I learned about an interesting piece of information that made me think that the talk of “recovery” could just be smoke and mirrors.
I have a family member who is the recipient of a retirement account that was – until recently – paid from the FAIRCHILD CORPORATION MASTER RETIREMENT PLAN. My family member received a letter that stated that the retirement account is unable to meet its obligations and that the PENSION BENEFIT GUARANTY CORPORATION [PBGC] – A FEDERAL AGENCY - would be taking over those obligations.
Per the PBGC web site, (http://www.pbgc.gov/, accessed on 12/13/09), “PBGC is a federal corporation created by the Employee Retirement Income Security Act of 1974. It currently protects the pensions of more than 44 million American workers and retirees in more than 29,000 private single-employer and multiemployer defined benefit pension plans.” From a quick perusal of the PBGC press releases since July 1, 2009, the PBGAC has moved to protect or assume the pension plans at 14 institutions, among those is Indy Mac bank. According to testimony given to a Senate Special Committee on Aging by Acting Director, Vincent K. Snowbarger, the budget deficit of the PBGC had tripled in the first quarter of 2009 growing to 33.5 billion dollars. In spite of the deficit, Acting Director Snowbarger assured the Committee that the PBGC would be able to meet its’ financial obligations for many years to come due to the structured payout of retirement payouts as opposed to lump sum payouts.
According to Wikipedia, the PBGC is The PBGC is not funded by general tax revenues. Its funds come from four sources:
• Insurance premiums paid by sponsors of defined benefit pension plans;
• Assets held by the pension plans it takes over;
• Recoveries of unfunded pension liabilities from plan sponsors’ bankruptcy estates;[2] and
• Investment income.
I must say that none of these four items give me great fiscal confidence in the current economic climate!
Some recipients under the Fairchild retirement account were provided medical benefits and those apparently are not covered by the PBGC. So a bunch of people will lose those benefits causing them to rely even more on the Federal government-provided Medicare no doubt. So, in fact the Feds still pick up the tab.
The failure of my family member’s retirement account makes me wonder about the true strength of the “recovery” and whether we’ve hit a false bottom. We’ve been told that the stock market has rebounded. According to Acting PBGC Director Snowbarger, his bigger economic concern at this point is the fact that so many companies are underfunding their retirement funds. He also questioned whether companies coming out of bankruptcy will find the economy strong enough to give a return on retirement program investments adequate to pay retirement obligations.
Let’s just see what the stock market does in January and let’s hope that Acting Director Snowbarger’s relatively sunny perspective is upheld in 2010.