February 6, 2012

Next Taxpayer Bailout: Pension Benefit Guaranty Corporation

The Pension Benefit Guaranty Corporation 2005 financial statements (PBGC Releases Fiscal Year 2005 Financial Results) showed that the recent bankruptcies of United and other old world industries have shifted tens of billions of dollars of pension liabilities from the private sector to the quasi public sector. How does the PBGC meet it's underfunded liabilities? You guessed it, taxpayers. Nice game huh? Shift liability from the shareholder to the taxpayer? I can give you a very long list of private debts I would like to make public debts. A large reason we are in this mess is that lax accounting rules have allowed corporations to pump up earnings by not funding their pensions. GM's debt was recently downgraded to junk status and the stock crashed when they were forced to make a $13B restatement of earnings to reflect their underfuned pension liability. If you looked at the three major car companies they basically don't make any money and only exist to pay their pensions for retired employees. What does all this have to do with entrepreneurship and startups? Everything. If you can start a company today in an industry with a heavy pension burden, you may be able to get a competitive position out of the gate due to your lower fixed cost liabilities. - The next bubble is not housing, it is pensions, Deep Green Crystals, November 15, 2005

U.S. Pension Agency Deficit Largest Ever at $26 Billion

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.

If a company ends its pensions and hands the obligation for future payments to the PBGC, the agency limits how much it will pay, with the current top benefit now $54,000 a year for people who retire at 65; less for those who retire earlier. [Source]

November 15, 2011

CNBC - The U.S. agency that insures corporate pensions reported a record annual deficit of $26 billion on Tuesday with its potential exposure to financially weak companies also on the rise in a tough economy.

The Pension Benefit Guaranty Corp said the shortfall — the difference between assets on hand and obligations it owes retired workers — grew by $3 billion in the fiscal year that ended Sept. 30.

Most of the deficit was in the account for pensions once run by individual corporations — or single-employer plans. Those traditional plans were structured to pay a set annual amount to retirees.

PBGC, which covers 44 million workers and retirees in mainly single-employer plans, said its potential exposure to financially weak companies grew by $57 billion to $227 billion from the year-ago period.

The agency did not identify specific industries or companies.

In 2011, PBGC paid nearly $5.5 billion in benefits to 873,000 retirees and assumed responsibility for 152 underfunded plans.

Lower interest rates used to measure benefit payments was a factor for the higher deficit last year, the agency said.

PBGC has $81 billion in assets on hand to cover obligations, the bulk of which are benefits to be paid over many years.

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).

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...
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