Looks like a good book. A little honesty from the corporate sector would be nice once in awhile…unfortunatelly it seems people must always dig for the truth.
*Corporations often blame pension shortfalls on out-of-control factors such as the large number of retirees and anemic investment returns. But a new book suggests other possible causes.
Editor’s note: This article is adapted from “Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers,” by Ellen E. Schultz, published by Portfolio/Penguin for Penguin Group (USA). Used by permission.
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This is why I control my retirement planning. I don’t invest the company 401k, but I do participate in the stock matching, but that is only part of my portfolio. Once the stocks are purchased, they are mine, in my account that the company cannot touch.
The decline and ultimate demise of corporate pension plans can be laid to President Reagan. Prior to his first term in office, corporations and other business could not touch any of the money in the pension plans they provided for their employees. As a result, many of these plans amassed enormous surpluses ( more than what was required legally to pay the pensions of current and future retirees).
In 1984, president Reagan’s regime then changed the rules, and allowed the
busisness firms to liquidate these pension plans and pocket the surpluses. The employees had absolutely no say-so in the matter.
I know this to be a fact because I had just become vested in my company’s pension plan in 1984. Then, in the same year, the company was sold. The new owners promptly liquidated the established pension plan and split a 9 million dollar surplus between themselves and the former owners. Anyone who even brought up the subject was promptly fired.
When interviewed later, he said that the company was a large pension fund and medical insurance company … that also made some cars and trucks.
… Meaning … that the pension fund obligations and medical insurance obligations were so huge that they overwhelmed the automobile side of the company.
Sometimes, if the company is old enough and there are enough retirees, then there just isn’t enough money to go around to fund the private pensions.
Bad actuarial planning.
Pensions are just VERY expensive to fund.
Look it up yourself … if you had to fund your own retirement fund, how much money would you need to put into an annuity each year for … say … 50 years.
You can run the numbers, but it would probably be close to 50% of your salary.
It depends on the assumptions of annual return and starting early enough and compound interest, and etc.
Some companies would not even let you begin to participate in a company pension plan until you had been there for a number of years … to keep the pool down to a financially feasible size.
For “fun” call an insurance company and ask them for a quote … how much would you need to invest yourself in an annuity.
Companies aren’t required to provide pensions, or any other benefits, for that matter. (Exception may be the now mandated employer-based health insurance program.) These benefits were usually there to attract workers, nothing much more than that. As companies look for ways to cut costs, the first thing they look at are non-obligations. Those who were promised those pensions, of course, stand at the top of the priority list. The rest have to find other ways to prepare for their retirement. Est quod est.
What if they simply cannot fund these pensions anymore without destroying the business? What is the moral obligation to the current employees and bond/share holders?
Then they should hand the business over to the pension fund. Kind of like a mortgage debt trumps all other obligations, if you are behind on your house payments, the bank gets your house, regardless of your obligations to your kids, your church or whatever.
I just think they should stop providing all these “benefits” and start paying more wages/salary. Then the workers can sink or swim based on how they spend their own money. But that’s never going to happen, just like health insurance is never going away.
Preferred shareholders (unless your company is being taken over by Obama) are the creditors of preference over pension holders. The one’s whom you owe money to for being in business to begin with get their cut first, because they are the ones who take the majority of the risk.
Actually, the common shareholders are the ones you get the money from to run the business, and they get their cut last. Preferred shareholders are ahead of common shareholders, but preferred shareholders are usually a tiny fraction of the capital structure of most firms.
If the company hands its business over to the pension fund, then to keep the pension fund afloat, they will have to cut back the promised pension payouts.
More likely, the pension fund will mismanage the company’s business, be forced to liquidate it … meaning: they have a giant garage sale … and are forced to live with whatever the proceeds are.
So, all the employees lose their jobs, all the shareholders lose everything, and the pension fund receives ten cents on the dollar … so that there is only one tenth of the promised money available.
Not necessarily, it would depend on the assets and other liabilities of the business.
More likely, the pension fund will mismanage the company’s business, be forced to liquidate it … meaning: they have a giant garage sale … and are forced to live with whatever the proceeds are.
If the management has promised pension benefits that cannot be delivered then that by definition is mismanagement. What would make you think that the trustees of the pension fund would hire managers who are less competent?
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So, all the employees lose their jobs, all the shareholders lose everything, and the pension fund receives ten cents on the dollar … so that there is only one tenth of the promised money available
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If the company promises pension benefits that it cannot pay, the shareholders should be the first to lose, since the shareholders are by definition the last in line to get cash flows from the business. Will the company necessarily shut down? It may or may not, but it will be entirely unrelated to whether the company is owned by the shareholders, the pension fund or anyone else.
Because pension fund managers are supposedly experts in managing money … and specifically … pension funds.
Doesn’t mean they know beans about running a company that writes and sells software or makes and sells thermothroggles or runs an airline or mills and sells wheat berries.
So, good idea, fold the company, liquidate the assets, the current employees are now on unemployment and the pension holders get a lumps sum worth pennies on the dollar. Fantastic!
Who said anything about folding the company. You can transfer ownership without shutting down the company. After all, the issue is about the morality of skipping out on an obligation. If there is equity in the company and not enough money to pay pension benefits the pension fund gets the equity plain and simple (up to the amount necessary to fund their obligations). If that gives the pension fund control of the company, then it is the pension funds decision whether to continue or shut down.
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