As Congress debates potential solutions, underfunded public and corporate pension plans threaten to disrupt the lives of millions of Americans, notes Eliot Dinkin of Cowden Associates.
[REITs]Q1 hedge fund letters, conference, scoops etc
Little-noticed provision in recent government spending agreement created a select congressional committee to craft a federal rescue of as many as 200 multiemployer pension plans—majority of which are on brink of insolvency, as benefits owed to workers vastly exceed the plans’ ability to pay.1
U.S. state and local government pensions (retirement funds for government workers, e.g. firefighters, policemen and teachers) could be underfunded by as much as $5 trillion.2
Pension problems are not limited to the public sector:
186 of the 200 largest defined-benefit plans in the S&P 500 (93%) are not fully funded (even after a nine year bull market in stocks and multi decade one in bonds).
- 70,000 participants in the United Parcel Service, Inc., pension plan will not earn increased benefits if they work after 2022;
- DuPont Co. announced it would stop making payments into its pension plan for 13,000 active employees;
- Yum! Brands, Inc., offered some former employees a lump-sum buyout to offload some of its pension liabilities. 3
The most seriously underfunded pension plan in the S&P 500 is that of General Electric:
- In 2001, Jeff Immelt replaced Jack Welch as CEO of General Electric—who was sitting on a pension surplus of $14.6 billion.
Under Immelt, GE put money into mergers and acquisitions instead of socking it away for what it owed its employees.
- The pension fund, on which more than 600,000 current and future GE employees and beneficiaries rely for their retirement benefits, is now running a deficit of $31 billion.4
Government action alone can’t solve this: Cowden Associates President and CEO Elliot Dinkin, a nationally known expert in actuarial, compensation plans, and employee benefits issues, says, “Underfunded and frozen pension plans are jeopardizing the lives of millions of employees, current and future.”
About Cowden Associates:
Cowden Associates, Inc., headquartered in Pittsburgh, PA, was created in 2001 by the merger of Halliwell and Associates and MMC&P Spectrum Benefits, which was founded by Jere Cowden in 1986. Currently led by President & CEO Elliot Dinkin, Cowden Associates specializes in helping corporate clients find the best solutions, both for the enterprise and for its employees, with regard to compensation, healthcare benefits, retirement and pension issues, and Taft-Hartley fund consulting: www.cowdenassociates.com.
- Tankersley, Jim, and Rappeport, Alan, “1.5 Million Retirees Await Congressional Fix for a Pension Time Bomb,” New York Times, February 18, 2018.
- Edesess, Michael, “The reason underfunded pensions are a disaster waiting to happen,” MarketWatch, April 5, 2017.
- Kochkodin, Brandon, and Meisler, Laurie, “S&P 500’s Biggest Pension Plans Face $383 Billion Funding Gap,” Bloomberg, July 27, 2017.
- Egan, Matt, “GE’s $31 billion pension nightmare,” Money/CNN, January 19, 2018.
