Pension Trouble

I’ve been writing about a coming crisis with pension plans. There’s more news. In today’s NY Times, Companies Fight Shortfalls in Pension Funds,

After a three-year bear market, many major American companies are spending large amounts to shore up pension plans that have deteriorated, sometimes drastically.

Many companies are also considering ways to reduce their pension obligations to workers, possibly undermining benefits for millions.

The story goes on, (and here it gets a bit technical),

The council, a business group that lobbies on employee benefits issues, is urging Congress to make permanent a temporary interest rate increase it granted companies for use in calculating total liabilities in 2002 and 2003. Without Congressional action, the temporary rate will expire at the end of this year, possibly doubling the amounts some companies will have to put into their pension plans, Mr. Gebhardtsbauer said.

In other words, they want to CLAIM that they are earning up to 10% on their accounts when calculating how much they will have in their pension accounts, which means that if they do NOT earn 10% (and they aren’t), the funds won’t be there for retirees and they will have to reduce promised payments. As the NYTimes story says, allowing companies to claim high returns also means that their shortfalls are actually as much as double what they are currently claiming! Maybe even more.

All of this also means that many companies are less healthy than their books currently show. So stocks that already have really high PE ratios, actually would have even higher PE ratios if you had a way of knowing how healthy the companies REALLY are. (Earning 10% – give me a break.)

A second story today, US Airlines Pension Gaps Seen Wider -Fitch,

“These growing obligations will inevitably lead to large increases in required cash contributions to pension plans, compounding the financial stress and cash flow concerns that already exist in the industry,” he said.

I’ve also been writing about how 401K plans actually screwed workers and handed the money that would have been used to fund their pensions over to the rich. (Pension plans – the company puts the money in and promises you a monthly amount for life. 401Ks – you put the money in (or not) and you try to make it grow (or not) and maybe you have money when you retire – but you must save enough to last if you live to 100 just in case you do, where a company pension plan only has to put in enough for the average lifespan. The ENTIRE obligation for retirement is thrown onto your back. The money that used to go to employee pensions is handed to the stockholders instead, 90% of them being a few rich people.) If you read the NY Times article, it looks like the people who were able to stick with pension plans instead of being shuffled off to 401Ks are also about to get screwed.

How many of them do you think were convinced to vote Republican?