Pensions Facing a Cash Flow Collapse?

[Joanne98]

As a follow-up to my last post on checkmate for pensions, the FT reports that the collapse in value of US state and local government pension plans is a disastrous double blow for them:

They are being forced to sell off assets at huge discounts to pay out pensions, and are at the same time seeing their funding levels plummet to dangerous new lows.
In the past year the funds, whose collective $2,000bn-plus in assets make them key investors in every asset class, have lost about 40 per cent of their value through investment losses.

The 2,600 pension plans provide retirement savings for 22m public employees in towns and cities across the US, and range in size from the giant Calpers, with $120bn (€91bn, £81bn) in assets, to tiny small town funds which pay pensions for local garbage collectors and police.

Phillip Silitschanu, a senior analyst at Aite Group, a consultancy, says the pensions “could face a cash flow collapse, they are liquidating assets to meet their monthly cash flow needs; instead of selling positions that are down 10 per cent, they are being forced to liquidate positions down 40 per cent. It is a firesale liquidation of assets to have the cash on hand to meet obligations”.

Bill Atwood, the executive director of the Illinois State Board of Investments, says: “Right now it’s very bad. For the full year 2009 (ending in June) we will have $270m negative cash flow on $8.5bn in assets.”

State pension benefits are protected by law, and must be paid even if the fund is making a loss. Calpers, the largest fund, has lost $70bn in value in the past eight months, but still has to pay $11bn in benefits this year. Unless the fund starts recouping its losses soon, the California state government, which is already mired in a huge deficit, will have to lift contributions to Calpers starting from next year.

http://pensionpulse.blogspot.com/2009/04/pensions-facing-cash-flow-collapse.html

[natrat]

1. dont worry obama,geitner and summers will fix everything, nothing here move along

[stray cat]

2. yet politicians keep their pensions and others get millions in bonuses

[fasttense]

3. Damn, I feel like I'm living through Naomi Klein's

book. If she had written a fictional story of the shock doctrine applied to the US, this would be one of many steps on the road to the destruction of the nation.

I fear something wicked this way comes.

[OutNow]

4. Smells like a third world country doesn't it?

Over the last 70 or 80 years Argentina, Chile, and other countries provided workers with large pensions in return for ending strikes, in lieu of higher wages, etc. Of course the math didn't work in the long term, where projections showed 25% or more of the people collecting pensions that were higher than young worker's wages. That was one sign of a banana republic not too long ago.

Inevitably workers in these countries were robbed of their promised benefits, usually when they were too old and powerless to stop it.

Guess what? Our country will join that group some day soon. Our defined benefit pensions will be cut, our government Social Security will be cut (again), and our self funded 401Ks and IRAs will be devalued (actually that has already happened to me).

There are many to blame for this dire situation including the Bush crime family, but I have a different view of culpability.

Back in the 1930s and 1940s during the rise of the CIO and sit down strikes there were two views of the role of unions. The socialist view, often reflected by the more radical CIO compared to the more conservative AFL, was that workers should run the companies and the struggle was to gain control over their lives by gaining control over the fruits of their labor.

The other perspective, held by the AFL "business" unions was that the federal government made it easier to form unions by passing the Wagner Act, and therefore workers were expected to be less ambitious in their demands. The bait and switch was to promise wage increases, life time medical insurance and a pension at retirement to ensure workers would have a secure life vs worker's taking control of the company. And we took the bait. Now it's time for the switch.

You seldom hear about John L. Lewis and and Norman Thomas these days. Hell, you almost never hear about repealing the Taft Hartley Act any more, even though that was a plank in the platform of the Democratic Party for decades. Most people have no idea that there is an alternative to "the way it is".

The lesson to take away from this discussion is that as long as you allow the billionaires to control your life they will screw you over. As Woody Guthrie sang, "As through this world I’ve wandered, I’ve seen lots of funny men; Some will rob you with a gun; And some with a fountain pen."

[notesdev]

5. negative cash flow = eating your seed corn

any pension plan that is doing this is doomed.

[CoffeeCat]

6. This is so horrible...

...because they're keeping the truth from people who are relying on their pension to survive.

For some, it's all they have besides Soc Sec.

There should be very open conversations and analysis of this situation.

If they're playing a shell game--and giving out money and acting as if 'all is well'--what happens when the money
runs out and people have no pensions???

People need time to prepare and deal with the reality.

[roguevalley]

7. my pension is 99% of my income. woe is me if this collapses too.