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U.S. Pension Crisis
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Author U.S. Pension Crisis
HenryTo
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PostPosted: Sun Jan 08, 2006 12:39 pm    Post subject: U.S. Pension Crisis Reply with quote

The more immediate effect will be felt by the workers, not the corporations as usual. That is, companies will continue to shun and dismantle DB plans going forward - thus leaving the responsibility of savings for retirement in the hands of individual workers (e.g. IBM just froze their $48 billion DB pension plan). The next effect will be felt by companies with huge pension and retiree healthcare obligations, such as GM, XOM, etc. Note that companies such as MSFT, ORCL, and INTC, etc., do not have DB pension plans. Before you invest in individual stocks, make sure that you do some research on their pension plans and understand how this will affect their balance sheets going forward.
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Pension Crisis Could Hit Balance Sheets
Saturday January 7, 5:56 pm ET
By Ellen Simon, AP Business Writer
Accounting Change Could Make Pension Crisis Hit Corporate Balance Sheets Over Next Five Years

NEW YORK (AP) -- The pension system is heading for a crisis, or maybe two.

The first is the most worrisome for workers: Too many pension plans aren't adequately funded or are already in default. The companies in the Standard & Poor's 500 with traditional pension plans need to put aside another $40 billion this year to fully fund the plans, according to S&P.

The second impending crisis is an accounting change that may make pension issues more painful for corporations. Accounting regulations for both pensions and retiree health care costs are poised to change in the next five years, in what could be the largest shift in accounting rules in more than 30 years.

"We believe this project will have a significant impact on evaluations, income and balance sheets, and will become the major issue in financial accounting over the next five years," said Howard Silverblatt, equity market analyst at Standard & Poor's.

The Financial Accounting and Standards Board, the arbiter of the nation's accounting rules, has said it will require companies to add their net pension and retiree-healthcare costs to their balance sheets within the next year. Then, over the next three or more years, the accounting methods for pensions and retiree-healthcare costs will also change.

The first change, which will move pension and retiree-healthcare costs from financial footnotes to balance sheets, could be dramatic, increasing companies' leverage and changing computed returns, book value and shareholder equity ratios. These ratios are closely watched, since many loans and bonds deals cap a company's leverage ratio. And the changes could be eye-popping. The aggregate drop in shareholder equity, for instance, will be 10 percent, Silverblatt wrote in a December report.

What about companies that freeze their pension obligations, as one in 10 pension plans insured by the federal Pension Benefit Guaranty Corp. did in 2003, according to the pension agency, and as International Business Machines Corp. announced it will do Thursday?

Freezing pensions benefits can obviously limit a company's liabilities, but unless the company defaults on its pension obligations, it can't walk away altogether.

"Pensions are legal obligations," Silverblatt said. "There's a guarantee."

If the company's pension plan defaults, the Pension Benefit Guarantee Corp., which guarantees pensions for 44 million people, will pay retirees up to $45,614 a year.

But retiree healthcare-costs are a muddier issue.

Of the companies in the S&P 500, 337 offer some kind of medical benefits for retirees. According to Silverblatt's analysis, only 282 companies provide sufficient information for estimates about their retiree-healthcare plans. Those plans are scarily underfunded: Companies would have to set aside $292 billion to meet current obligations, according to his analysis.

The state of these funds "is extremely unsettling," Silverblatt wrote.

Unlike pensions, retiree health care costs aren't a clear-cut legal obligation, unless they're part of a contract, which is the case at Ford Motor Co. and General Motors Corp., where retiree healthcare-obligations are underfunded by $94 billion.

For employers where retiree health care costs aren't part of a contract, the question is what a company's legal obligation is to fulfill the plan's promises. "If a company tells it's employers, 'You have to cover 99 percent of your premium,' is that a breach?" Silverblatt asked.

No agency will step in and pay a company's retiree-healthcare costs. In the S&P 500, retiree-healthcare plans cover 12 million employees.

The discussions around both pensions and retiree health care costs will be "lively, political and complex," Silverblatt predicted.

Pensions and retiree-healthcare costs "have moved beyond individual companies," he said. "Their importance to the global economy is now self-evident."


Last edited by HenryTo on Sun Apr 11, 2010 9:36 pm; edited 2 times in total
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rffrydr
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PostPosted: Tue Jan 14, 2014 9:18 am    Post subject: Reply with quote

One more just for "effect":

http://online.wsj.com/news/articles/SB10001424052702304202204579252261223795506?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304202204579252261223795506.html
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PostPosted: Sun Jan 05, 2014 7:09 am    Post subject: Reply with quote

No-one saw (or, that is, cared) this coming: Wink


http://www.bloomberg.com/news/2014-01-03/deere-3m-see-76-billion-pension-burden-easing-on-fed.html

Not gonna be captured in index investing.
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PostPosted: Mon Dec 09, 2013 8:45 am    Post subject: Reply with quote

Aside from General Motors the real pension crisis in the US is right where "Big Labor" would have never imagined it:

http://www.latimes.com/nation/la-na-public-employee-pensions-20131208,0,3337836.story#axzz2mzM4mAHB

Judge has determined what was plain to see all along: taxpayers are too, a "creditor." Not willing to give any credit to Meredith here, but let the Pre-Paks rain!
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PostPosted: Sun Jun 30, 2013 2:02 pm    Post subject: Reply with quote

I don't know if it's too late for the Post Office but things could be getting suddenly brighter on this front, esp for the Detroit autos. Ford has more to gain in percentage terms but GM should print a very big number indeed.
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PostPosted: Tue Feb 12, 2013 8:47 pm    Post subject: Reply with quote

Things getting complicated in Stockton: CalPers vs Monolines

http://calpensions.com/2013/01/17/how-would-stockton-bankruptcy-cut-pensions/

Even the ol' police scare is failing.
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PostPosted: Tue Feb 05, 2013 12:08 pm    Post subject: Reply with quote

Boeing going with "core earnings" in dual reporting to get outside of pension kill.
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PostPosted: Mon Feb 04, 2013 5:06 pm    Post subject: Reply with quote

Do all roads lead back to Buffett?

http://www.bloomberg.com/news/2013-02-04/buffett-gets-1-8-billion-in-investment-assets-in-deal.html
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PostPosted: Mon Sep 03, 2012 10:14 pm    Post subject: Reply with quote

The poison of flattened rates is beginning to taint Wall St.'s mother's milk. State Pensions are doing math they can no longer afford to ignore. If creditors don't start being proactive they're going to win again...and loose something big down the road.

http://www.nytimes.com/2012/09/04/business/how-a-plan-to-help-stockton-calif-pay-pensions-backfired.html?ref=business&_r=0

Quote:
Alicia H. Munnell, director of the Center for Retirement Research at Boston College, looked at outcomes for nearly 3,000 pension obligation bonds issued from 1986 to 2009 and found that most were in the red. “Only those bonds issued a very long time ago and those issued during dramatic stock downturns have produced a positive return,” Ms. Munnell wrote with colleagues Thad Calabrese, Ashby Monk and Jean-Pierre Aubry. “All others are in the red.” Only one in five of the pension obligation bonds issued since 1992 has matured, so the results could change in the future.

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PostPosted: Thu Jun 28, 2012 5:46 pm    Post subject: Reply with quote

Oh don't worry there's plenty more where that came from, they only put $26B to bed--and the white-collar guys are up in arms about it, so presumably could be killed. $100B more to go. Funny how they dwarf all the others combined in that article and aren't mentioned.

Unfortunately, not just GM, but just about any other "prudent" pension fund here, and in europe, have just concentrated their bond holdings all the more. Throw in all the safety-first local governments, the Post Office, and a repo market suffocating for collateral and you've got the exact opposite of FED intentions working at counter-purposes. Mark-to-market, like I've quoted Churchill before, is like a parachute: "great when it opens!"

Things are bad enough without the bean counters bringing us low.

Assuming this goes through there's gonna be one hell of a deer-in-the-headlights moment; and then a nice new curve in the bond market when the dust clears (IMATHHO) We just might see some equities bought in for a change Idea
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PostPosted: Thu Jun 28, 2012 4:46 pm    Post subject: Reply with quote

rffrydr wrote:
Hey hey hey hey...this should be front page

http://nicosiamoneynews.com/2012/06/27/congress-set-to-grant-pension-windfall/
Makes GM's timing look even worse in retrospect ...
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PostPosted: Thu Jun 28, 2012 1:14 pm    Post subject: Reply with quote

Hey hey hey hey...this should be front page

http://nicosiamoneynews.com/2012/06/27/congress-set-to-grant-pension-windfall/
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PostPosted: Fri Jun 22, 2012 8:30 am    Post subject: Reply with quote

Get govt. pension reform and you'll get privatization reform:

http://www.nytimes.com/2012/06/22/opinion/krugman-prisons-privatization-patronage.html?_r=1&hp
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PostPosted: Tue Jun 19, 2012 7:33 am    Post subject: Reply with quote

Low low rates kill. Long live low low rates.
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PostPosted: Mon Jun 18, 2012 5:04 pm    Post subject: Reply with quote

http://soberlook.com/2012/06/with-all-talk-about-mark-to-market.html
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PostPosted: Mon Jun 18, 2012 5:04 pm    Post subject: Reply with quote

rffrydr wrote:
http://www.bloomberg.com/news/2012-06-13/danish-bond-yields-jump-on-eased-pension-rules-copenhagen-mover.html

Hey, Bill.
Thnx. People underestimate the institutional demand for duration.
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