It wasn’t too long ago that in this column we covered the trials and tribulations of General Motors’ beleaguered pension plan. It seems that the topic of pensions is in the news and making news again.
Take for example the federal agency Pension Benefit Guaranty Corporation. On Thursday January 15, 2004, it stated that its deficit had grown from $3.6 billion to $11.2 billion in just a single year! The agency stated it was dealing with the problem by overhauling its own investments. I’d say so! Better now, than say when the loss multiplies exponentially again.
To spell it out simply, this agency provides insurance to pension funds. If a pension fund can not meet its financial obligations to retirees in the plan, PBG bails them out.
PBG collects premiums from the various pension plans. Typically 37% of its $35-billion assets is invested in stocks. It seems no one figured out that the reason pension plans lose money in the first place is because of investment errors in the stock market.
So it makes very little sense to us here at PROFIT CONFIDENTIAL that any of the insurance money set aside for the purpose of “rescue” should be invested in the same way. Double down in Las Vegas but not with people’s pension money!
It’s time for some much-needed pension reform. Steve Kandarian, executive director of PBG, suggests that the way things are run now, the well-run funds supply the bail out money for the poorly run funds. Companies that are in financial trouble can and do borrow from their pension plans to see if the money they find “there” can resolve business problems “here.” We even have people like Carl Icahn, who target companies with pension surpluses for hostile takeovers. Just to get their hands on the surplus.
Don’t mistake what I’m saying. PBG has a separate investment portfolio that has fixed income products, but in the last two years the portion in equities has dragged them down, to put it politely.
Not only did the PBG post record deficits in the last two years, but the administrators are suggesting that corporate pension plans are also in dire straits. But corporations aren’t alone either. Losses have spread to union led pensions. Most of the risk posed by the union plans is concentrated in the construction and trucking sectors.
Three of the 10 union plans showing the largest deficits at the end of 2002 were run by the International Brotherhood of Teamsters. No more recent data on returns are available at the present time. I hope it’s for all the right reasons.
Who would really want a bunch of angry Teamsters wondering what happened to their retirement money when the time comes? In fact, that’s what this is all about. People and their retirement.
The spat of recent shortfalls, be they at a federal level, corporate level, or union level, scare me silly. America’s workers are some of the most productive in the world. They work long hours and sustain our collective wealth as a society. They should be honored and respected at all times, not treated like “assets” when they work and “liabilities” when they retire.
Some serious pension reform is required. If I had a corporate or union pension, I certainly would pay attention to the annual returns. After all, it is my money.
It is tough to see yet another situation where the “little guy” who puts up the money for retirement gets burned by the “big guy” managing it. Money and pension managers should remember the basic principle of investing… preserve your capital. It seems obvious when the set goal for the investment is retirement.