Congress Just Quietly Formed A Committee To Bail-Out 200 Pension Funds

[Swordsmyth]

As the government was working on the recent, new budget deal and subsequent boost in government spending, Congress quietly snuck in a provision that forms a committee which would use federal funds to bail out as many as 200 “multi-employer” pension plans – where employers and labor unions jointly provide retirement benefits to employees.
As is often the case, this rescue “plan” is too little too late. The US pension system is beyond repair. And if you’re depending on pension income to carry you through retirement, it’s time to consider a Plan B.
Before explaining how dire the situation actually is, let’s take a step back...
Pensions are simply giant pools of capital used to pay out retirement benefits to workers. Typically, employers and employees contribute a percentage of the employees’ salary to a pension throughout his or her career. Then, upon retirement, the pension is supposed to pay a fixed, monthly amount to the retiree.
There are both government and corporate pension plans. Boston College estimates the nation’s 1,400 multiemployer plans (corporate) are facing a $553 billion shortfall. And around one-quarter of those are in the “red zone,” meaning they’ll likely go broke in the next decade or so.
But Congress’ committee, assuming it works, wouldn’t even rescue the red zone plans, much less the remaining 1,200.
And it doesn’t even begin to address the real problem – the $7 trillion funding gap faced by the government’s own pensions. Congress is stepping in because the Pension Benefit Guaranty Corporation (PBGC) – the pension equivalent to the Federal Deposit Insurance Corporation (FDIC) – is completely insolvent.
Like the FDIC, the PBGC is an insurance program funded by premiums paid by its participating members (pensions). Its entire income is made up of premiums collected and the investment income it earns on those premiums.
So, as the markets crash, not only will the PBGC’s portfolio get slaughtered… so will those of the pensions it guarantees (which will then require more funds). And as these pensions fail, the PBGC will collect less in premiums. It’s a vicious circle.
But things are plenty bad already.
The PBGC, which only covers corporate pensions, had a $76 billion deficit in 2017. It has total assets of $108 billion on its books compared to potential loss exposure of more than $250 billion.
By its own estimation, its fund to cover multiemployer pensions (which makes up $65 billion of the deficit) will be insolvent by 2025.

More at: https://www.zerohedge.com/news/2018-...-pension-funds

[oyarde]

Disgusting . Something to think about for those of you still paying taxes .

[acptulsa]

So, do they need bailing out because the Baby Boomers are numerous, because young people aren't being offered retirement benefits, or because these trust funds have all been raided?

And on a semi-related note, what happened to all the copies of the video of Dubya raiding the Social Security Trust Fund on live television that used to be on YouTube?

[r3volution 3.0]

So, do they need bailing out because the Baby Boomers are numerous, because young people aren't being offered retirement benefits, or because these trust funds have all been raided?

ZIRP is a major factor.

[CaptUSA]

So glad the GOP controls all three branches of government - imagine how bad things would be if democrats ran the place.

[timosman]

As the government was working on the recent, new budget deal and subsequent boost in government spending, Congress quietly snuck in a provision that forms a committee which would use federal funds to bail out as many as 200 “multi-employer” pension plans – where employers and labor unions jointly provide retirement benefits to employees.
As is often the case, this rescue “plan” is too little too late. The US pension system is beyond repair. And if you’re depending on pension income to carry you through retirement, it’s time to consider a Plan B.
Before explaining how dire the situation actually is, let’s take a step back...
Pensions are simply giant pools of capital used to pay out retirement benefits to workers. Typically, employers and employees contribute a percentage of the employees’ salary to a pension throughout his or her career. Then, upon retirement, the pension is supposed to pay a fixed, monthly amount to the retiree.
There are both government and corporate pension plans. Boston College estimates the nation’s 1,400 multiemployer plans (corporate) are facing a $553 billion shortfall. And around one-quarter of those are in the “red zone,” meaning they’ll likely go broke in the next decade or so.
But Congress’ committee, assuming it works, wouldn’t even rescue the red zone plans, much less the remaining 1,200.
And it doesn’t even begin to address the real problem – the $7 trillion funding gap faced by the government’s own pensions. Congress is stepping in because the Pension Benefit Guaranty Corporation (PBGC) – the pension equivalent to the Federal Deposit Insurance Corporation (FDIC) – is completely insolvent.
Like the FDIC, the PBGC is an insurance program funded by premiums paid by its participating members (pensions). Its entire income is made up of premiums collected and the investment income it earns on those premiums.
So, as the markets crash, not only will the PBGC’s portfolio get slaughtered… so will those of the pensions it guarantees (which will then require more funds). And as these pensions fail, the PBGC will collect less in premiums. It’s a vicious circle.
But things are plenty bad already.
The PBGC, which only covers corporate pensions, had a $76 billion deficit in 2017. It has total assets of $108 billion on its books compared to potential loss exposure of more than $250 billion.
By its own estimation, its fund to cover multiemployer pensions (which makes up $65 billion of the deficit) will be insolvent by 2025.

More at: https://www.zerohedge.com/news/2018-...-pension-funds

Where is Bernie (Madoff) when you need him:

Most pension funds require a minimum annual investment return of between 7% to 8% in order to stay solvent and be able to pay out their beneficiaries over the long-term.

California Public Employee’s Retirement System (CalPERS), for example, is one of the largest pension funds in the world.

And over the last 10 years CalPERS’ investment return has averaged just 5.1%. They need 7% to stay afloat.

SAFELY earning 7% is a difficult task today: government bonds in the US yield around 2%. Even junk bonds, which are ultra-risky, yield just 5%.

Real estate returns are also falling, with the average apartment building yielding between 3-4% according to the National Association of Real Estate Investment Trusts.

In fact the biggest apartment-focused real estate investment trust, Equity Residential, earns less than 3%.

[Swordsmyth]

So glad the GOP controls all three branches of government - imagine how bad things would be if democrats ran the place.

We'd be a communist country.