Federal Pension Insurance Program Remains Under-Funded
November 5th, 2008
- What If Your Pension Ends?
- Will Someone Buy Your Pension?
- GE Ups Pension Benefits. Again.
- New Form To Explain Pension Cutbacks & Reductions
- Will seniors go for smaller reverse mortgages?
One of the growing issues with the Wall Street meltdown is that pension balances are likely falling.
In general terms, the way the system works is that companies set aside money each year for each qualified employee. How much is set aside depends on estimates of future pension use — set aside enough and you’re okay, set aside too much and the pension is over-funded but set aside too little and you can have an under-funded pension and that’s bad news for retirees.
The catch is that companies don’t just set aside cash. They invest that cash and hopefully get a reasonable return from the prudent use of the money which has been placed in retirement accounts.
When you have a roaring stock market pension balances look great — and they are, except that not all withdrawals are being made today. Conversely, when Wall Street values go down then pension assets also shrink.
It’s not just company pension holdings that change. The federal Pension Guarantee Benefits Corporation — the federal agency that insures pension funds — also has a capital base that moves up and down.
And how does the PBGC fund look?
Director Charles E. F. Millard says that “the PBGC in stronger financial condition than it was a year ago. Our deficit is down about $3 billion from last year’s $14 billion. Retirees who depend on us should not be concerned –the PBGC has sufficient funds to meet our benefit obligations for years into the future. To ensure our long-term ability to pay benefits, we have adopted a new investment policy that is diversified to mitigate risk. It gives us a better chance — 3 times better — to eliminate the deficit without a taxpayer bailout. The new policy will be very diverse, and our portfolio will ultimately include more in equity than it currently contains. However, the slow and deliberate approach we have taken to implementation has protected us from greater declines in this time of turmoil.
“Our portfolio is down 6.5 percent over the last 12 months. We would rather be up, but in these trying times, retirees who depend upon us should feel secure knowing that our deficit is down over $3 billion this year. ”
Translation: The PBGC deficit is now $11 billion rather than $14 billion. I guess that’s better than a year ago, but should not a government insurance program be fully funded?
Smaller pensions, of course, are a serious worry for seniors — and one reason to check your real estate equity should you need or want a reverse mortgage.