Millions of Americans as well as citizens of all nations, are or will depend on, their pension plans to carry them through retirement. Most of these pension recipients have contributed to the plans during their working years, and rightfully expect them to return their monies plus interest and dividends as their lives enter declining years. Many people like to brag about their pensions and how wonderful they are. When parts of salaries are withdrawn and invested in various pension plans, the managers of such plans always consider it smart to buy stocks and bonds to be placed in the plans. The worker trusts not only the pension plan managers, but their employer to indeed place in the hands of the managers, the funds deducted from workers’ salaries, plus the company’s share, usually on a 50-50 basis. The employee contributes 50% and the employer does the same. Theoretically, when retirement comes, after many years of faithful service, the employee can expect to live in comfort for the rest of their life. Theoretically anyway, this works out OK.
Literally tens of millions of seniors and would be seniors, are totally dependent on the pension to which they have regularly contributed. They trust their company and the pension managers to perform to their best interests in dollars anyway. There are at least three basic flaws in the system, none of which can be controlled by the worker, who will, or is depending on their pension. The first, is the basic fact of dollars, in which the pension plans are denominated. The dollar is a shrinking measurement. It is shrinking in value, purchasing power, and faith. This is a situation which is merely history repeating itself, and nothing that I can see, can correct this situation. The only way the dollar could gain value, purchasing power and faith, is for their numbers to shrink, and for a responsible government to cease printing them to pay its bills. Pigs will fly first. Some pension plans have an “inflation,” or “cpi,” provision in them, which increases the amount paid, as the Consumer Price Index (cpi) rises, or inflation increases. This is not total security however, as the same government which prints the money in which the pension plans are denominated, lies about those figures for its own benefit. Naturally, or does this shock you?
The second problem with pension plans, is that the managers always invest the pension funds in stocks or bonds. That’s all they know how to do. Their economics professors based the entire course in dollars, and in 99.9% of the time, never instructed in what real money is, and has been for thousands of years, and that is gold and silver. Back in Pharaoh’s time, money was gold and silver. In Biblical times, money was gold and silver. Gold and silver have always been true money, as opposed to fancy pieces of engraved parchment or paper. “Promises, promises, they never come true,” went the old popular song. (Patti Page?) The song referred to a guy, but it applies to governments of all sizes, hues, locations, and popularity. Ronnie Reagan made America happy, but he quadrupled the national debt. Anything denominated in dollars, which the bonds the pension managers buy, will fail in purchasing power and value, as that denomination degrades. The euro is only a temporary fix, because a couple of years ago, the euro was 88 cents, vs. the $1.29 it is now. A couple of years ago, the dollar looked good, and now the euro looks good. Both are merely pieces of paper, and the rumor is out that the French want their francs back, and are tired of euros. The Brits never fell for it, and the Italians are none too happy either. Buy euro bonds? What’s the difference, since none of them are backed by anything but thin air?
Stocks are priced in dollars, but not denominated in them. A stock indicates miniscule ownership in a corporation. If the corporation makes a lot of dough, its stock goes up and a dividend is issued, the investment in stocks for the pension fund works out very well. Remember though, hundreds of pension plans took it in the genitals when the NASDAQ crashed. Literally, quite a few pension plan managers totally bankrupted their plans with Enron or other stocks. Wal Mart? Well, it’s now just about half of its peak price, and Micro Soft isn’t a lot better. General Motors is nearly bankrupt, as is Ford, and their stocks are less than half of their peak. What stocks to buy? I am no expert, and that’s why I don’t own any. Pension fund managers don’t do any better than the dart throwers, for all their high salaries and supposed skills. Every year, the office crew at a large company, throws darts at a list of stocks, and these are pretended to be bought. Then, the experts pick their stocks, and the same is done. Many times, the dart throwers win at the end of the year. This column is not meant to knock the conscientious, well educated, pension fund managers! They do the best they can, with their education, judgment, and experience. The salaries and expenses for their decisions come out of the fund, as an expense charged to it, and this, of course, is not an insignificant expense, with the offices, computers, staff, etc.
The third problem with pensions, is the integrity of the company who employs the workers, manufactures the goods, owns the factories, and pays for the materials, labor, office, sales, advertising, inventing, developing, etc, of whatever product they make and sell. General Motors, like so many other firms, will invariably not contribute to the funds when they get in a jam. General Motors, is tens of millions of dollars behind in contributions to the pension plan its retired workers depend upon. No matter how skilled the pension plan managers are, and no matter how large a return they get on invested funds, if the funds aren’t there, they can’t invest. It’s just that simple. Corporations dare not get behind in their payroll deductions, utility bills, and payments to raw materials suppliers. They’d better fork over those paychecks every week, or they’ll have no employees. But if they skimp on pension fund contributions, that fact will not be uncovered for a long time.
Suppose Buck Blow, works for The Apex Widget Company. He’s been a faithful employee for 30 years. Always been at work, and a model employee. Suppose Apex Widget, decides that wages in America are far too high, and they can get Widgets built in China for a tenth of the price. Apex has seen a slowdown in sales, due to being non-competitive with Wal Mart, who has virtually everything made in China, and pays miserable wages to boot. As a last resort, Apex lays off the staff, workers, and gets its widgets built in China. No one left but the sales staff now. Apex also stopped contributing to the pension plan a few years back, when the squeeze began, and none of the employees knew it. Buck Blow, after 30 years of faithful service, is now age 55, and too young to retire, because his pension can’t be tapped till he is 62, maybe. The pension plan is in a shambles, due to lack of employer contributions, bad investment decisions, or whatever. Buck Blow may have nothing when he retires.
Or you were a United Airlines Pilot, who flew for 35 years, and contributed heavily to the pension plan, so you could live in comfort after the mandatory age 60 retirement. United is trying to default as you read this. They are saying, “So what? You lose Buckwheat, because we ain’t going to pay any more. We’re bankrupt, all your contributions are gone, and we’re turning the whole thing over to the Pension Benefit Guaranty Corp. You’ll get 40% of what you were promised if you’re lucky, and the PBGC doesn’t go broke.” Unions protest and threaten to strike? Fine, then no one will have a job. The PBGC was created in 1974, and its own balance sheet shows a $23.3 billion deficit. It has $39 billion in assets (probably stocks and bonds) and is obligated to pay $62.3 billion in ’guaranteed’ pension benefits, to more than a million workers at 40%? And this does not include United’s four pension plans, which are underfunded by many millions. It isn’t just United Airlines, but a whole host of other corporations, who have neglected to pay their contractual obligations. Hundreds of pension plans are on the verge of being insolvent.
I hate to give advice, and generally won’t. But if I were an employee or retiree, and were given the chance to take a large buyout of my pension plan, I’d do it, and put it in gold and silver in a heartbeat. If I could get out with a healthy sum before the whole thing crashes, it would make sense to me. Of course I don’t have a pension plan, 401, job, or boss, so who am I to say? Protect yourself.