The Liberty Tree Lantern

Retirement-plan crisis means bailout of PBGC, though years away, is likely - (YEAH, RIGHT!  Perhaps three on the outside. More likely 1 1/2 years from now. – Capt. Karl)

Sept. 3, 2009

By Andrea Coombes, MarketWatch

SAN FRANCISCO (MarketWatch) — When the agency that insures traditional pension plans is running a $33.5 billion deficit — the largest in its 35-year history — should you be worried? If you’re a worker or retiree counting on a traditional pension, the answer is probably not. But if you’re a taxpayer, start worrying.

http://www.marketwatch.com/video/asset/keeping-a-close-eye-on-your-portfolio/AE1CA3E2-1DB5-4590-9EE9-57DF6F969EC1
Though it will likely take years, it’s all but inevitable that at some point the Pension Benefit Guaranty Corp., the agency responsible for guaranteeing pension benefits for some 44 million Americans, will need to either cut those benefits or raise a lot of cash, experts say.

Eye on your portfolio

MarketWatch’s Sam Mamudi asks New Yorkers how often they review their stock and bond allocations and whether they adjust their portfolio according to market conditions.

Given that slashing payouts to older people is considered political suicide, the likely scenario is that the U.S. government will pony up funds to shore the agency’s finances.

Pensioners “don’t have to worry,” said Douglas Elliott, an author of numerous studies on the PBGC and a fellow at the Brookings Institution, a Washington-based public-policy think tank.

“The taxpayer has to worry. There is no way politically that Congress would let the PBGC fail to send checks to Grandma and Grandpa. Just like they rescued the savings-and-loans years ago without the legal obligation to do it, just like they rescued a number of banks without the legal obligation to do it, they’ll do the same thing with the PBGC if necessary,” Elliott said.

Still, even if the weak economy gets worse before it gets better, and even if more companies with underfunded pension plans go belly up, the PBGC has years before its liabilities become an issue.

“Even in an Armageddon scenario, we’ve got 10 or 15 years,” Elliott said. “Even a badly funded pension plan that gets taken over usually has enough money to pay its claims for 10 to 15 years. The problem is it needs to keep paying for 60 years.”

So far this fiscal year, which ends Sept. 30, PBGC has taken on 94 pension plans, up from 74 in fiscal 2008 as the big pension plans of failed auto-industry firms join those of airlines and steel companies on the long list of takeovers.

A decade of large pension failures

Currently, the PBGC doesn’t receive tax revenues; instead, it’s funded by company premiums and investment returns, plus it collects the remaining and often substantial assets of any pension plans it takes over. But after already taking on nine of its top 10 largest claims since 2001 — the largest claim ever, in 2005, consisted of four United Airlines’ pension plans with a total cost to the agency of $7.2 billion — the current economic downturn has knocked out another swath of companies with traditional pension plans.

Those failures — most notably in the auto-supply industry — have helped triple PBGC’s deficit to $33.5 billion from $11 billion in just the six months from September 2008 through March 2009. Delphi, the nation’s largest auto-parts maker (it spun off from General Motors in 1999), entered bankruptcy four years ago. This July, the PBGC took over its pension plans, at a cost to the agency of about $6.2 billion.

All told, about $11 billion of the PBGC’s higher deficit in recent months is from actual or expected plan terminations. Another $7 billion is from a drop in the interest rates used to calculate how much the agency owes beneficiaries over time. (Lower interest rates push higher the figure for future outlays.) Investment losses drove $3 billion of the deficit.

The agency has been on the congressional hot seat this year since it came to light that former director Charles Millard in 2008 aimed to shift the agency’s assets more heavily into stocks and alternative investments. The agency has since put that investment policy on hold. In April, the PBGC’s portfolio consisted of about 30% equities, 68% fixed-income securities and 1.5% alternative investments.

More like Social Security than FDIC

The PBGC resembles the Federal Deposit Insurance Corp., another quasi-government agency that’s facing financial straits and relies on company premiums to protect regular people — bank customers in the FDIC’s case. The FDIC may need a cash infusion sooner rather than later, given the high number of bank failures recently and the fact that the FDIC must pay out cash to depositors almost immediately. See related story.

The PBGC has decades before its liabilities become due.

“There’s a point where the Social Security fund starts to run out of money if they don’t change anything. That’s a similar analogy to the PBGC,” said David Kudla, chief executive of Mainstay Capital Management LLC, an investment advisory firm that often works in the auto industry. “At some point, they either need to charge higher premiums or reduce benefits to current beneficiaries or have a capital infusion from the U.S. government,” he said. “The third [option] is probably the most likely.”  - – Folks, the withholding taxes on the average common workingman are going to go up dramatically shortly after the next election to pay for all sorts of Socialist programs.  WHY? ? ?  Because we have looked to unconstitutional government programs to solve problems and issues, when the answers to these problems have always laid with ourselves, local charities, church congregations, friends, family, neighbors and local communities.  If we are to restore our individual wealth, prosperity, freedom and liberty we need only return to our unique American culture, roots, heritage, history, and constitutional principles; which are laid upon the foundation of the golden rule to love our neighbor as ourselves, and to treat others as we would like to be treated ourselves; NOT to expect the cold hand of Government, such as Social Security, Medicare, FDIC, PBGC or Universal Health Care to take care of our individual responsibilities to do these things and take care of these things for our fellow man through our own abilities and means.  We must stop legalized stealing from our neighbors and fellow man who live across our country in the form we call income and other taxes.  We must learn the meaning of freedom as defined by our founding fathers and the 28 Freedom Principles that has provided all of us common working men and women with the ability to become individually wealthy and powerful through the benefits and advantages of liberty. 

Freedom means “without” Government interference or Government stealing in the form of taxation in our lives.  How did we stray so far from our roots to the point that most people don’t even understand or comprehend what I am even writing here.  Those of you who don’t have a clue as to what I am talking about, you have been utterly and completely “Mass Behavior Modified” as the U.S. Government and Health and Human Services calls “brainwashing”; and you don’t even know it.

Because so many of our fellow countrymen have been “Behavior Modified” and, therefore, don’t know, comprehend or understand the one and only “true” definition and meaning of the word “freedom”, nor the vast incredible benefits that mankind can derive from it, this is the very crux of why all of this, including the collapse of our economy is happening to us.  We have lost our way.  We have allowed the dark side of the force to control our minds to the point that we actually believe that wealth can be printed by man out of thin air by a cartel of twelve privately owned (by forty internationally mega-powerful individuals) huge banks called The Federal Reserve “System”.  Would you please ask yourself why you honestly believe that wealth can be printed by the Trillions and Trillions and Trillions out of thin air by man in the form of FEDERAL RESERVE “NOTES”?  And, in addition, don’t you have any idea what a “NOTE” is?  Think, people, snap-out of your stupor!   You are living in a world, an economy based on “NOTES”.  Grab any denomination of dollars out from your wallet right now and look on it for yourself.  It tells you that what you are holding is NOTHING MORE than a “FEDERAL RESERVE ‘NOTE’”…   Wake UP!  Take the God damn Red pill and comprehend that you have accepted I.O.U.s, which is precisely what a NOTE is, for your labor for your whole life, as you have been programmed to do.  Don’t you understand that the dollar WAS, by definition going all the way back to our countries birth, a gold or silver coin, worth an actual value that couldn’t be printed out of thin air?  Our Federal Government, against the LAWS that we wrote upon THEM in the Constitution has duped us into believing that a piece of paper is worth 100 cents, when in reality it was worth 4 cents at best.  We have never been fully paid for our labor and we have never paid for anything in our lives with ‘real’ money, with the exception of gold or silver coin or if any of us used The Silver Certificate that the honorable John F. Kennedy initiated in the mid-late 1950s.  Those were not “NOTES”.  That was real money.  Because The Federal Reserve was on a mission to program and develop “The Matrix” through the Mass Behavior Modification of our minds, to increase their power, influence and profitability many believe that is the reason that JFK was snuffed out in the bizarre still unexplained set of assassinations where JFK’s murderer was “disposed of” before anyone could get the answer out of who hired him for the assassination.   It was only 5 months before that when Kennedy signed the Executive Order that called for Silver Certificates, which were backed by the real assets of God created value in the form of Silver bullion held in Federal Vaults, which would spell the wonderful end of the creation of “The Matrix”, the programming of our minds, the defense of The Constitution and the end of The Federal Reserve “System”; all culminating into the restoration of true freedom, prosperity and the rule of law as we wrote in the Constitution.  The one act would have made contempt for Article 1 Section 8 as supported by the 9^th and 10^th Amendments very difficult by the tyrants in both houses of Congress as they wouldn’t have been able to steal our money in the form of taxation so easily.  Thus we now find ourselves in the straits we find ourselves today such as what is reported in the article surrounding this comment piece.  This has also lead to the GIANT Socialist Ponzi schemes known as Social Security and Medicare, which alone are up to $99 TRILLION Dollars in UNFUNDED liabilities over the infinite horizon.  Where, folks, do you suppose they are going to get that money from?  Bend over and grab the soap, folks, because your taxes are about to skyrocket up after the next election, which, combined with “hyper-inflation” will result in the utter and total collapse of “The MATRIX” (our economy based our minds believing that pieces of paper and ink, called FEDERAL RESERVE “NOTES”, are actually worth 100 cents each.  Hyperinflation is where the entire world revalues the U.S. Dollar to its true “real world”, outside of The Matrix programming of our minds, to the real world value of 2 – 3 cents.  When that happens a loaf of bread will cost us at least $50.00.  A gallon of gasoline will cost us $80.00,” each gallon”.  The cost to fill up the average car will be $1,440.00.  The average monthly heating bill for your home will be $8,000.00.  Your monthly electric bill will cost you even more.  But before that fully happens Government withholding from your weekly paycheck will rise up to as much as 80% of what you earn, JUST to pay for Social Security and Medicare ALONE!

And, all of this because Government’s hand in and control of curriculums in our “public” schools which don’t even teach the true ‘meaning’ of the term FREEDOM nor the 28 canons and principles of it.

Please people, WAKE UP, before it is too late and you let them talk you into how wonderful it will be to have “health monitoring” financial transaction authorizing, automatic income taxing, “No Checkout”, microchips implanted into us and then they will have absolute control over us because they will be able to ensure that the “domestic terrorists” amongst us who believe in the one and only ‘true’ meaning of freedom and who support the FULL FORCE AND EFFECT of the rule of LAW in The Constitution, word for word, will be prevented from our first Amendment rights to gather and for free speech.  Then the US Government will be able to track every single step, of every single person, ubiquitously, in America and even listen to any person’s “private” conversation 24/7 through RFID enabled cell phones.  See: Two Minute Warning to BIG BROTHER going ON-LINE:

You see folks, the US Government HAS TO have total control over all of us BEFORE, the MATRIX, goes down.  Or, God forbid, we will have Constitutional freedom by nature and, thereby we will, after a few years of hardship and survival, begin to become individually prosperous and powerful, in true freedom outside of the control of “The MATRIX” and taxes which is something the Government and “The Fed” as they are today via usurpation, corruption and tyranny, cannot a survive and will not tolerate.  - – Capt. Karl

The fortunes of the PBGC rise and fall in concert with the broader economy: When it hits a rough spot and company bankruptcies increase, the pension agency is forced to take over more retirement plans. And as companies start failing, their pension plans usually worsen.

Companies’ pension-fund deficits “get worse, sometimes dramatically worse, in the last year or two before they go bankrupt,” Elliott said. Companies may stop paying into the plan, shift assets into riskier investments, or, as in the case of United Airlines, promise larger pension benefits to some workers in exchange for pay freezes.

By the time the PBGC steps in, the promised benefits of a plan usually far exceed its funds. Of course, the PBGC doesn’t always pay what the company has promised.

The maximum PBGC benefit payout for a 65-year-old is $54,000 in 2009 (the maximum generally changes annually). That should be of particular concern to auto workers. PBGC estimates that it guarantees just $42 billion of the $77 billion in unfunded pension liabilities at auto-industry companies.

“Participants in auto-sector pension plans and the other stakeholders of the pension insurance program are at substantial risk of loss if these plans are terminated,” said Vincent Snowbarger, the PBGC’s acting director, in testimony to lawmakers in May. See related story on what to expect if PBGC takes over your pension.

Meanwhile, the fate of GM and other carmakers looms on PBGC’s horizon. Despite some positive economic news of late, it’s too soon to tell whether the carmakers are completely out of the woods. GM’s pension plan performed better than many through the downturn, but was still underfunded by $20 billion according to PBGC estimates in November.

Still, even if the PBGC were to take on that plan, it could help the agency in the short term. “Ironically, if they were to take over some big pension plan like GM’s, it could conceivably be a little longer” before a bailout becomes necessary, Elliott said. “It can turn into something like a Ponzi scheme. They take on more obligations than they can meet, but they get a bunch of cash up front because they take over the assets of the pension plans that are underfunded.”  Isn’t that special?  Sound a little bit like the Socialist programs of Social Security and Medicare which are $99 TRILLION DOLLARS in UNFUNDED liabilities over the infinite horizon themselves?  Sure let’s add PBGC and Universal Health Care to the Party!!  Woo,  Woo!  Pass the bong, man, this is really some good stuff, man!

Can you imagine when every single American soul is dependent upon the US Government just for a roof over our heads and bread on the table?  Don’t you people see where this is all leading us to?  All of this US Government “free stuff” and Socialism, of the dark side of the force, leads us down a dark path and at the end of the path stands the devil who is expecting is due, and he charges us with the cost of our very souls.  Wake UP folks, BEFORE it is too late!  Once they talk us into the admittedly fabulous benefits of accepting MICROCHIPS being implanted into us, we are done for.  Then we will be completely under the control of the Government and nothing but impoverished slaves living in total tyranny  and despotism, with nowhere on Earth to run from the One World Government, ultimately controlled by the bankers /owners of The Federal Reserve “System” where all  of this is leading.  – - Capt. Karl

Meanwhile, PBGC’s balance sheet will get a more certain boost when interest rates rise again, because higher rates reduce what the agency must set aside to cover future liabilities.

“You end up with a history of the PBGC’s deficit bouncing up and down fairly wildly based on what happens to the markets and to the economy,” said Dallas Salisbury, president of the Employee Benefit Research Institute, a Washington-based nonprofit group.

“If interest rates go down then suddenly you have a bigger liability. If rates go up then your liability magically shrinks,” said Salisbury, who was an assistant to the PBGC’s executive director in the late 1970s.

Also, some note the PBGC is on better financial footing than its looming deficit indicates because the agency’s method for calculating its liabilities may overstate its obligations.

“They do a survey of insurance companies to get the prices of group annuity contracts. Those are generally pretty low rates, so that increases liability,” said Mark Warshawsky, director of retirement research at consulting firm Watson Wyatt, and former assistant secretary for economic policy in the Treasury Department.

A bigger board of directors?

Even as the agency faces its largest-ever deficit, some in Congress are calling for a change to the agency’s governance structure. The agency’s three-member board is comprised of three Cabinet-level appointees, the heads of busy departments — Treasury, Commerce and Labor. That’s cause for worry, according to a recent GAO report.

“It’s very difficult for a three-member board that has so many other responsibilities to provide the kind of attention to the corporation that it really needs,” said Barbara Bovbjerg, director of education, workforce and income security issues at the GAO. The GAO recommends a larger board that doesn’t turn over when a new administration comes into office.

“Governance isn’t going to be the answer to PBGC’s financial problems, but they face so many challenges that it’s really a necessary ingredient of managing the challenges that they have,” Bovbjerg said. Senator Herb Kohl, D-Wis., and others introduced a bill in July to change the agency’s oversight structure.

Still, a PBGC spokesman and others noted that each board member has a representative who works full time on PBGC issues.

Retirees: What’s next?

Given the upheaval at companies that offer traditional pensions, people who expect a pension should monitor their company’s financial health, Kudla said. It’s prudent to assess how a PBGC takeover might affect your future payments, he said.

Kudla suggests some people might do better taking a lump-sum distribution from their company before that happens — if that option is available. He also suggests keeping an eye on the PBGC maximum. If your expected pension is at or below the maximum, a PBGC takeover should not change your benefits.

If taxpayers do eventually bail out the PBGC, it could be a bitter pill for some of them. “You would be getting a bailout from taxpayers who never had a defined-benefit plan,” Bovbjerg said. “If you have a 401(k), you don’t have guarantees like that,” she said.

“It’s easier to talk about funding rules and the PBGC than to bring up the broader issue of secure retirement. But really that’s what is fundamentally at issue. What are Americans going to live on in their old age?”

Andrea Coombes is an assistant personal finance editor for MarketWatch, based in San Francisco.