Many Americans no longer have a pension. But for those of us who do, the idea that our pensions are partially insured to provide a guarantee against company failure, provides peace of mind. Well that is until the Bush lead privatizers got their hands on the Pension Benefit Guaranty Corporation. I read this story with horror in the Boston Globe.
Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks. Yup the same group that wanted to privatize social security privatized OUR national pension insurer. Thy did this right before an economic collapse that may require the use of thee funds.
The agency refused to say how much of the new investment strategy has been implemented or how the fund has fared during the downturn. The agency would only say that its fund was down 6.5 percent - and all of its stock-related investments were down 23 percent - as of last Sept. 30, the end of its fiscal year. But that was before most of the recent stock market decline and just before the investment switch was scheduled to begin in earnest.
No statistics on the fund's subsequent performance were released.
Nonetheless, analysts expressed concern that large portions of the trust fund might have been lost at a time when many private pension plans are suffering major losses. The guarantee fund would be the only way to cover the plans if their companies go into bankruptcy.
"The truth is, this could be huge," said Zvi Bodie, a Boston University finance professor who in 2002 advised the agency to rely almost entirely on bonds. "This has the potential to be another several hundred billion dollars. If the auto companies go under, they have huge unfunded liabilities" in pension plans that would be passed on to the agency.
Yes you read that correctly! That loss was before the stock market went into a 30% decline! Doing the math it's easy to see the losses will be massive. If the auto companies are pushed into bankruptcy, as our esteemed pundit class seems to be endorsing (White House questions viability of GM, Chrysler) all those pensions are now in even more serious jeopardy.
Last year, as director of the Congressional Budget Office, Orszag expressed alarm that the agency was "investing a greater share of its assets in risky securities," which he said would make it "more likely to experience a decline in the value of its portfolio during an economic downturn the point at which it is most likely to have to assume responsibility for a larger number of underfunded pension plans."
However, Charles E.F. Millard, the former agency director who implemented the strategy until the Bush administration departed on Jan. 20, dismissed such concerns. Millard, a former managing director of Lehman Brothers, said flatly that "the new investment policy is not riskier than the old one."
Yes a genius from Lehman Brothers, who of course is an expert even if he does an horrible job strikes again. Talking Point Memo also picked up on the story in Genius! Federal Pension Guarantor Switched from Bonds To Risky Stocks Last Year writing:
In the highly competitive race for the title of "Stupidest Recent Financial Decision Made By A Government Official", this one's got to be a strong contender....
To give you an idea of the scope of the problem, look at GM's number of pensioners:
The auto manufacturer currently has 460,000 retirees and surviving spouses on its pension scheme, compared to 317,000 employees worldwide. The gap will widen as it continues with planned workforce reductions.
I have heard numbers that combined the big three have around 1 million pensioners. To make matters worse the pension guarantee trust does not cover health care benefits guaranteed by pensions. If the big three are pushed into bankruptcy as many people are espousing to shred shed high labor cost (read: benefits) all of those 1 million pensioners (or at least the two thirds at GM and Chrysler) will quickly be on medicare. I don't know if people are ready for the political shock of pushing that many people onto a system that already has a mountain of problems. Older people vote, and auto workers are located heavily in the Midwest the nations key swing region.