http://www.ft.com/intl/cms/s/0/eadf8220-2cbf-11e1-b485-00144feabdc0.html#axzz1iRhejrIR
Short version: corproate pension plans in the US now face a cumulative gap of $450 billion - ie the present value of their pension obligations exceeds the funding of their plans by that amount. This is a bigger gap than at the height of the financial crisis. Cause is falling interest rates and poor US stock market performance. Neither of which looks particularly likely to change in 2012.
One company to look at is GM because except for a bit of haircut, the post-bankrupt company assumed most of the old pension obligations. New GM is basically a giant hedge fund managing a big securities portfolio, with some automobile operations bolted on.
:D
I bought in to the 'new' GM right after the IPO, and then sold the shares as fast as I possibly could at a $4/shr profit. My brother is still holding on to them because he doesn't want to sell at a loss now. :sleep:
Quote from: Caliga on January 03, 2012, 07:50:49 PMMy brother is still holding on to them because he doesn't want to sell at a loss now. :sleep:
:wacko:
It's surprising how common a response that is, and it's financially suicidal.
Anyway, the world's governments will go 8 more trillion dollars in debt this year. All those assets have to go somewhere. Recapping pension funds sounds as good a place as any. Until the bonds implode that is.
Dumb pensions.
And the Pension Benefit Guaranty Fund doesn't have the funds to cover the problems, but no one wants to do anything because that could bring down some companies or cause even more companies to drop their defined benefit plans. Hello another bailout.
Quote from: MadImmortalMan on January 03, 2012, 07:57:05 PM
:wacko:
It's surprising how common a response that is, and it's financially suicidal.
He's relatively new to investing and thus is still making the greenhorn mistakes everyone has to make before they learn. :contract:
Anyway, I'm very proud of my mother in law for actually taking my advice (for once) and taking her pension from Yum!Brands as a lump sum payout.
What discount rate is used to calculate those present values? You can generate all kinds of pension disaster scenarios just by assuming a realistic rate of return.
Quote from: DGuller on January 03, 2012, 08:02:23 PM
What discount rate is used to calculate those present values? You can generate all kinds of pension disaster scenarios just by assuming a realistic rate of return.
From the article, I believe it reflects the discount rates actually employed by the companies for their own pension accounting purposes, which would suggest the gap may be understated.
Quote from: The Minsky Moment on January 03, 2012, 08:06:08 PM
Quote from: DGuller on January 03, 2012, 08:02:23 PM
What discount rate is used to calculate those present values? You can generate all kinds of pension disaster scenarios just by assuming a realistic rate of return.
From the article, I believe it reflects the discount rates actually employed by the companies for their own pension accounting purposes, which would suggest the gap may be understated.
Oh, shit. :(
It is a sad state of affairs. Unfortunately the private sector can't do what state/federal government does i.e. raid the pension fund than make tax payers replenish it while increasing retirement age (to kill off a few).
Quote from: Strix on January 03, 2012, 10:14:58 PM
It is a sad state of affairs. Unfortunately the private sector can't do what state/federal government does i.e. raid the pension fund than make tax payers replenish it while increasing retirement age (to kill off a few).
That's right. That's why people who think the U.S. government should be run like a business or a household are capital-S Stupid.
I blame the decline of private sector unions :(
Quote from: Sheilbh on January 04, 2012, 04:53:59 AM
I blame the decline of private sector unions :(
Pensions do not increase shareholder value. That's all that matters.
Ah well I am prepared to work until I die anyway.
Quote from: The Minsky Moment on January 03, 2012, 07:49:16 PM
One company to look at is GM because except for a bit of haircut, the post-bankrupt company assumed most of the old pension obligations. New GM is basically a giant hedge fund managing a big securities portfolio, with some automobile operations bolted on.
I thought as part of the bailout the pension fund got handed over to the union.
Meanwhile there's an article on the BBC website effectively saying that public sector pensions in the UK are likely to be even better value than the private sector ones dispite the recent cuts, as the private sector is cutting theirs even faster....
Here's the article:
http://www.bbc.co.uk/news/business-16385381
Quote from: Admiral Yi on January 04, 2012, 09:10:52 AM
I thought as part of the bailout the pension fund got handed over to the union.
The UAW health care trust funds took big chucks of equity in reorganized GM and Chrysler (especially Chrysler), but that is a different matter.
Quote from: The Minsky Moment on January 04, 2012, 03:53:40 PM
The UAW health care trust funds took big chucks of equity in reorganized GM and Chrysler (especially Chrysler), but that is a different matter.
10-4.