|Central States Pension Fund Breaks Its Promise|
Five months before national elections, more than 100 members of Congress lined up in opposition to a proposal that would have reduced monthly benefits currently being paid to pensioners by 22%. This is "on average", some retirees could be hit with up to a 70% reduction. If Americans took the time to stand back and look at the bigger picture they will see the Pension Benefit Guaranty Corporation (PBGC) an independent agency of the United States government responsible for acting as the nation’s "safety net" for failed pensions is also in trouble. When a fund fails this agency is expected to take control of its assets and dole them out to its pensioners in the coming years. The ugly truth is the PBGC is not a rock and is in need of its own bailout. This so-called government agency "independent or not" has total assets of about $88 billion and liabilities of $164 billion.
|Kenneth Feinberg Rejects Cuts, Now What?|
Feinberg also criticized the massive 8,000 page Central States application for failing to meet the law’s requirement that it “be written so as to be understood by the average person participating in the fund. He pointed to one 98-word sentence that includes four critical terms, the definitions of which are not contained in the notices, but rather in cross-referenced documents that are not attached. One point Feinberg makes clear is that few union employees can be expected to have the legal, accounting and actuarial resources the pension plan’s administrators did in drafting the document. Ironically, one of Feinberg’s own sentences amounted to a 110-word lecture. A serious matter remains, however, after those unhappy with the Central States Pension Fund have voiced their opposition to cutting benefits and facing reality, the fact is the pension fund simply does not have enough money.
In recent years pension funds have not been able to generate the earnings and high returns that they had predicted and forecast. Now that interest rates have fallen and growth has slowed it will be even more difficult. Joshua Gotbaum, President Obama’s former head of the PBGC from 2010 to 2014, voiced his unhappiness with Washington leaders and their failure to confront this reality when he said. “I am disappointed that theTreasury chose to use its discretion under the law to undermine the purpose of the law.” Gotbaum continued, “No one wants to admit that pension benefits have to be cut, and therefore, in public, no one wants to be seen as supporting anything that cuts benefits. However, unless some (Central States) benefits are cut, all are cut.”
While it could be said that several ways exist to cheat or rob those who paid into pensions for years it would be an understatement, more ways exist than you could imagine. One reader on another site compared pensions to a Ponzi scheme where benefits are paid out to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources. I fear the future will prove him mostly right. We are only beginning to see the tip of the iceberg when it comes to this growing problem and just how many of these schemes are underfunded. It should be noted this is not a problem only in America, but it exists all over the world. Remember the PBGC, America's safety net for failed pensions has total assets of about $88 billion and liabilities of $164 billion, this is an indication of how dire the situation is.
Footnote; A prior article dealing with the issue of underfunded pension funds can be found below.