On the Pension Front

Detroit Municipal:

DETROIT—Two Detroit municipal pension plans have lost $2.5 billion over 18 months, and analysts say the 30 percent drop could create a cash crunch in a police and firefighters retirement fund.

The losses between June 30, 2007 and Dec. 31, 2008 aren't much different from those of other American public pension systems hit by the worldwide economic downturn.

For example, holdings by the California Public Employees' System fell 26.7 percent to $184 billion, and the Florida Retirement System Pension Plan lost 28.6 percent of its worth, falling to $97.3 billion, the Detroit Free Press reported Sunday.

An analyst for Detroit Police and Fire Retirement System, Richard Huddleston, wrote board members Jan. 28 that while the fund had $3.1 billion at year's end, only $1.27 billion was readily available.

"The cash requirements are dangerously high," Huddleston said. He said cash management could become an "untenable proposition."

"I'm concerned," said City Councilwoman Barbara-Rose Collins, a member of the police and firefighters fund board. "We should be responding to this as an emergency."

Ford and General Motors:

Feb. 6 (Bloomberg) -- Ford Motor Co. may have to contribute $4 billion to its pension plan after a 2008 shortfall, a cash drain that risks dragging the second-largest U.S. automaker closer to a federal bailout.

The collapsing stock market left the fund with a $4.1 billion deficit for its projected obligations...

“Any time you’re underfunded, that’s not a good thing,” Executive Vice President Mark Fields said in an interview. “We’ve got to watch it carefully.” ...

The prospect of a pension contribution is “further stressing cash levels,” and Ford may need to seek government assistance later this year...

General Motors Corp., which has been pledged $13.4 billion in federal loans, has said its pension plan had a shortfall of $1.8 billion as of Oct. 31, down from a $20 billion surplus 10 months earlier. The biggest U.S. automaker has said it has no plans to contribute to the fund soon.

Ford and GM’s pension liabilities also may put stress on the government.

The Pension Benefit Guaranty Corp., which bails out failed retirement plans, estimated that there was a collective pension shortfall of $47 billion at companies with debt ratings below investment grade, a group that includes Ford and GM.

Almost half of the deficit was from manufacturers including automakers and suppliers. The PBGC said it has worked with 13 bankrupt auto-parts companies since 2005 to keep their plans from failing, and took control of the program at partsmaker Collins & Aikman Corp. after its 2007 liquidation.

Canada:

The spectre of huge losses at large Canadian pension funds has people in the financial sector calling for a re-evaluation of risk models adopted by the Canadian institutions...

If it's true, "that's a staggering loss," says Tawfik Hammoud, partner and managing director at The Boston Consulting Group in Toronto. "It's unclear to me how you get out of that hole," he adds...

There is an expectation that many pension funds will face a public backlash. "I think the person on the street looks at the headlines and says: ‘Those idiots lost [a huge amount] of my money,'"

And from The Privateer:

When Governments Go Broke - Public Servants Go Bankrupt:

It is an economic truism that public servants cannot pay taxes! Their entire salaries and wages ARE taxes. It follows directly from this that when they go shopping, they pay for everything with taxpayers’ money. And that goes for whatever “contributions” they make to their public service pension plans.

The US Center for Retirement Research has just reported that state governments ran up pension fund losses totalling $US 865.1 Billion in 2008. The assets in 109 pension funds dropped 37 percent to $US 1.46 TRILLION in the 14-month period ending December 16. CalPERS , the biggest fund of all, had $US 260 Billion in assets at its height in October 2007. That’s comparable to the GDP of Poland or Denmark.

At the end of 2008, CalPERS stood with $US 186 Billion. This is repeated across all state governments.

The “Hidden” Deflation - Global Pensions:

In the above analysis The Privateer has, perhaps, gone into somewhat turgid details. This problem must be understood, however, because it is both global and truly enormous. It includes both public and private pension funds! In this sense, the US has only been used as an example. Across the world, global pension fund assets in the 11 major Western pension markets fell by a huge $US 5 TRILLION in 2008!

Over 2008, Western global pension assets fell to $US 20 TRILLION from $US 25 TRILLION, a fall of 20 percent. That is the same as taking $US 5 TRILLION out of the purchasing power of pensioners’ money which would have been spent during their retirement. In historic terms, those who are near retirement placed a huge bet - not only on the honesty of their politicians but also on the credit money system - when they were younger. Forty years ago in 1969, had any of them bought a single one ounce Gold coin for $US 35.00, that coin would today get them $US 900. That’s an increase of 2470 percent.

Had they bought one such coin each month over the past forty years, they would today have no fears about retirement. What must be understood here is that it is NOT gold which has climbed in purchasing power, it is paper and credit money which has fallen in purchasing power. When paper and credit money fall in purchasing power, it is called inflation. Gold cannot be inflated, it can only be mined.