Tags: Washington Post | Pension Funds | Benefits | Retirees

Washington Post: One of the Nation's Largest Pension Funds Could Soon Cut Benefits for Retirees

Washington Post: One of the Nation's Largest Pension Funds Could Soon Cut Benefits for Retirees

By    |   Wednesday, 20 April 2016 04:50 PM


More than a quarter of a million truckers, retirees and their families reportedly could soon see their pension benefits severely cut — even though their pension fund is still years away from running out of money.

The Central States Pension Fund, which handles the retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York and Minnesota, suffered heavy investment losses during the financial crisis that cut into the pool of money available to pay out benefits, The Washington Post reported.

“While the stock market has recovered since then, the improvements were not enough to make up for the shortfall. That imbalance left the fund paying out $3.46 in pension benefits for every $1 it received from employers. The shortfall has resulted in the fund paying out $2 billion more in benefits than it receives in employer contributions each year,” the Post reported.

The potential cuts are possible under legislation passed by Congress in 2014 “that for the first time allowed financially distressed multi-employer plans to reduce benefits for retirees if it would improve the solvency of the fund,” the Post reported. “The law weakened federal protections that for more than 40 years shielded one of the last remaining pillars that workers could rely on for financial security in retirement,” the Post reported.

If nothing is done, the fund could become insolvent by 2025, said Thomas Nyhan, executive director of the Central States Pension Fund. And because of its size, the plan could overwhelm the Pension Benefit Guaranty Corporation, the insurance agency meant to shore up private pension funds, if it went under, Nyhan said.

"The Central States Pension Fund pays out $2.8 billion a year in benefits, which would be reduced if the plan became insolvent. By comparison, the PBGC fund that backs multi-employer plans has roughly $2 billion in assets and is also projected to be insolvent by 2025," the Post explained.

As a startling example of just how much pensions are struggling, New York City’s pension for civil employees voted to exit its $1.5 billion portfolio of hedge funds and shift the money to other assets, deciding that the loosely regulated investment pools didn’t perform well enough to justify the high fees, Bloomberg reported.

"The action by the trustees of the $51 billion Employees Retirement System, known as NYCERS, may signal a growing willingness among public pensions to pull their money from the investment vehicles, whose highly paid managers have become a political lightning rod and have frequently failed to outperform," Bloomberg reported. In September 2014, California’s Public Employees’ Retirement System, the largest U.S. pension, divested its $4 billion portfolio saying it cost too much and was too small to affect its overall returns.

Meanwhile, Reuters Breakingviews columnist Edward Chancellor is totally blunt: Pensions are a bubble waiting to burst, he warned.

“The present value of a pension is arrived at by discounting future cash payments. As interest rates have fallen, this discount rate has declined, increasing pension liabilities. As a result, many pensions find their liabilities exceed assets. In pensions-speak, they are “underfunded,” Chancellor explained.

“The true extent of the mismatch between pension assets and liabilities is greater than reported,” he explained. “If corporate pension deficits increase, cash flow will have to be diverted away from investment. Uncertainty about future pension payouts may undermine consumer confidence,” he warned.

“Underfunded pensions are only the tip of the iceberg. The liabilities from unfunded government pensions dwarf everything else. Citi estimates that pension costs for 20 OECD countries will come to $78 trillion in current money, which is nearly twice their aggregate reported national debt,” he said. “All this means less money in the pot for tomorrow’s pensions. The gap between the belief in those pension promises and the ability to pay looks very much like a bubble.”

(Newsmax wire services contributed to this report).

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More than a quarter of a million truckers, retirees and their families reportedly could soon see their pension benefits severely cut - even though their pension fund is still years away from running out of money.
Washington Post, Pension Funds, Benefits, Retirees
644
2016-50-20
Wednesday, 20 April 2016 04:50 PM
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