While America Aged by Roger Lowenstein is a tale of one industry and two cities brought to their knees by underfunded pension plans. The industry discussed is the auto industry and the cities are New York City, and San Diego.

The book I am reviewing is a few years old but is more relevant than ever. The Pension Benefit Guaranty Corporation announced in November 2009 that its annual deficit grew from $11.2 billion in fiscal 2008 to $22 billion in fiscal 2009. According to a recent study by the Manhattan Institute 59 pension funds which cover teachers in all 50 states have unfunded liabilities total about $933 billion! Clearly pension funds are a big problem both in the private and public sector. This makes Lowenstein’s in-depth study of three cases of underfunded pensions vital to understanding and hopefully solving this problem.

The problem might be as large as three trillion dollars as I detailed in a previous article underfunded pensions by state

Roger Lowenstein is the author of two bestselling books, Buffett: The Making of an American Capitalist and When Genius Failed. A reporter and columnist for the Wall Street Journal for more than a decade, Lowenstein is currently a columnist for SmartMoney magazine and a contributor to The New York Times Magazine and the Wall Street Journal, among other publications.

Before one reads the book one must realize that Roger Lowenstein is by no means an ideologue. He is very critical of the unions for creating a crisis in New York City that almost led to its bankruptcy in the 1070s. In addition he blames union tactics for leading to the crisis that led to the downfall of GM( the book was published shortly before GM actually declared bankruptcy). This might give the reader an impression that he is anti-union and leaning more to the right. However, in the last chapter he blasts the Republican leaders of San Diego for severely under-taxing the city and therefore not having enough revenue to cover their debt.

I decided in this book review not to get the main details, but rather explain the general theme of the book. The general theme is that pensions are the perfect tool for employers. They kind of work like a ponzi scheme. Employers promise lavish benefits to workers that they will not have to fork up for decades. GM offered lavish benefits to auto workers at a time when the company dominated the industry. However, when these benefits came due in the 2000s the burden was too much, and they crippled the company. The increasing life expectancy exacerbated this crisis as the pension were promised for life.

The basic theme of the book is powerful unions both in the private sector and public sector that were able to use their muscle to get lavish benefits. Employers were more willing to give in on pension benefits than increase salaries because this was a future expense which would not have to be paid for decades. In the public sector the unions could vote out the politicians if they did not give in, or launch strikes that would devastate the economy. This was the case in New York City. Anyone who lives in the New York area as I do knows that the economy comes to a standstill when the transportation unions go on strike. In the private sector too the auto worker union would launch strikes that would devastate the auto companies ability to do business. This would encourage management and politicians to give in to the unions, especially since the bill would not be do for many years.

Lowenstein does not offer any simple solutions for the pensions problems facing the nation. He tries to split them into two seperate issues; health care and money to retire on. For healthcare Lowenstein thinks the Government should step in. Lowenstein does not go into detail but he believes the Government should provide subsidies for healthcare based on a sliding scale. He does not think a company like GM can compete with companies like Toyota, since GM has to pay billions of dollars in healthcare costs to current and former employees, while Toyota has no such worry. This puts Toyota and other foreign companies at a huge edge over American companies in this global age.

For general retirement savings Lowenstein favors legislation that requires pension funds to stay solvent(the italics is from Lowenstein himself). He thinks the overall system pension is bad and slowly fading in the private sector and that is why new companies like Google and Walmart are refusing to implement pension plans. Lowenstein also favors increasing the payroll tax to keep the Social Security fund solvent. Lowenstein also wants the practice to end of the Government borrowing from the Social Security “surpluses” similar to what President George W. Bush proposed. The Government should also get involved in 401ks and offer matching contributions to lower and middle income Americans. He states that he favors a similar plan to the one Hillary Clinton offered.

I would recommend this book to anyone interested in personal finance and the fiscal mess our country is. This book should appeal to people without a financial background. As long as you know what a pension fund is you will understand all the terms used in the book. In addition, this book will be an eye opener even to the most astute and educated businessman.

Besides the fact that an investor must know basic economics, this book provides valuable insights to investors. GM and Chrysler were crippled by Pension debts which ultimately brought down the companies. Many current companies have underfunded pensions, and have unrealistic expectations for future returns on their pension funds. An investor should approach companies with these unfunded liabilities with great caution. Investors can many times find pension information in a company’s 10-K. I was not surprised when Seth Klarman recently stated that people should read all of Roger Lowenstein’s books if they wish to become better investors. A colleague of mine also told me several months ago that Seth Klarman told him to read all of Roger Lowenstein’s books to become a better investor.

To purchase the book on Amazon.com click on the following link While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis