The Coming Destruction of U.S. Pensions; Pension Insurer Shifted to Stocks Just Months Before Collapse
The Coming Destruction of U.S. Pensions
“We wanted to know how much money we owe our retirees, and how much of that money we don’t have.” -Cook County Treasurer Maria Pappas (June 22, 2011)June 29, 2011
SHTFplan.com - We know the Federal and State governments are in serious fiscal trouble. Having overspent and over borrowed, they are now faced with the real prospect of having to reduce jobs, spending programs and retirement related benefits.
But the States and the Federal government are not alone.
During the boom times of entitlement spending and government largess leading up to the financial crisis, local governments that include cities and counties spent their share of forward earnings as well. And now those uncontrolled fiscal policies are coming home to roost.
For those Americans who have worked for decades with the hopes that their pensions, health care and other benefits would be there when they retire, we offer a glimpse into what the future may hold:
Cook County taxpayers are on the hook for a staggering amount of local debt, according to figures presented by Cook County Treasurer Maria Pappas today. Cook County’s numerous local governments face mounting debts totaling more than $108 billion. And, for the first time, specific figures have been collected for municipal unfunded pensions obligations totaling in excess of $25 billion, almost a quarter of debt countywide. The total figures translate into an average debt-per-household in the city of Chicago of $63,525, and $32,901 in the suburbs.
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“We knew that debt and unfunded pension obligations were serious problems at the state and federal level and assumed that a similar pattern would follow at the local level. But, quite frankly, I was stunned by the depth of the crisis for local governments,” said Pappas.
“This goes well beyond big cities, where you expect financial challenges. These fiscal problems permeate townships, villages, school districts, park districts, fire protection districts and more, and the taxpayers are on the hook.”
Source: Cook County Treasure’s Office
Government employees may currently enjoy higher salaries and benefits than the private sector, but they have been given a false sense of security.
A single county, granted one of the largest in the country, is in hock for $108 billion dollars. That’s roughly 1/7 of the total TARP bailout given to banks in 2008. This is a very big number, indeed.
Whether you are a police officer, fireman, school teacher, or utility worker, you could have serious problems down the road.
While Ms. Pappas offerred some ideas to help reduce Cook County’s spending for the future, she provided no realistic solutions for dealing with the current deficit. The reason for this is obvious. There are no realistic solutions expect for either borrowing the money (and further indebting themselves with high interest) or reset by default.
In previous commentaries we’ve discussed the coming wave of State and local defaults, and it appears that the end game is close. Cook County is not alone, and chances are that every major metropolitan area in the country is heavily in the red. This means that the jobs and retirement futures of millions of people are under threat.
We’ll no doubt begin to hear about bailouts for States and counties in the near future, and if the Republicans and Democrats in Congress have their way, then blank checks are a foregone conclusion. The only other option will be for ex-Federal governments to start reducing benefits and firing workers. Politically, that is something our elected officials, even on the Federal level, are not going to want to deal with, so we are hard pressed to see a scenario where the Federal government lets these pensions go into default – essentially being wiped away. After all, they will do whatever it takes to prevent riots in the streets for as long as possible, even if this means kicking the can down the road for a couple more years and further compounding the problem (as has been the case thus far).
Like Greece, these governments will get the bailouts their hardworking employees deserve, only to saddle those counties and cities, as well as the entire nation, with even more debt.
Eventually, the Federal government will hit its (real) debt ceiling as well. That will happen when no one else but The Federal Reserve will buy the US Treasury’s debt issues, at which point the retirement accounts, 401k’s, savings and dollar denominated assets of every American will be completely and utterly destroyed.
Pension Insurer Shifted to Stocks Just Months Before Collapse
The wheels were already coming off by mid 2008, so the writing was on the wall. This shift from bonds to stocks was done KNOWING that there would be a major financial catastrophe and subsequent stock market collapse. This is Wall Street's way of looting and destroying the private pension system in order to pave the way for establishment of a national pension plan in addition to Social Security (ensuring we have both a national health care AND a national pension plan).The Pension Benefit Guaranty Corporation (PBGC) is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 (ERISA) to encourage the continuation and maintenance of voluntary private defined benefit pension plans. Charles E.F. Millard is the former Director of the PBGC [he ran the agency from May 2007 to January 2009]. He was the first-ever presidentially appointed, Senate-confirmed Director of the PBGC [the requirement of the US Senate's confirmation of the private pension insurer director post was part of the Pension Protection Act (PPA), reflecting legislative concern about the financial stability of the PBGC.]
PBGC guarantees payment of basic pension benefits earned by more than 44 million American workers participating in more than 27,000 private-sector defined benefit pension plans. PBGC operates two separate programs. The single-employer program protects nearly 34 million workers, retirees, and beneficiaries in about 26,000 pension plans. The smaller multiemployer program – which covers collectively bargained plans that are maintained by two or more unrelated employers – protects more than 10 million workers, retirees, and beneficiaries in about 1,500 multiemployer plans.
March 30, 2009
Boston Globe - Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.
Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds...
Nonetheless, analysts expressed concern that large portions of the trust fund might have been lost at a time when many private pension plans are suffering major losses. The guarantee fund would be the only way to cover the plans if their companies go into bankruptcy.
"The truth is, this could be huge," said Zvi Bodie, a Boston University finance professor who in 2002 advised the agency to rely almost entirely on bonds. "This has the potential to be another several hundred billion dollars. If the auto companies go under, they have huge unfunded liabilities" in pension plans that would be passed on to the agency...
Former Federal Pensions Chief Faces Criminal Probe
We have an out-of-control corporate oligarchy for our government. If we would stop spending 50¢ for every dollar spend in the world on defense, we would have money for some of our other priorities.
May 14, 2009
Bloomberg - At the heart of the inspector general's inquiry is a controversial decision made in early 2008 to gradually shift billions of dollars from bonds, which make up the bulk of the agency's assets, into stocks, real estate, and private equity investments. The goal, supporters say, was to improve returns and therefore the odds that the agency's gap between its assets and its potential obligations—about $11 billion, currently—would close, avoiding the need for a government bailout at some point down the road. Critics called the move hasty and ill-informed and said it would subject the agency's assets to too much additional investment risk.
Although the shift was approved in February 2008, a PBGC spokesman said no assets have been moved yet under the "strategic partnership" contracts to farm out asset management.
"We will work with our board to decide whether these contracts should be terminated and whether strategic partnerships fit into the board's investment approach going forward," said Vince Snowbarger, the PBGC's acting director, in a written statement. Future PBGC directors won't be allowed to be directly involved in procurement, he added.
In addition to the contract Goldman Sachs was awarded to manage up to $700 billion, Blackrock and JPMorgan each received contracts to manage up to $900 million in real estate and private equity assets, the report said.
"Government Sachs"
Goldman's supporting role in the inspector general's report once again highlights that company's often cozy connections with the halls of government power. Those ties have earned the firm the nickname "Government Sachs," from the fact that Henry Paulson, President George W. Bush's last Treasury secretary, once ran Goldman, to the close ties between Goldman and AIG (AIG), and the bank's receipt of $12.9 billion of AIG's bailout money. Meanwhile, President Barack Obama received nearly $1 million in campaign contributions from Goldman employees, second only to University of California workers.
The PBGC report documents 29 emails between Millard's PBGC account and a Goldman pal, including the extensive assistance by the banker in Millard's job search. That assistance ranged from making introductions to passing along Millard's résumé, biography, and press clippings to CEOs at other financial firms.
Millard called the allegation of impropriety "ridiculous" and said he had a "deep personal relationship" with the Goldman executive. In a written response from Millard that is attached to the report, the former director insists:
"I always acted in the interests of the agency."
In a letter Millard sent Batts, dated Apr. 28, Millard defends his position on the PBGC panels as an attempt to get things done at an agency that in the past hadn't always moved quickly. And some of his defenders imply there may be a political motivation to Batt's report since Millard is an active Republican. Batts notes that her inquiry began long before the November 2008 election and says she has seen no evidence of partisanship.
The investigation, begun on Sept. 17, 2008, as a simple review of the PBGC's implementation of its new investment policy. But within a few weeks it had broadened into a look at Millard's behavior after Batts was approached by an unnamed whistleblower with specific allegations. By Oct. 31, when the PBGC was to issue the contracts with Goldman, JPMorgan, and Blackrock, Batts suggested holding off, but Millard wouldn't, Batts said in a telephone interview.
Unprecedented Dual Role for PBGC Chief
According to the inspector general's report, a whistleblower accused Millard of contacting executives at firms bidding for PBGC business "in order to enhance his future employment prospects." The inspector general's subsequent investigation found 29 emails documenting the extensive efforts the unnamed Goldman executive made on Millard's behalf. The draft report notes that some PBGC employees involved in the investment portfolio "believed that the former Director made some decisions based on his relationship with certain industry members and not on the merits themselves."
Because Millard didn't record details of his calls, visits, and emails, "we could not determine whether [his] communications with Wall Street firms had any impact on his decisions," the report says. However, Millard's actions "made PBGC vulnerable to allegations of bias, improper influence, or abuse of position."
Many of the questions around Millard's conduct stem from his "unprecedented" role on the committee that evaluated bidders and awarded contracts; ordinarily, PBGC directors haven't served in that capacity. Batts says she told Millard that serving on the committee was "unwise," but he continued when told there was nothing expressly illegal about it.
Members of the committee aren't supposed to contact bidders during a "blackout" period, when they are being evaluated—something Millard was told several times, the report says. Yet Millard made phone calls to 8 of the 16 firms bidding on the contracts, including all four finalists and the three firms that were ultimately chosen, Batts wrote in the report. At least nine calls were made from or received at Millard's phone to Goldman Sachs during the three-month blackout period, most to an executive directly involved in the bidding process, Batts wrote. Another six calls were made to or from a key Blackrock official, and at least 10 calls to or from a managing director at JPMorgan.
The report says Millard's explanations for the contacts changed over time, and it suggests that several of those explanations didn't hold up. Batts called the contacts a violation of PBGC policy and federal acquisition regulations.
Millard's "improper actions raise serious questions about the integrity of the process by which the winners…were selected," Batts wrote.The Pension Benefit Guaranty scandal that isn't (at least not yet)
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