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Private Pension Issues

- Archives 2009 -

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In the U.S., Staying in the Labor Force is Often a Necessity (December 30, 2009) 
(Article in French) 
In the US, on average, one job in five is held by an employee old enough to be retired. Mandatory retirement has been illegal since 1980 and the average age of retirement is currently 63 years old and will be 67 years in 2025. Rising life expectancy and poor economic conditions force many US people to keep working after 60 years of age. This trend may have serious consequences on the job market if too many baby-boomers choose to work beyond the traditional retirement age.

Report: Retirement Account Balances (November 2009)
Urban Institute researchers used data on retirement account balance accumulations between 2005-2009 to construct a graph which visually depicts the economic status of retirees. Although balances are currently 17 percent below their peak value in 2007, they have jumped above their value in 2005 and are approximately equal to that of 2006. Rounding out the third quarter in 2009, assets have rebounded 23 percent since the beginning of the year in the first quarter, providing some hope that account balances will continue to grow.

Wall Street Follies: The Next Act (October 24, 2009)

In this article, the writer explains with a critical eye the content of the financial reforms produced by the Obama administration and the Congress dating to the end of October. Those reforms seem to tinker around the edges and seem mostly to reassure the crisis-weary public. The question is: Would these reforms make Wall Street safe for ordinary US people? The writer suggests that the government should make sure that companies do not grow to a point where they become too big or interconnected “to fail".

Why It's Time To Retire the 401(k) (October 19, 2009)
In this article, the writer underlines the problems raised by defined contribution plans such as the 401(k). Indeed, even if those types of plans seem attractive because they force people to save money and give them freedom in the way they manage it, they are less rewarding and secure than defined-benefit plans. The 401(k) cannot produce a guaranteed check, and since one year's gain builds on the next, 2008's financial disasters created a dent in retirement savings that will have repercussions for years. Alicia Munnell, who heads the Center for Retirement Research at Boston College , calls for the return of 401(k) plans to their original position: a third tier of retirement planning, behind pensions and Social Security. Finally, she waves a red flag that if nothing is done, 44% of all Americans are in danger of going broke in their post-work years.

Realty Woes Infect Loans to Elderly (September 14, 2009)

Because of the recession, many older Americans face difficulties paying off debts on their retirement property. Indeed, with the housing market crisis, it takes them longer than expected to sell their primary house. Moreover, the losses on loans tied to retirees will increase for companies if older citizens delay their moving plans.

Obama Outlines Retirement Initiatives (September 5, 2009)
US President Obama has announced different initiatives to increase savings of people when they retire. By doing so, President Obama wants to give more opportunities to workers to save for their retirement in a systematic way. For instance, one initiative would be automatic enrollment into a plan, even for those who work in small firms. However, workers may lose their savings in risky stock investments, as the recent US stock market crash demonstrates. 

Delphi to Drop Pensions (July 30, 2009)
The Delphi Co., an auto supplier, was poised to win approval from a bankruptcy court judge to allow it to abandon its pension obligations to its retirees. The judge denied objections from more than 1,000 retirees and three small unions to Delphi’s plan to end its pension obligations. Delphi canceled its life insurance and health insurance, denying its salaried retirees of $70 million annually. The company has $200 million in unpaid salaried pension plans that are due now and are under-funded by $3 billion. Delphi’s financial move gravely jeopardizes former employees’ retirement security.

Pension Agency would be Revamped Under Measure in US Congress (July 30, 2009)
The Pension Benefit Guaranty Corp.’s (PBGC) finances and structure will be revamped under legislation introduced in the US Senate. Created by Congress in 1974 to protect the pension programs of bankrupt companies, the agency recently reported a deficit of $33.5 billion. Last week it took over the pension plan of Delphi Co., the auto parts maker in bankruptcy since 2005. The agency is also facing increased scrutiny after a report by its Inspector General in May found the former director had inappropriate communication with 8 of 16 Wall Street firms that bid last year to manage a large percentage of its budget.

Consultants Say Suspended 401(k) Matches May Never Return (July 9, 2009)
During bad economic times, companies have targeted their 401(k) plans to cut costs. IN earlier downturns, most companies that stopped matching employee contributions to 401(k) accounts simply reinstated the match when the economy recovered. However, some companies that have suspended their 401(k) match in this recent downturn may not restore it completely this time around. Some are considering tying their contribution to the retirement plan to the profitability on the bottom line: contributing more to the match in good years and less in bad years. Many companies are waiting for the outcome of the health care debate in Washington to see how much the health care initiative impacts their budgets. Do the companies consider reducing their profits or suspending their dividends so that there will be sufficient funding for workers’ retirements?

For Many Minorities, Saving Isn’t So Easy (July 6, 2009)
Authors of a new report on African Americans and Hispanics conclude that these groups face greater risk of old age poverty compared to other US citizens. Members of these two communities are also less likely than their white counterparts to have participated in their employers’ 401(k) plans. 

US House Panel Backs 401(k) Fee Disclosure (June 24, 2009)

The US House Education and Labor Committee backed legislation requiring mutual fund companies to detail clearly all fees charged in connection with 401(k) retirement investment plans. The US Chamber of Commerce, financial institutions and investment advisory companies opposed the bill. The bill would allow the government to impose a $1,000 per day penalty for certain violations. Democrat Herb Kohl is working on a similar fee-disclosure bill in the Senate.

Law Review: As Scams Target Elderly, a Legal Niche also Booms (June 23, 2009)
Financial schemes whereby investment advisers and other professionals targeting older clients are proliferating. Older persons are especially vulnerable because they are physically weakened, emotionally vulnerable, or impaired in other ways that may affect their judgment. According to the insurance company MetLife, people over 50 years old are sitting on 70% of the net worth of US households. MetLife’s research arm concluded that thefts and other forms of financial exploitation of the elderly amounted to at least $2.6 billion a year. 

Bill Would Force Fee Disclosure by 401(k) Administrators (June 17, 2009)
The House Health, Employment, Labor and Pensions Subcommittee approved a bill that would require the Labor Department to impose penalties on 401(k) plan providers who do not disclose their administrative, investment management and transaction fees. If passed, service providers would also be required to disclose any financial relationship or potential conflicts of interest to plan sponsors. This would ideally mitigate recent losses incurred during the recession. 

Employers Divided over Adequacy of 401(k)s (June 8, 2009)

According to a Mercer survey, employers are evenly split between those who say their 401(k) plans can provide adequate retirement savings for employees and those who say they can’t or are unsure. All employers surveyed named a variety of obstacles to employees reaching their retirement income objectives, including low participation in retirement saving plans, inadequate savings rates, volatile markets, poor investment decisions and a few more. Today’s employers are increasingly relying on employee savings plans for their workers’ retirement income, yet recent economic volatility underscores the weakness of this approach.

Good Luck with that 401(k)! (May 28, 2009)

Much clamor surrounds possible shortfalls in Medicare and Social Security. However evidence shows that the private sector is failing to provide health care and retirement benefits to Americans. Since the start of the recession, the number of Americans receiving insurance from private sector companies has dropped sharply, as the private sector shed 6 million jobs during that period. As for retirement security, private sector companies have been reducing their contribution matches to employee 401(k) or 403(b) accounts, as well as reducing their paychecks. More and more people will be looking to the government for health and income insurance which may provoke real entitlement crisis.

AT&T Proposes Labor Deal For 27,000 Workers (May 13, 2009)

AT&T offers its final and best proposal for a labor agreement that will cover about 9% of its employees whose contracts have expired. This includes wage and pension increases as well as keeping 401(k) contributions. Currently, AT&T is involved in discussions with the union about labor contracts covering about 80,500 employees.

Will You Have Enough Money to Retire ‘Comfortably’? (April 20, 2009)
A recent Gallup survey has questioned not-yet-retired Americans, asking them if they anticipate having enough money to retire “comfortably.” For the first time this decade, the majority said they doubted it. One of the shortcomings of the survey is that it did not ask Americans what “retire comfortably” means for them. It must be kept in mind that expectations for their future lifestyle have probably increased along with the increase in the standard of living.

Report: Retirement Savings and Household Wealth in 2007 (April 8, 2009)

About half of all workers in the United States participate in an employer- sponsored retirement plan of some kind. Since the 1980’s, however, employers began to move away from traditional pension plans, also known as defined benefit(DB) plans, to defined contribution plans(DC), where the worker bears the investment risk. Workers tend to invest the majority of DC assets held in retirement accounts in stocks. Due to the recession, the retirement account balances of households were much lower in 2008 than the ones in 2007. The report reveals that US workers need to diversify their retirement savings, to protect them from volatile and uncertain markets. Most workers also need to start saving more of their income, if they wish to maintain the standard of living that they enjoyed while working. 

Private Pensions Squeezed as Companies Freeze, Terminate Plans (April 5, 2009)
Approximately 62% of large companies surveyed by the U.S. Government Accountability Office last year said they had frozen their defined benefit pension plans to avoid dipping into their profits to shore up the plans. Most employers are converting to defined contribution pension schemes such as 401(k) plans. This will present a serious problem to middle-aged, mid-career workers, as the money they put in a defined contribution plan will not have enough time to grow to finance their retirement. Is there a better way?

401(k) Plans Need Fixes, Advocates Tell Lawmakers (March 16, 2009)
Lawmakers and policy advocates have increased pressure on Congress to create government-managed funds with professional oversight. Retirement account balances plummeted over the past year, as stocks declined 38%. The average 401(k) balance fell from the previous year as well. President Barack Obama’s budget includes some reforms, such as requiring small businesses to offer a basic Individual Retirement Account.

Pensions May Need a Bailout, Too (March 8, 2009)

Some public pension funds are counting on state legislatures to bail them out so they can pay off their debts. In 2008, public pensions in the US had total liabilities of $2.9 million, whereas their total assets are about 30% less than that, at $2 trillion. Many retirement plans have resorted to quick fixes, including issuing more than $50 billion in pension obligation bonds during the past 25 years. These short-term solutions will soon present themselves as albatrosses for taxpayers and all those involved.

Report: The Impact of Changing Earnings Volatility on Retirement Wealth (March 2009)
Researchers for this project assessed the effect of the volatility of individual and family earnings on asset accumulation and projected retirement wealth using survey data matched to administrative earnings records. They found that higher earnings volatility over the relatively short term is associated with greater wealth for married people.

Economic Recession Evokes Public’s Concern with Retirement Life (February 26, 2009)
(Article in Chinese)
Due to the US economy’s severe downturn, the nation’s pension system is under serious threat. A recent survey shows that less than one-third of working class people are optimistic about retirement pension. Thirty-two percent of them believe that they will have a good retirement life. However, this rate was 39% in 2008, and it was even higher in 2007.

Federal Pension Benefit Guaranty Corp’s Deficit Has Reached $11 Billion (February 17, 2009)
(Article in Chinese)
The US Federal Pension Benefit Guaranty Corp. recently reported that its deficit has reached $11 billion. With a foreseeable worsening economic downturn, the agency will see a continuous increase in the deficit. The corporation’s total assets stand at $63 billion, but expenditures over the next few years are expected to reach about $74 billion. Even with recovery time, it will still probably not be able to pay its debts. Hence, it will rely on the government for financial help.

Elderly Go Back to Work As Madoff Impact Grows (February 9, 2009)
Senior citizens who had invested in Bernard L. Madoff Investment Securities, LLC over the last several decades suddenly have to forego retirement plans after losing most of their life savings in Madoff’s Ponzi scheme. With limited options, most are scrambling for ways to make ends meet. Some have taken up low-paying part-time jobs while others have drastically readjusted their lifestyles to barely meet their most basic needs. Many agree that industry regulators and the government should be liable for investors’ losses.

Recession Worries Lower Retirement Expectations (January 28, 2009)
A survey released in December 2008 by the US division of Toronto-based Sun Life Financial Inc. reveals that market losses in workers’ retirement funds will force them to work years past their planned retirement age to maintain their health insurance and lifestyle. However, most subjects of the survey have adjusted to their constrained budgets by sacrificing leisure and entertainment. The survey also shows over half of workers will delay retirement by at least a year.

Americans Lost Over a Quarter of 401(k) Savings in 2008 (January 28, 2009)
Millions of American workers lost an average of 27% of their 401(k) retirement savings in 2008 due to dramatic market declines. Despite such losses, employees continued to contribute to their retirement funds and took out fewer loans against the plans than in previous years. The study, however, does show a slight increase in the number of workers who took hardship withdrawals. A senior executive of Fidelity Investments suggests that employees should not depend solely on 401(k)’s as their retirement savings mechanism. 

A New Twist: 401(k) ‘Re-enrollment’ (January 27, 2009)
Employers are devising new ways to diversify 401(k) investments to decrease employees’ risks of losing retirement funds. One option for employees is to sign up for ‘re-enrollment,’ whereby the employer can shift money from current 401(k) investments and reinvest the money in a diversified portfolio. The Pension Protection Act of 2006 eased the path for an employer to automatically enroll workers in 401(k)’s and make investment decisions for them. Investment and retirement consulting groups are not yet able to conclude if the re-enrollment options will benefit future retirees.


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