The Dangers Of Pension Fund Dipping

Thanks, Yankinwaoz. I've always had trouble understanding the american pension system. In Sweden, there's the government funded pension-plan for all people. It is based on how much money you have been paid, and how much money you have paid in taxes in return. It is a rolling system, which means no future funding, as the taxpayers of today pay for the retirees of today. The confidence to the system is high, as it has worked for 70 years. It is not enough, however, so there are savings-funded private pension-plans, which you pay for monhtly as time goes by. But they are bank controlled/insurance company controlled, and have nothing to do with where you get your paycheck from. And, no doubts about it, companies view company-controlled pension funds as liable assets. Which is especially frigthening concerning GM and Cerberus. An asset-stripping company like Cerberus view the pensions as their holy grail, I have no doubt about them wanting to loot that money, or in fact, actually planning to do so. Think about it, where will their money come from? Chrysler is run-down, there are no assets to speak of. Even a strip-and-flip is not enough. And GM has been underfunding their pensions in the billions, to such an extent that even the interest makes a heavy burden on the quarter reports. If it's techincally possible, someone with big enough interest will ransack the place. It has been proved before, it will be proven again.

The pension fund system is moronic. I don't trust my employer to manage my retirement funds. GM hasn't done such a great job with the car business...what makes people think their retirement planning is any better? It is just too much of a conflict of interest for GM to be holding the pot of money AND needing a pot of money to fix the business. In my opinion, pension funds should be held by third parties- such as trust banks- where nobody can strip them or steal from them.

The method that companies use to "loot" pensions in the US is by tweaking the accounting rules used to project future earnings and liabilities. One popular method used in the 1980's and 1990's to fund corporate take overs was to return "excess" pension money to shareholders. For example, lets say Company A was run by a very conservative board. This board might assume a low returns of 4% for their pension money. So they would contribute enough to cover their conservative projections. Takeover man B would come along and say "If you assume that the pension fund could earn 10%, then you have too much money in the pension. That excess money rightly belongs to the shareholders. The board is giving your money to the employees!". In the 90's, it was not hard to earn those rates of returns. So pension projections were tweaked, the funding was reduced, and the company kept the extra money. On the other side of the coin were the liability projections. Pensions that promise medical benefits found that the increases in medical care costs far exceed what they planned for. They made mistakes like using older, and shorter, life-span numbers. Thus the pension is supporting people longer than they expected. The guys in charge of the numbers were allowed to play fast and loose with the numbers used to project future liabilities. Every time the government tried, or tries, to force some sanity into to the rules, the companies cry foul and get Congress to force the regulators to back off. The reality is that the projections were unrealistic. So more and more pensions are finding that they aren't earning enough to cover their liabilities. So the pension then turns to the company for money to make up the shortfall. The company says "No... I'd rather file for bankruptcy". To make matters worse. If a company tried to do the right thing and use realistic numbers for their pension projections, it would leave the company open for a take over. The take over party could use the so-called "fat" on the pension to fund a take over.

Let me also add that because of all the pension headaches, pensions aren't offered any more in the US. Only government employees are offered them now. Instead of a pension, most companies offer 401k's, which are self funded. Some companies will match funds up to a point. 401k's are not insured or guaranteed. And in a lot of cases, they are looted by small companies needing cash. If you want to read something scary, follow the DOL's media page where they crow about all the companies they have caught abusing their employee's 401k's. They must bust 3-4 a week for looting.