI? The self-styled “British business voice around the world” has been oddly quiet. Director-general Carolyn Fairbairn hasn’t drawn any public conclusions and all one can extract by way of official CBI statement is two anodyne sentences, the first of which just says “this is a sad time for Carillion, its staff, customers and suppliers”.


Guardian Today: the headlines, the analysis, the debate - sent direct to you
Read more
The lack of vigour is surprising from a pro-business organisation because there is a respectable pro-business argument to be made. The CBI could say, for example, that Carillion’s demise shows that too much risk has been transferred to the private sector via private finance initiative (PFI) and outsourcing contracts. It could suggest that a more collaborative approach, with risks and rewards shared equitably, is the way to go.

One might not agree with that argument – but it’s the sort of thing one expects to hear from the CBI. Maybe Fairbairn is lobbying behind the scenes or will unveil her thinking next week in (inevitably) Davos. In the meantime, the hot news out of the CBI is that a “fresh approach” is needed to make skills reforms last. Perhaps it is – but it’s not what everyone is talking about.


__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #620  
Old 01-18-2018, 03:49 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 81,672
Blog Entries: 6
Default

https://www.bloomberg.com/view/artic...lways-so-great

Quote:
Those Corporate Pensions Weren't Always So Great
A system based on unfunded promises was never going to last.
Spoiler:
Spend a little time with the U.S. District Court case of Millsap v. McDonnell Douglas Corp., and it may leave you aghast at the heartlessness and mendacity of the people who ran the aircraft manufacturer (since acquired by Boeing Co.) in the 1990s. That certainly seems to have been the effect on Judge Sven Erik Holmes, who in his 2001 ruling in favor of James R. Millsap and the other workers who lost their jobs when McDonnell Douglas shut down its factory in Tulsa, Oklahoma, in 1994, fumed that the company had:

embarked upon a remarkable course of obstruction, inconsistent representations, and outright falsehoods. The sworn testimony at trial confirmed a history of deception and bad faith by the company and laid bare that discovery in this case was replete with the same duplicity that marked Defendant's treatment of its employees and the public at large.

The backdrop to the case was that government spending on defense procurement had begun declining in the late 1980s after a boom under President Ronald Reagan. In response, McDonnell Douglas Chief Executive Officer John McDonnell -- son of founder James Smith McDonnell -- launched an effort he dubbed "Hard Reality" in 1990 to cut company expenses by $700 million a year.

Pensions immediately became a major focus for executives looking to meet the target. The McDonnell Douglas pension plan was actually considered overfunded by the accounting standards of the time, but any reduction in pension liabilities went straight to the corporation's bottom line. Workers with 30 years of service at the company could start drawing a full pension at age 55, but they received relatively little if they left before that age. From Holmes's ruling:

From the beginning of "Hard Reality," MDC discussed ways to maximize its pension surplus by focusing on the relationship between plant closings and older, more senior workers approaching eligibility for pension and other benefits. Within two days of the announcement of "Hard Reality," Defendant was told by its outside actuaries that tremendous additional savings were available if the persons laid off were older and more senior. Thereafter, on almost a monthly basis, Defendant monitored the pension savings on its ongoing layoff and plant closing program.

The McDonnell Douglas plant with the oldest workforce was the facility in Tulsa, where production workers at an average age of 51 and average tenure of 19.7 years built sections of F-15 fighter jets. Ebbing demand for F-15s had recently been somewhat revived by a $9 billion, 72-jet Saudi Arabian order that Oklahoma politicians had vigorously lobbied President George H.W. Bush to approve. For aircraft production needs, Tulsa may not have been the optimal plant to close. But in terms of pension accounting, it was the best, so the company shut it down in 1994.

Courts generally don't interfere in plant closures and other such "business judgment" decisions, but Holmes -- who subsequently left the judiciary in 2005 to become vice chairman and chief legal officer of accounting and consulting firm KPMG LLP -- ruled that McDonnell Douglas's decision had been so clearly aimed at preventing the Tulsa workers from collecting pensions that it represented a violation of Section 510 of the Employee Retirement Income Security Act of 1974, which says it's unlawful to "discharge, fine, suspend, expel, discipline, or discriminate against" a pension plan participant "for the purpose of interfering with the attainment of any right to which such participant may become entitled."

Millsap v. McDonnell Douglas reportedly marked only the third time that a plant closure had been found to be in violation of Section 510. According to Holmes's ruling, the company could have gotten a summary judgment in its favor if it had simply disclosed "the financial basis of [its] business judgment to close the factory," but it failed to do so in even a remotely credible way.

In the end, the company (Boeing by that point) settled for $36 million. A $90 million claim for back pay from the time of the layoffs was, despite support from President George W. Bush's Labor Department, turned back by a federal appeals court. After legal fees and court costs, this left $24.7 million for the 1,100 workers, an average of $22,454. 1 That's not nothing, but neither was it a lifetime pension, and there now appear to be a lot of former aircraft workers in Tulsa in their mid- to late 70s struggling to get by.

If this story is starting to sound a little familiar to you, that's because the Washington Post had a big article last month detailing the plight of former workers at the Tulsa McDonnell Douglas plant. The piece was pitched as "a preview of the U.S. without pensions," as the headline put it. It began with the story of Tom Coomer, a 79-year-old McDonnell Douglas veteran still working full time as a greeter at a Tulsa Wal-Mart because he can't make ends meet on Social Security, and intimated that this was likely to become the new normal as corporate pensions like the one at McDonnell Douglas give way to more or less do-it-yourself 401(k)s and individual retirement accounts. My fellow Bloomberg View columnist Ramesh Ponnuru has criticized this depiction as way too gloomy. I'm not certain he's right about that, but it does seem clear that the McDonnell Douglas Tulsa story isn't just a case of pensions good, 401(k)s bad.

If McDonnell Douglas had from the beginning offered a well-designed defined-contribution 401(k)-style plan with high default contributions and a generous company match instead of a generous but heavily backloaded pension plan, things might have played out much differently in 1994. For one thing, instead of being just shy of qualifying for a generous pension, a 54-year-old worker with 29 years of service might have had $100,000 to $200,000 in a personal retirement account that the company couldn't touch. 2 Eleven years later, when that worker turned 65, $100,000 fully invested in the stock market since 1994 would have been worth more than $300,000.

The "ifs" and "mights" in the previous paragraph are pretty important, of course. After getting laid off in 1994, for example, that worker might have felt compelled to start dipping into his or her 401(k) -- which you can do penalty-free from age 59 1/2 -- well before age 65. Then again, it also seems clear that, if it had a defined-contribution retirement system instead of a defined-benefit pension, McDonnell Douglas would have had far less incentive to lay off all those workers before they hit 55.

Speaking on "Retirement Security in an Aging Population" at the annual meeting of the American Economic Association four years ago, James Poterba -- an economics professor at the Massachusetts Institute of Technology and president of the National Bureau of Economic Research -- nicely summed up what the shift from defined-benefit pensions to defined-contribution 401(k)s has meant in the U.S.:

Even when the penetration of DB plans was close to its peak, in the late 1970s and early 1980s, only about 50 percent of private sector workers participated in pension plans. The shift from DB to DC plans in the private sector has not had dramatic effects on the extent of pension plan participation, but it has changed the set of retirement-related risks facing individuals.

In a DB plan, the greatest risks are that workers will separate from their employer before they reach the late-career stage at which pension wealth accumulates most rapidly. In a DC plan, eligible employees must make many decisions about their retirement saving, and there are consequently many ways to deliberately or inadvertently avoid accumulating substantial retirement balances.

Corporate pensions in the U.S. were structured to reward a particular kind of worker -- the kind that spent his or her (usually his) entire career at a large company -- and leave most others in the cold. That was already getting to be an issue as women entered the workforce and men began switching jobs more frequently in the 1960s and 1970s. It became a crisis in the 1980s and 1990s as corporations were forced to face up to the cost of their pension promises.

It had long been assumed that the corporations that sponsored pensions would be around forever and could thus pay benefits out of cash flow. After automaker Studebaker-Packard shut down its last remaining factory in 1963 and defaulted on its pension obligations, it became clear that this assumption was flawed. 3 Congress finally responded in 1974 with the aforementioned Employee Retirement Security Act, which created the Pension Benefit Guaranty Corp. to bail out troubled pension funds and enumerated some legal protections for workers, but also marked the start of a steady piling-up of disincentives for companies to offer generous pensions.

In 1985, the Financial Accounting Standards Board tightened the accounting standards for pension liabilities; in 1990, it added a requirement that companies recognize the cost of other retirement benefits such as health insurance. Companies rationally responded by doing what they could to reduce these costs. McDonnell Douglas was uniquely cruel and ham-handed in its approach, but most of corporate America was headed in the same general direction in the 1980s and 1990s.


It is possible to imagine an alternate reality in which Congress engineered a smooth transition from old-style pensions to a more sustainable, more portable setup. That's what it did for government workers with the Federal Employees' Retirement System Act of 1986, which for those hired after 1983 replaced the existing government pension with the widely acclaimed defined-contribution Thrift Savings Plan and a much smaller defined-benefit plan. In the private sector, the shift was far more haphazard, and accompanied by the kind of perverse incentives that left Tom Coomer and his former co-workers without adequate retirement income. This country still has a ways to go before it has a retirement savings system that works for everybody. But the path to such a system surely won't involve reviving old-style corporate pensions.

1. Those settlement amounts and employee count are from an article in The Oklahoman at the time of the settlement. The Washington Post article I cite later in the column says it was 998 workers.

2. I calculated that with an annual income of $40,409 (in 1993 dollars), which was the average annual wage for production workers in the aircraft industry in December 1993, annual employee and employer contributions totaling 10 percent of wages and real investment returns equal to that of the S&P 500, somebody working from 1964 through 1993 would have saved $358,553. But the amount would be significantly lower with a more realistic lifetime earnings profile and there are probably some other issues with the way I figured things. I am not an actuary!

3. This is an oversimplification, given that the United Auto Workers union did push automakers to set aside money for pensions. But it wasn't able to get Studebaker-Packard to set aside nearly enough.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off


All times are GMT -4. The time now is 10:58 PM.


Powered by vBulletin®
Copyright ©2000 - 2018, Jelsoft Enterprises Ltd.
*PLEASE NOTE: Posts are not checked for accuracy, and do not
represent the views of the Actuarial Outpost or its sponsors.
Page generated in 1.38314 seconds with 12 queries