Minnesota’s pension plans underfunded by $16.7 billion

Minnesota’s public pension plans for government employees are underfunded by $16.7 billion — a deficit that’s $4 billion larger than it was when lawmakers took steps to fix the problem in 2010.

The underfunded pensions aren’t a reason for alarm, experts say, but they say it is a problem that 11 of the state’s 12 public pension plans open to new members don’t have enough money coming in to cover promised benefits. Plans for state troopers, public safety workers, and local police and firefighters are among those with the largest gaps. Lawmakers will consider changes to those plans this year.

“Is there a need for concern? Yes,” said Larry Martin, executive director of Minnesota’s Legislative Commission of Pensions and Retirement. “We’re departing — significantly — from what we think we ought to be doing.”

The commission released the numbers last month. The figures are current through last June 30. The plans pay for retirement for more than 729,000 current and retired state and local government workers and pay out about $3.8 billion in benefits annually. Read more >>

Workers raiding retirement saving accounts to survive

A large and growing share of American workers are tapping their retirement savings accounts for non-retirement needs, raising broad questions about the effectiveness of one of the most important savings vehicles for old age.

More than one in four American workers with 401(k) and other retirement savings accounts use them to pay current expenses, new data show. The withdrawals, cash-outs and loans drain nearly a quarter of the $293 billion that workers and employers deposit into the accounts each year, undermining already shaky retirement security for millions of Americans.

With federal policymakers eyeing cuts to Social Security benefits and Medicare to rein in soaring federal deficits, and traditional pensions in a long decline, retirement savings experts say the drain from the accounts has dire implications for future retirees.

“We’re going from bad to worse,” said Diane Oakley, executive director of the National Institute on Retirement Security. “Already, fewer private-sector workers have access to stable pension plans. And the savings in individual retirement savings accounts like 401(k) plans — which already are severely underfunded — continue to leak out at a high rate.” Read more >>

Are tax benefits of 401(k) plans on the chopping block?

As the debate around tax reform grows more heated, broker-dealers and other companies that service retirement plans offered by employers are increasingly concerned that the tax benefits of 401(k) plans are on the chopping block.

An industry group that normally works behind the scenes, the American Society of Pension Professionals and Actuaries, on Monday launched a media campaign intended to educate U.S. employers and workers that the federal government might consider changing the tax benefits of retirement savings accounts.


That worries the ASPPA because Americans might end up saving less, and some smaller employers might eventually decide to discontinue their own 401(k) plans.

The "Save My 401(k)" campaign includes a website, Facebook page, Twitter feed, and even an online videogame. The budget is undisclosed but is in the six figures, according to the ASPPA's chief executive, Brian Graff. Read more >>

Retirement 'Perfect Storm' Coming in 2013

An estimated 7 million Americans will reach the age of 65 by the start of 2013, and many will no doubt be thinking about retiring. But even if falling off the "fiscal cliff' is avoided, some financial experts are warning anyone thinking about trading in their paycheck for a retirement fund next year.

"It's kind of a perfect storm in 2013 when you think about it," said Jason Wheeler, CEO of Pathfinder Wealth Consulting.

"With questions about taxes, spending cuts, the markets, health care-and then put those together with the number of seniors wanting to retire or will lose their jobs-the year could be a rough one when it comes to retirement," he said.

Topping Wheeler's worry list seniors are taxes. "The magnitude of what a retiree will pay on their investments could really hurt their finances," he said. "And right now we don't know what that will be." Read more >>

Next School Crisis for Chicago: Pension Fund Is Running Dry

One of the most vexing problems for Chicago and its teachers went virtually unmentioned during the strike: The pension fund is about to hit a wall. The Chicago Teachers’ Pension Fund has about $10 billion in assets, but is paying out more than $1 billion in benefits a year — much more than it has been taking in. That has forced it to sell investments, worth hundreds of millions of dollars a year, to pay retired teachers. Experts say the fund could collapse within a few years unless something is done.

“There’s a huge crisis,” said Laurence Msall, president of the Civic Federation, a nonpartisan research organization in Chicago that works on fiscal issues. “The problem does not get easier by waiting. The problem gets bigger, and starts to become an insurmountable obstacle.”

Teachers in Chicago, as in many cities, do not earn Social Security credit for their years in the classroom. Read more >>

Half of Americans Die With Almost No Money

Almost half of U.S. retirees die with savings of $10,000 or less, but that grim finding doesn’t fully describe the variability and uncertainty that characterize retirement in America, according to a recent study. While some retirees struggle profoundly, living at or below the poverty line, others enjoy wealth and health—in fact, the two are strongly linked—while still others have little in savings but enjoy a decent income, according to the report, based on a survey that tracked retirees from 1993 through 2008.

While 46% of retirees have just $10,000 in savings when they die, “That doesn’t mean their standard of living is very low—they might have a relatively generous pension plan, most of them will have Social Security,” said James Poterba, professor of economics at M.I.T., president of the National Bureau of Economic Research, and a co-author of the study.

But the findings “suggest something about the financial resiliency of these households,” Poterba added. “They may not have much capacity to absorb a shock, such as an out-of-pocket medical expenditure. They don’t have very much in the way of liquid assets they can access.” Read more >>

No Retirement Savings for Half of Americans: Survey

Source CNN
About 49% of Americans say they aren't contributing to any retirement plan, according to a new survey conducted by LIMRA, a trade association for the financial services industry. "The findings from this survey were disturbing, given that people will increasingly need to rely on their personal savings to make ends meet in retirement," said Matthew Drinkwater, associate managing director at LIMRA's retirement research division.

People ages 18 to 34 are the least likely to be saving, with 56% reporting that they are not currently contributing to a retirement plan like an IRA or a 401(k). "In order to have the adequate savings necessary to meet their financial needs in retirement -- which could last 20 or more years -- it is critical that these individuals begin saving systematically early in their working years," Drinkwater said.

Nearly half of consumers said they aren't planning to contribute to an IRA because they can't afford to, and only a quarter of Americans have worked with a financial professional to plan for retirement, the survey found.

Many have little to no savings as retirement looms

After a vicious decade of no growth for the stock market, including two 401(k)-eating bear markets and persistently sky-high unemployment, more Americans are finding themselves in their 50s and 60s with practically no money saved for retirement.

"We were in our 30s, blinked, and now we're our parents' age," says Alan Tipps, a corporate jet pilot who typically earns more than $100,000 a year when he's working. But Tipps, 52, has been laid off three times during the past four years, and says that has forced him to burn through what was in his 401(k) just to "keep the lights on" in his home in Portales, N.M.

Investors of all ages have suffered. But for those close to retirement, it's been especially tough, because they're faced with taking distributions from investment portfolios that in some cases are a fraction of their peak value. Forced early retirements and the near extinction of pensions are making things worse, creating a generation of aging investors in which some have little or no plans for how they're going to pay for retirement. More...

31 states are short over 1 trillion on pensions

The upshot of a recently released study suggests that more than half of all states in America are short of funds for the retirement benefits they have promised to pensioners.

According to the Washington-based Pew Research Center, 31 states are short of USD 1.26 trillion on promises to the retirees and in just one year the funding gap has grown by 26 percent. The funding levels of ten additional states have also deteriorated, a press TV correspondent reported on Wednesday.

Pensions are deemed "underfunded" when states are unable to pay at least 80 percent of liabilities, according to results of the study by the nonprofit think tank. Such pensions affect everyone because they mean higher taxes or cuts in essential public services.

“If we promised more than what is there what do we do? Magic?” Economic analyst Rollin Amore asked.

Most states are legally bound to pay for the pensions; they may borrow from other states rather than the federal government, if they don't have the money in their treasury. Many Capitol Hill lawmakers have already backed legislations to prevent the federal government from bailing out states.

The gaps are already straining governments and stoking political fights over the workers' benefits in states such as New Jersey, Ohio and Wisconsin. More...

How the Government Will Take Control of Your Retirement Account

In the US, I think retirement accounts will be the first to go. They're the easiest to grab because most people hold their retirement accounts domestically with a large financial institution that will happily sell every customer down the river when the government comes calling.

The way they'll do this is simple-- the next time there's a market meltdown (bear in mind that insiders are selling like crazy right now...), the government will step in with new legislation that requires these institutions to invest a portion of their accounts in the 'safety' of government securities.

Insider politiconomists like Teresa Ghilarducci have already strongly advocated for government managed retirement accounts in the US, and we've seen numerous examples of other bankrupt nations from Argentina to Hungary moving to seize their citizens' pensions. Read More...

European nations begin seizing private pensions

Hungary, Poland, and three other nations take over citizens' pension money to make up government budget shortfalls.

People’s retirement savings are a convenient source of revenue for governments that don’t want to reduce spending or make privatizations. As most pension schemes in Europe are organised by the state, European ministers of finance have a facilitated access to the savings accumulated there, and it is only logical that they try to get a hold of this money for their own ends. In recent weeks I have noted five such attempts: Three situations concern private personal savings; two others refer to national funds.

The most striking example is Hungary, where last month the government made the citizens an offer they could not refuse. They could either remit their individual retirement savings to the state, or lose the right to the basic state pension (but still have an obligation to pay contributions for it). In this extortionate way, the government wants to gain control over $14bn of individual retirement savings. More...

Obama Needs Your 401(k) to Balance His Budget

Image by MJTR (´･ω･) via FlickrThe Obama administration is “taking the first steps to confiscate retirement dollars,” according to Dr. Jerome Corsi who predicts that the end result will be retirees with 401(k) plans holding near-worthless government debt “that will be paid off in a devalued currency worth … pennies on the dollar.”

The move to confiscate those retirement dollars for government purposes was best illustrated by Christina Kirchner, President of Argentina, in 2008 when she announced plans to seize her citizens’ private pension funds. Writers at the Heritage Foundation said that while Kirchner claimed such seizure was necessary to protect her citizens’ investment accounts from the global meltdown, “most observers believe[d] her real motive [was] to use the $30 billion in seized assets to ease the massive debt obligations her leftist spendthrift government [had] run up.” The Wall Street Journal agreed, saying that “taking over the … pension fund assets [would] ease the cash crunch faced by [her] government.”

Corsi said he has a letter from the Treasury Department, Bureau of Public Debt, informing U.S. citizens that the federal government is rolling out a new program called “Treasury Direct” that will allow citizens “to purchase, manage, and redeem…savings bonds” electronically, as well as offering an option to purchase such bonds automatically through payroll savings or a personal checking account. This happened to coincide nicely, according to Corsi, with a bill offered by Senator John Kerry (D-Mass.) to create “Automatic IRAs” that would require all employers and employees to invest in IRAs using that automatic deduction option, “whether they want to do so or not.” More...

Violent riots in Athens; police clash with masked youths

Dozens of masked youths have been clashing with police at a union protest in Athens during a general strike against the cash-strapped government's planned pension and labor reforms. Riot police fired tear gas and stun grenades to disperse troublemakers who threw chunks of marble smashed off a metro station entrance and set rubbish bins on fire. Bus and ferry services have been disrupted, leaving some tourists stranded, in protests against planned pension and labour reforms. The industrial action is another in a series of mass-demonstrations against a swathe of severe austerity measures.

guardian.co.uk
Greek anger over austerity measures spills on to Athens streets
Popular anger over economic austerity measures in Greece exploded on to the streets as striking workers brought the debt-stricken country to a halt and militant seamen stopped holidaymakers from boarding island ferries.

The stand-off, which saw thousands of bewildered tourists being stranded at the port of Piraeus, follows mounting tension between unions and George Papandreou's socialist government. In an electric atmosphere, about 20,000 protesters marched through the capital to denounce the IMF-sponsored fiscal programme Papandreou has vowed to enact in exchange for €110bn (£89bn) of emergency loans, the biggest bailout in history. Athens' debt exceeds €310bn, by far the largest in the European Union.

"Capitalists, not workers, should pay for the crisis," the demonstrators chanted as riot police clashed with a minority of self-styled anarchists also attending the rally. "IMF – get out of Greece."

The protests, which despite a lower than usual turnout attributed by unionists to the summer heat, came as parliament prepared to debate legislation outlining radical reforms to the pension system. The shake-up, which also overhauls labour laws long blamed for the country's lack of competitiveness, will cut pensions, raise the retirement age and enable companies to dismiss employees with greater ease.

Lavish pensions, more than anything else, are thought to have contributed to the drain on public finances. Greek pensioners on average retire on 96% of the salary earned while they were employed, more than twice that enjoyed by Germans now bankrolling the rescue package, according to the Organisation for Economic Co-operation and Development (OECD). "Greece," said Miranda Xafa, a former director at the IMF, "is a classic case of entitlements granted by short-sighted governments that didn't bother to secure financing sources."

Without radical redress, experts believe the country's pension system will collapse in under 15 years. But the reforms, which follow drastic cuts to public sector wages, tax rises and an increase in VAT from 19 to 23%, have also ignited controversy and the fiercest opposition yet. Greeks contend the legislation will dismantle the social welfare system.

Anger is such that senior members of the ruling Pasok party have signalled that they may reject the legislation when it is put to vote in Athens' parliament next week. Papandreou, who was forced to expel three MPs when they refused to endorse the IMF-EU austerity measures, now commands 157 seats out of 300 in the house.

Democrats covet Americans' pensions in stealth

Image by Silvio Sousa Cabral via Flickr

investors.com
Democrats have obliquely admitted they covet Americans' pensions. Last week, congressional Republicans told them to stay away. The shame is that they had to do anything at all.

The first rumblings were heard in the 1990s, when Democrats were said to be coming after our retirement accounts. Back then, the warnings were easy to pass off as hyperbole or a cranky conspiracy theory. Today, they pass as prescient.

In January, Bloomberg reported the "U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and individual retirement accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry."

Alarms went off. In February, former House Speaker New Gingrich and policy analyst Peter Ferrara warned in our "On The Right" column that "Washington is developing plans for your retirement savings."

"The idea," they said, "is for the government to take your retirement savings in return for a promise to pay you some monthly benefit in your retirement years.

"They will tell you that you are 'investing' your money. ... But they will use your money immediately to pay for their unprecedented trillion-dollar budget deficits, leaving nothing to back up their political promises, just as they have raided the Social Security trust funds."

Last week, Connie Hair wrote the following in Human Events about the Annual Report of the White House Task Force on the Middle Class released in February:

"The radical solution most favored by Big Labor is the seizure of private 401(k) plans for government disbursement — which lets them off the hook for their collapsing retirement scheme. And, of course, the Obama administration is eager to accommodate their buddies."

Hair says a "backdoor bull's-eye is on your 401(k) plan and trillions of dollars the government would control through seizure, regulation and federal disbursement of mandatory retirement accounts."

Republican lawmakers are taking the threat seriously. They have expressed to the administration through a letter their "strong opposition to any proposal to eliminate or federalize private-sector defined contribution pension plans." These congressmen know that among their Beltway brethren there exists an eagerness to "essentially dismantle the present private-sector 401(k) system, replacing it instead with a government-run investment plan."

This isn't the first time Democrats have eyed Americans' retirements. In 1993 the Washington Post reported that the Clinton administration considered an "unprecedented effort by the federal government to deal with its budget woes by turning to the more than $4 trillion in cash, stocks and other investments held by pension funds."

They made another pass in 2008, when Teresa Ghilarducci, a professor at the New School of Social Research who was invited by Democrats to testify, brought the idea of government "guaranteed retirement accounts" to the House subcommittee on income security and family support. Such accounts would be administered by the Social Security Administration. "Contributions" would be required and the payout would be a lean 3%.

Ghilarducci didn't suggest that 401(k)s be eliminated, but she didn't have to. She supports removing the favorable tax treatment they receive, which would virtually destroy their reason to exist.

To close the loop, we refer back to the White House's middle-class task force report. It mentions guaranteed retirement accounts as a way to "give workers a simple way to invest a portion of their retirement savings in an account that was free of inflation and market risk and, in some versions under discussion, would guarantee a specified real return above the rate of inflation."

Or, as Gingrich and Ferrara say, the government would treat ostensibly private retirement savings the same negligent way it's treated Social Security. Let's not forget: The courts have ruled that Washington isn't obligated to pay back a dime it's seized from paychecks to fund Social Security.

Don't think Washington would never wreck private pensions in the name of the collective good. It happened in Argentina, and if the same group that's determined to take over the U.S. health care system stays in power long enough, it could happen here.

Thousands of Greeks Strike; Flights grounded, schools closed

BBC

Greece hit by nationwide strike over austerity measures

Protesters take to the streets in Athens

Thousands of Greeks have rallied against deficit-cutting measures during a national public sector strike.

Flights have been grounded, many schools are closed and hospitals are operating an emergency-only service. The prime minister, who wants to freeze pay, gather more taxes and reform pensions, insisted that the proposals would be fully implemented.

EU leaders will discuss Greece's difficulties on Thursday amid concern the crisis could threaten the euro. European finance ministers are also due to hold a teleconference on Wednesday to talk about the issue.

Public anger

Despite heavy rain, there have been rallies across Greece throughout the day, with thousands of striking workers and pensioners gathering in the capital, Athens. Several thousand people were also reported to have protested in Greece's second city, Thessaloniki. The rallies have been mainly peaceful, but in one incident police fired tear gas at rubbish collectors who tried to drive through a police cordon.

Some demonstrators threw stones at the police but the trouble was quickly defused. The unions regard the austerity programme as a declaration of war against the working and middle classes, the BBC's Malcolm Brabant reports from the capital.

He says their resolve is strengthened by their belief that this crisis has been engineered by external forces, such as international speculators and European central bankers. "It's a war against workers and we will answer with war, with constant struggles until this policy is overturned," said Christos Katsiotis, a union member affiliated to the Communist Party, at the Athens rally.

Others in the capital either see the cuts as necessary or argue that the strike is politically motivated. "We have to implement the austerity measures, or the country will not be able to get out of this crisis," said Katerina, a private sector employee. "We have to pay for the mistakes of the past."

On Tuesday, Prime Minister George Papandreou's socialist government announced that it intends to raise the average retirement age from 61 to 63 by 2015 in a bid to save the cash-strapped pensions system.

The move comes on top of other planned austerity measures, including a public sector salary freeze and a hike in petrol prices, announced last week. More...

Obama Wants Your Retirement Account

Obama to meddle with your retirement account?
Administration considers forcing investors into Treasury debt
Jerome R. Corsi
The Obama administration appears to have come up with a novel way of financing trillion-dollar budget deficits – demanding IRA and 401(k) holders buy trillions of dollars in Treasury bonds.

With the Treasury needing this year to see another $1 trillion in debt to finance the anticipated federal budget deficit, and the Federal Reserve about to discontinue its 2009 program of buying Treasury bonds for the Fed's asset portfolio, the Obama administration is scrambling to find ways to sell government debt without having to raise interest rates.

Bloomberg reported Friday that Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Mark Iwry are planning to stage a public comment period before implementing regulations that would require private investors to structure IRA and 401(k) accounts into what could amount to a U.S. Treasury debt-backed government annuity.

CNBC's Rick Santelli broadcast the rumor the same day from the trading floor during CNBC's "Power Lunch" show.

Spokesmen from both the U.S. Treasury and Department of Labor confirmed to WND that the federal agencies about to enter a pre-regulation public comment phase on the proposed rule change.

But the agencies are getting serious pushback from the mutual fund industry, objecting to what some financial planners see as a government attempt to divert hundreds of billions of dollars of private retirement accounts
into federal government debt, regardless whether the investment in Treasury bonds is in the best interest of the retirement-oriented investor.

On the Department of Labor website, the transcript of a Dec. 9 webchat with Borzi confirms the Employee Benefits Security Administration is about to issue a Request for Information on how annuity lifetime options should be structured into a wide range of defined contribution retirement plans, including 401(k)s.

Under ERISA, the Department of Labor regulates approximately 700,000 private pension plans, with approximately $4.7 trillion in assets.

"Lifetime Income Options," code words for annuities, are also listed in the Department of Labor's regulatory agenda for the Employee Benefits Security Administration, issued Dec. 7 and filed in the Federal Register.

The government's argument is that IRA and 401(k) investors lost principle in the stock market when the Dow Jones Industrial Average plummeted from a closing of 14,164.53 on Oct. 9, 2007, to 6,547.05 on March 9, 2009.

For instance, Fidelity Investments reported the average fund balance on the approximately 11 million accounts Fidelity manages dropped 31 percent to $47,500 at the end of March, from $69,200 at the end of 2007.

With the stock market rally since March, Fidelity further reports 401(k) account balances increased 128 percent by the end of the third quarter 2009, to an average of $60,700, from the low at the end of the first quarter 2009 of $47,500.

While U.S. Treasury bonds have had historically lower yields than equity returns, government proponents of the idea argue Treasury bonds are safer, guaranteed by the federal government to pay principal and interest regardless of market conditions.

Furthermore, annuities as life insurance contracts have a unique investment advantage of being able to pay a specified lifetime income, regardless how long the annuitant lives.

The Investment Company Institute, a national trade organization representing the mutual fund industry, argues that the distinction of the Obama administration proposal would be to require annuities funded with Treasuries to be embedded within IRAs and 401(k) programs, using the fear of loss as a reason to demand retirement investors own Treasuries.

Right now, IRA holders and investors in 401(k) plans are free to invest in Treasury bonds, if they choose.

Also, annuities are a popular settlement option for IRAs and 401(k) plans that transition from the accumulation phase to the payout phase.

Annuities are an attractive payout instrument, because annuities offer the part of lifetime income and only a portion of each payout installment is considered taxable as return of investment principle.

Interest or investment earnings in annuities accumulate income tax-deferred until the annuitant takes out money, either in an unscheduled withdrawal, or in a payout option extending over a specified number of years in retirement, or for the lifetime of the annuitant.

The unusual nature of the Obama administration's proposal would be to place as an investment a tax-deferred instrument like an annuity within a tax-deferred retirement program. Investment advisers typically use annuities as an investment option for after-tax dollars, not as a required investment option within a retirement program like an IRA or 401(k) that is already income-tax deferred.

A survey conducted by the Investment Company Institute showed more than 70 percent of all households disagreed with the idea of requiring retirees to buy annuities with a portion of their assets, whether the annuity is offered by an insurance company or by the government.

Moreover, 96 percent of households in the survey responded that retirees rejected the idea that the government should mandate turning IRA or 401(k) assets into annuities, asserting instead that retirees should make their own decisions about managing retirement assets and income.

The Investment Company Institute member companies manage some $11.62 trillion in mutual fund assets for some 90 million mutual fund shareholders, including retirement-oriented investors participating in defined contribution plans such as employer-sponsored 401(k) accounts.

Govt wants to protect you by making annuities mandatory for 401(k)s

Sara Hansard
Should annuities be mandatory for 401(k)s? Fund companies go on the offensive
Participants in 401(k) plans do not want the government to require them to convert a portion of their 401(k) assets to annuities, according to the results of a survey of about 3,000 households released today by the Investment Company Institute.

The results of the survey aren't surprising, given that the IC I represents mutual fund companies. Some $7.5 trillion is invested in 401(k) plans and individual retirement accounts, about half of which is invested in mutual funds.

The release of the research indicates that the mutual fund industry intends to resist proposals discussed in Washington to reduce tax breaks for 401(k)s and to impose more government controls on the plans, such as mandating investment options.

“Government should not be making those decisions for them,” ICI president and chief executive Paul Schott Stevens said in summarizing the ICI survey of 401(k) participants, which was conducted in November and December. “They really value the independent control that they have over the way they invest and manage those accounts. They don't like mandates. They don't like government micromanagement.”

Mr. Stevens, speaking at a press conference in Washington on Friday, also opposed a plan being considered by the Treasury and Labor departments to require that a portion of 401(k) balances be converted to annuities to guarantee lifetime income for retiring workers. About 96% of the respondents in the ICI survey said retirees should make their own decisions about managing retirement assets and income, while more than 70% disagreed that the government should require retirees to trade a portion of their retirement plan accounts for a contract that promises to pay them income for life.

“They want the maximum amount of choice, so if you want to take an annuity, great,” said Jack Brennan, chairman emeritus of The Vanguard Group Inc., who also spoke at the press conference. “But don't force it, because it's not for everyone.”

J. Mark Iwry, senior adviser to Treasury Secretary Timothy Geithner and deputy assistant secretary for retirement and health policy, co-authored a paper before joining the Obama administration that recommended having a portion of a retiring worker's 401(k) assets automatically invested in an annuity — unless the employee opts out of the program.

The Treasury and Labor departments are likely to issue regulations this year to make it easier for companies to offer “automatic annuities” in 401(k) plans, Mr. Iwry said last September. More...

Pension Benefit Guaranty Corporation to seize pension plans covering 4,780 workers

David Shepardson
Detroit News
The government's pension insurer said Monday it will assume responsibility for the underfunded pension plan of a bankrupt Northville auto supplier -- at least the fifth supplier to abandon its pension obligations this year.

The Pension Benefit Guaranty Corporation said it will seize the pension plans covering 4,780 workers and retirees of Hayes Lemmerz International Inc., the Michigan-based wheel manufacturer -- a move that will add nearly $100 million to the PBGC's growing deficit.

PBGC said it is moving now because Hayes Lemmerz failed to meet the minimum funding requirements, and the company cannot afford to fund the pension plan and to successfully exit bankruptcy.

The Hayes Lemmerz International Retirement Income Plan is 54 percent funded, with assets of $110.4 million to cover benefit liabilities of $204.8 million, according to PBGC estimates. The agency expects to be responsible for $93.7 million of the $94.4 million shortfall. The plan was frozen on Dec. 31, 2004.

The Detroit News reported this summer that PBGC was in talks with Hayes to seize its pension plans.

On May 11, Hayes filed for Chapter 11 protection. The company has said it intends to reorganize and emerge from bankruptcy this year to preserve its market share.

On Nov. 4, Hayes won court approval for a reorganization plan that will allow it to shed $480 million of its $720 million in debt.

The PBGC, a government-owned company, insures the basic pension benefits of about 44 million American workers and retirees in more than 29,000 private-sector defined benefit pension plans.

Earlier this year, PBGC assumed responsibility for Troy-based Delphi Corp's pension plans -- a move that saddled PBGC with $6.7 billion in costs for plans covering more than 70,000 people.

PBGC also assumed pension plans at suppliers Metaldyne Corp; Proliance International Inc., an auto parts maker based in New Haven, Conn.; and Portage-based Contech US LLC.

PBGC said earlier this month that its deficit had soared to $21.1 billion this year -- up from $10.4 billion last year. But it improved over its mid-year estimate of $33.5 billion.

Half of U.S. workers who left their jobs last year cashed out 401(k)

Ben Rooney
Nearly half of U.S. workers who left their job last year cashed out their 401(k) accounts, according to a study released Wednesday, despite ongoing efforts to dissuade Americans from doing so.

Hewitt Associates, a global human resources consulting firm, said 46% of employees who left their job last year took a cash distribution from their 401(k) plan.

The "alarmingly high" number, which was based on a study of 170,000 401(k) participants, has remained virtually unchanged since 2005, the group said.

Pamela Hess, Hewitt's director of retirement research, said employers and policymakers need to work together to change employee behaviors and reduce 401(k) cash-out rates.

"Otherwise, millions of Americans who rely on defined contribution plans will find themselves unable to achieve a financially secure retirement," Hess said in a statement.

While cashing in a 401(k) can make sense for some workers, most financial advisers say breaking your nest egg before retirement is a bad idea because of the penalties involved and the loss of potential interest.

"Over the course of 20 or 30 years, modest amounts of savings can turn into surprisingly large sums of money," Hess said.

Among the workers who did not cash out their plans, 29% left their savings in their prior employer's 401(k) plan, while 25% rolled over their money into an IRA account or other retirement plan.

The study also showed that younger workers were more likely to take the money and run. Six out of ten workers in their 20s took a cash distribution from their 401(k) last year, compared with just one-third of employees in their 50s.

Hess said the high cash-out rate among young workers is troublesome because those employees are missing out on "decades-worth of tax-deferred growth on their investments."

Not surprisingly, the study found a correlation between 401(k) plan balances and cash-out rates.

Only 8% of workers with 401(k) balances of $100,000 or more cashed out their plans last year. That compares with 85% of workers with a balance of $1,000 or less who did take a cash distribution.