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US Pension Plans Need Massive $110 Billion In 7 Years, Moodys Warns
Thanks to improving life expectancy and the Federal Reserve's financial repression lowering yields, US company pension funds have been hit by a double whammy. As Moody's warns, companies will have to find $110 billion in the next seven years to fund pension liabilities shortfalls. Moody's adds, "given these increasing liabilities and cash drains, we expect to see an acceleration in lump sum offers," as firms try to derisk.
As Chief Investment Officer reports,
Improving life expectancy is expected to add billions to the amount companies must pay into their defined benefit plans.
US companies will have to find $110 billion in the next seven years to fund pension liabilities as life expectancy increases, according to ratings agency Moody’s.
Using data from new mortality tables published by the Society of Actuaries last week, Moody’s calculated significant increases in the amount of cash US firms would have to contribute to their defined benefit pensions in order to match growing liabilities.
The new mortality tables show male life expectancy at age 65 in the US has improved by two years since 2000, when the Society of Actuaries last updated its assumptions. For women, life expectancy at age 65 has improved by 2.4 years. This has resulted in an estimated increase of between 4% and 8% in company pension obligations.
Moody’s applied the calculations to the funding obligations for 10 of the biggest listed companies in the US. IBM’s funding obligations - which include servicing the pension fund as well as regular contributions adjusted for 2% inflation - were estimated at $99.7 billion in 2013, but Moody’s calculations showed this could increase to as much as $113.6 billion at the top end of assumptions.
“Given these increasing liabilities and cash drains, we expect to see an acceleration in lump sum offers and annuitizations similar to Motorola’s recent pension plan restructuring, which, through a combination of annuitizations and lump sum offers, it expects will reduce its [obligations] by $4.2 billion,” wrote Wesley Smyth, senior accounting analyst at Moody’s.
In September, ahead of the publication of the tables, Moody’s predicted the new data would trigger a rise in de-risking activity. This year has already seen several giant transactions, with the BT Pension Scheme, Motorola, Bristol-Myers, and two Dutch miners’ pension funds all engaging in de-risking deals.
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Of course, if the pension funds just followed Japan's lead and went all-in on stocks, there would be no problem, right?
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Good thing all those newly employed collage grads are putting money into their pensions... oh wait
This whole freaking economy is one big liability. There needs to be a major reset and it wont happen till dollar loses reserve status.
"Improving life expectancy is expected to add billions to the amount companies must pay into their defined benefit plans."
If someone really smart found a way to reduce life expectancy the problem would pretty much solve itself.
Maybe it's time to take the tax off cigarettes...
None of those are public pensions !
Exactly! What option does the state have to fund its liabilities? Raise taxes or print! That's been done before and it never worked anywhere.
I guess America is exceptional. So exceptional in fact that it has the boot to the world's jugular with its Dollar scheme to make it work no matter what.
Folks don't get it. They think money in America grows on trees or something. They don't get that in order for America to afford the status quo, many other nations are suffering under US repressions. Latest example is now Russia which is being scrutinized and sanctioned because it was getting too powerful! American designed propaganda is of course selling the world a different narrative. Will it work again? Fuck, I hope not. All hopes are on Russia and China now to end this nightmare the US has created for everyone else.
Real freedom in the world and in America is only possible when the Dollar and all that it stands for has died.
@ ZerOhead,
"If someone really smart found a way to reduce life expectancy the problem would pretty much solve itself."
The Criminal Pure Evil Psychopath Elite already have. GMO Ebola & the poison forced Vacinenation campaign to go along with it.
Prioritize those three if you would please.
Don't forget to add the three hundred other naturally occurring matters that are going to wipe us all out through no fault of our own. Multiply that by the near infinite things that we do wrong without admitting to or just "by accident"...
Ya the whole ebola thing concerns me but really you only want the non-working/consuming and expensive old people like me dead.
You need to have Hollywood program "Wheel Of Fortune etc." with something that in addition to shutting their minds down will also kill them. That'd do it...
Hunger games
If someone really smart found a way to reduce life expectancy the problem would pretty much solve itself.
Let Starbucks use that stored up water from the Fukushima Nuclear Power Plant to brew its coffee. No one would notice the change in taste.
Yep....how about allowing EBT cards to buy cig's, medical marijuana, and alcohol (except for Isopropyl)
I watch these HGTV shows and see people blowing out big bucks for half million to million dollar homes. Freaking little mansions with their open concept kitchens, hard wood floors, granite counters blah blah blah. Then you watch the International version and see Foreigners make do with tiny little apts and laminate counters etc. And I say to myself there is nowhere in the world our SHIT economy can support this kind of extravagance, its all because of the reserve dollar status. Cant wait for the dollar to be put in its rightful place and see these mofos' grand homes get reclaimed back by nature.
"Cant wait for the dollar to be put in its rightful place and see these mofos' grand homes get reclaimed back by nature."
Well Japan and Europe are going first so you'll be able to get a good look at the shitstorm heading this way... without the gun violence that is.
Me? I can wait.
I'm not that eager to see what lies on the other side cuz I already know. At best it will be soul crushing. Part of me is still desperately hoping that these NeoClowns have a brilliant strategy to get us out of this mess...
Yes. The "other side" will probably be like Dante's Inferno.
We saw the other side when the old USSR and Yugoslavia fell apart. And those people were arguably more civilized, used to doing without and had a lot fewer guns. We may find out how polite an armed society is. We never thought what an armed and bankrupt society will be like.
Yes. In Japan for last few decades it is often customary to "ghost" your home and the taxman sees no one living in the McMansion so can not collect taxes on it (no resident). However, the owners still live there huddled away and wiring electric and utilities from a neighbor who they pay to make their own home look "dead". Many live that way now. Yes many get caught, but many don't.
Of course the 'dead home' is not maintained or painted and the roof leaks, etc. So it becomes decrepit. also see Detroit and Flint.
These shows are reality TV shows and all participants in these shows are mostly actors. The objective is to suggest that Americans are spending money on renos or house purchases. This is pure propaganda.
When did these channels and these shows start up? Mostly right after the crash which was related to a RE financing crisis. The industry needed the best marketing Wall Street money could buy in Hollywood to re-educate and re-introduce RE to Americans.
No, actually they were going strong BEFORE the crash, along with similar shows on other networks. It was part of the MANIA. Now that we have experienced the reinflation of the housing bubble, there are again more shows than after the crash.
US Turns $486 Million Afghan Air Fleet into $32,000 of Scrap Metal Oct 9, 2014, 4:47 PM ET By LUIS MARTINEZ http://abcnews.go.com/Politics/us-turns-486-million-afghan-air-fleet-320...The U.S. has destroyed 16 cargo planes it purchased for almost half a billion dollars for the Afghan Air Force and sold the scrap metal for $32,000.
The Special Inspector General for Afghanistan Reconstruction (SIGAR) is asking the Air Force why the fleet of G222 aircraft were turned into scrap metal this past August. They had sat idle for years on the tarmac at Kabul International Airport.
The remaining four G-222 aircraft are now in storage at the U.S. Air Force base in Ramstein, Germany. No final decision has been made on their future.
In 2008, NATO purchased 20 of the Italian-made aircraft for $486 million in hopes that they could serve cargo and transit needs for Afghanistan’s new air force. But it quickly became apparent that the aircraft were not suited for the dusty conditions found in Afghanistan and required constant maintenance and spare parts.
According to a letter sent by SIGAR to Defense Secretary Chuck Hagel, the G222 program was terminated in March 2013 “after sustained, serious performance, maintenance, and spare parts problems and the planes were grounded.”
John Sopko, the Special Inspector General for Afghanistan Reconstruction, wrote to Hagel that his office had been reviewing the purchase of the planes, but said he had recently been made aware that the aircraft “were turned over to the Defense Logistics Agency (DLA) and have since been scrapped.”
In a separate letter to Air Force Secretary Deborah Lee James, Sopko wrote that the aircraft had been recently “towed to the far side of the airport and scrapped by the Defense Logistics Agency.”
This is exactly what life is up when you can just print currency up out of thin air. Our military machine is a beast that needs to be starved
486 million? Bah! Chump change. Think of all the biilions in heroin trade they protected. Cost of doing business.
I don't understand how Americans can be living longer when "scientists" tell us we are shortening our life spans by drinking too much soda, eating bad foods, too little exercise, too much stress, too much sitting. Not to mention the problems caused by global warming, err, climate change.
The data must be wrong.
In reply to: "Good thing all those newly employed collage grads are putting money into their pensions... oh wait"
Wow, I know that there's been a lot of collage art lately, see link for an example, but I didn't realize that there was real opportunity via a college degree in collage. Nice to know.
See: http://abduzeedo.com/beautiful-collage-works-derek-gores
they will go all in but they will tell the world that is what they intend to do ahead of time so everyone can front run them and drive stock prices even higher because that is the way those maggots roll.
In all fairness Janet did tell the poor to build assets.
I'm guessing the Doomsday Book contains some kind of cunning plan...
oops!! :)
Sorry folks, we spent all our money buying back our own stock... eat some cake
Just the tip of the iceburg. Many more pension shortfalls coming.
Yes...I've read it is really $100T of liabilities including Medicare, Medicaid, SS, and the pensions. Then there is the derivatives $1000T to deal with sometime too (similar to Lehman x 1000).
A cop I know was bitching about how Florida was putting new hires into a self directed 401k type pension and that it was going to hurt his state funded pension. I asked him how and he said "well it's the newer peoples contributions that pay for his pension, thats just how pensions work" I said, you do know that you just described a ponzi scheme right.
Would love to see their pensions get cut to 1/3 of what they were promised. Not just them but all freaking public employees sucking the life blood out of my bank accounts with their property taxes. I say no fucking pensions anymore, all you get is a soup kitchen promise.
currency will be devalued by alot more than a 60% haircut
no other way this will work
Future 90% haircuts.
Careful - he might shoot your dog. They like to do that.
Pensions for government workers once were the reward for years of earning sub-par salaries. Things like a COLA sweetened the deal. My father retired from a New Jersey fire department in 1964 (age 51) to work in private industry for a decade or so. Then he started collecting his pension. When he died in 1997 his income from his pension exceeded the highest amount he'd ever been paid while employed as a fireman.
I have no idea what the case would be now, but back then a) there were no public employee unions to gouge the public, and b) firemen were not covered by Social Security (hence his retiring to work in private industry). The only better gig is being a congresscritter, I guess.
A 1964 $1.00 adjusted for inflation had the same buying power as $5.14 in 1997
or....what cost $1.00 in 1997 only cost .20 in 1964
If he had earned the same from his pension in 1997 as he earned in 1964 it would have been a cut in pay of 80%
I doubt his checks were five times larger...welcome to theft through inflation compliments of the federal reserve...you know, the cartel with a mandate to keep prices stable.
fixed incomes and inflation are a bad mix
Beyond pension plans, millions of seniors have been forced into working by the Fed's crushing of their life savings. The pension managers will have a lot more trouble if stocks drop 25%.
Crushing of their life savings? What are you talking about? Seniors have never been wealthier in the history of mankind, and Fed policy, of inflating bond returns relative to historic norms, has been extremely generous towards them over the past 3 decades. Plus they get social security and Medicare, benefits with a monetary cost that the young could only dream of receiving from the government.
US unfunded liabilities increase $7000 billion every year. And they are already about $130,000 billion at conservative estimates ($244,000 billion at higher estimates).
$110 billion needed in 7 years is relatively very small.
Yeah no kidding, its less than 2 months of QE. Don't know what the big deal is.
Will be nice to see the day when the folks start burning govt buildiing when they hear the word quantitative easing and they have to use their fuckin SUVs to haul their dollars around so they can buy a loaf of bread.
Numbers and amounts don't matter when you have no intention of paying them
Total unfunded Liabilites hover over just about $200 Trillion.
So stiffing the twenty dollar bar tab is really no biggie now.
Whew! I feel much better now.
"Put it on my Government Account!"
I believe this is about private companies which dont have the benefit of printing unlimite quantities of money.
But I thought with the markets at all time record highs, and with S&P500 companies reporting near record earnings over the last couple of years, that pension shortfalls were oh so 2005!
Wake up call, Amerika! Take your retirement into your own hands, because they're just going to steal it from you otherwise.
I was covered by a defined benefit pension from a major corp from 1973 through 1984 or thereabouts, whereafter they switched to a defined contribution plan (401K). I started collecting on the pension several years ago. This year I was offered a buyout that was the equivalent of over 13 years of monthly payments. I wondered what they knew that I didn't.
Being the target of Obama's death panels, I decided to take the money and bet I don't live another 13 years. I'll invest in stable growing companies like TSLA and NFLX, so I'll get rich and have lots more money than if I didn't take the buyout. As for health, you know what they say: money may not buy health, but it will pay for lots of beautiful and sympathetic nurses to care for you. (I just have to make sure my wife doesn't read this, or my life expectancy will plunge rapidly!)
Back in 2011, when Japan was trying to manipulate the currency markets, they bought trillions of yen worth of dollars at under 80 yen per dollar.
What is happening with all of this profit that they've made off that?
$100 Billion ...they could print that in a month plus what do I care if they default. I am more worried about the out of control government workers pulling $100k pensions after 25 years.
Paging Janet....order up more Crane's finest paper!
Look at what happened in Detroit to the pensioners.
This is going to happen nationwide, and to 401K/IRA holders not just public/private pensioners; people are working toward broken and stolen promises that will never be fulfilled.
I think Detroit pensioners got off easy compared to the hit many people will take as promises get broken.
IBM? LOL! What do they make anymore? They just provide overpriced and useless consultants. Uncle Sam buys all their crap and foreign companies do not want Amerikan spyware shit hardware or software.
The debt and unfunded liability numbers are now(and have been) so large as to be meaningless. The debt cannot be paid. Default is not if, but when.
The resolution will be a huge drop in the standard of living, especially those in the bottom half income wise. This lower standard of living will persist for years. America is already a 3rd world country; the sheep just haven't quite figured it out just yet.
Many old folks living on SSI and part time work(me) are living close to the margin now. And, among many other gov't programs, I fully expect real cuts to come in the monthly pension benefit for SOME of those on SSI.....whatever else happens. It's simple math. It'll happen. A tax increase on labor will be a part as well....politics being what it is.
And so when these real cuts come, it's going to be very, very interesting to see how that dynamic places out. Younger taxpayers paying for a program they will never see a dime of because it's keeping old geezers like me from starving.
Life really is a bitch, ain't it bitchez?
:)
hairball
My point, maybe badly expressed, is that SSI pensioners are just as much at risk as many private pensioners. The notion that Congress(and many very smart folks) consider(s) SSI/Medicare "sacrosanct" is: bullshit.
Back in 1976, in a Joint Economic Committee hearing, Senator William Proxmire was engaged in a question and answer session with then-Commissioner of Social Security James Cardwell. This was the conversation:
*
Almost all of them, or many of them, are voters. In my state, I figure there are 600,000 voters that receive Social Security. Can you imagine a senator or congressman under those circumstances saying, 'We are going to repudiate that high a proportion of the electorate?' No.
"Furthermore, we have the capacity under the Constitution, the Congress does, to coin money, as well as to regulate the value thereof. And therefore we have the power to provide that money. And we are going to do it. It may not be worth anything when the recipient gets it, but he is going to get his benefits paid."
Senator Reed asked the sitting Federal Reserve Chairman Alan Greenspan if he still believed that we should maintain the fundamental principles of Social Security?
“I believe that we should maintain the principles of Social Security, but I think the existing structure is not working. Until we construct a system that creates the savings that are required to build the REAL assets, so that the retirees have REAL goods and services. We don’t have a system that is working.
We have one that basically moves cash around and we can guarantee cash benefits as far out and whatever size you like, but we cannot guarantee their purchasing power. Do we have the material goods and services that people will need to consume, not whether or not we pass some hurdle with respect to how legal financing occurs. Financing is a secondary issue and it is a means to create the REAL wealth, not an end into itself.” -Alan Greenspan 2005
There is a new normal when it comes to investing that many have not accounted for, moderate portfolios these days are hoping for an annual gain of 5 to 7 percent. The likeliness that they will consistently earn 7.5 percent on a conservatively managed portfolio, as anticipated by its fund managers, is unlikely.
Lately the markets have been hooked on monetary morphine and ignoring fundamentals. Many of the financial structures we have built are on flimsy foundations or unsustainable. If the wheels come off the financial system pension plans will take a direct hit. To those who base their future on money coming from these monthly payouts I urge caution, prepare to take a "haircut" or worse. More on the subject of pensions going bad in the article below.
http://brucewilds.blogspot.com/2012/10/is-your-pension-at-risk.html
Therew are heaps of pension plans where 5-7% annual returns are "assumed" in one way or another.
Not going to happen. Period.
Stock buyback billions could have easily funded those pensions...but, ooops, I forgot. The only duty of a corporation is to the board of directors, investors and shareholders.
Wonder what that $110B goes to when the S&P 500 returns to reality.
Only $110 Billion?
I think that is pocket change anymore. I thought California's government pension fund alone was short more than that. Oh, er wait, I just saw another commentor who pointed the exact same thing out. Fair disclosure I read the headline and scanned the article but didn't dig but was correct. h/t boogerbentley
Yes this article is only discussing corporate pensions. All the other numbers at the state and federal level combined are closer to $200T. What will really hurt later is when $1000T derivatives go bust.
Just buy a few thousand eminis, by that time they will be well over 10,000 and this shortfall will just be a bad dream.
I went to the gym to go swimming. While I was waiting I started talking to a guy. He was glad he had joined the government because he had a great pension. I asked him who managed his pension and he said Calpers. So then I asked him what he did for the State. He said that he did research. I asked him what kid of research and he said "political research". I said, so you worked for politicians doing research projects. And he kind of sank back in the hot tub. I asked him if he had a political science major, Yes. I told him Obumerrang care is driving me away from being an American. I went swimming.
Through this lens, Ebola is a solution, not a problem.
Pensions for the future? That just another way of saying stealth tax !
You don't seriously think they're gonna meet trillions payable, do ya kid ?
If you've got one, best get your hands on it a bit lively like, before the reaper comes lookin for ya !
110 billion is a small change. That's just a fraction of the money they have and continue to allocate for stock buy backs. Nothing to see here move along.
I may be wrong, but, if pensions get slashed, resulting in less pocket money for many, many Americans, shouldn't the natural result of "less money" chasing the same or greater amount of goods be deflationary?
That may make sense to Austrian economists, but we're being run into the inflation wall by a multitude of Keynesians. The solution is sound money. And while ending the Fed is nothing more than an Austrian pipe dream filled with Turkish hashish, the best measures for most Americans would likely come down to circumventing the system.
Imagine the money that could be saved from dodging the tax man at every turn, growing as much of your own food as possible, creating your own energy - solar, geothermal, small hydro, wind - conserving your own resources instead of spending like drunken sailors (the goal of the Keynesians), living a simpler lifestyle and starving the beast.
If what I've just described sounds a lot like a retirement regime that is worlds away from the mass media hype of sailing the world, golfing at St. Andrews, tooling through Malibu in your Maserati, that's exactly the intent.
Being nearly 61, I don't worry about retirement and never have. Contributed little to SS, will receive little, starting next year. I have not saved much, but, having actually gotten serious about not working very hard and keeping my money, in the past five years I've improved my credit (lied wickedly about my income) to the point at which banks are falling over themselves to offer me 0% interest CCs for up to 18 months. I have a bunch of them, rarely need or use them, but the free money (playing the float) is there.
Next year, I'll be downsizing my living space from about 1400 sq. ft. to about 600 (I'll deal with it), but expanding my potential acreage for gardening and farming from a 20x30 backyard lot to over two acres. The 1400 sq. ft. house will be rented out, proving more $$ and moving from the suburbs to a rural area will result in much lower property tax and overall expense.
Besides the gardening, I have various small income streams from business ventures (all run in house, no employees) and don't consider what I do as work in a very real sense. Retirement is a joke. Do what our grandparents did. Work, save (tougher to do nowadays, no doubt), scrimp a bit, stop acting like a consumer robot, be more self-sufficient, work more slowly as you age and die (we all will, no doubt about that). In the meantime, quit whining about pensions, macro-economics and other BS over which you have little to no control.
Gold, guns and grub, or their equivalent, is what works in any environment. Personally, silver, a shotgun and a pretty massive garden with roadside stand is my route to the good life.
Screw you, Met Life, Schwab, Prudential and all the other Ponzi retirement pimps. I screw government and banks every chance I get, and, believe me, they're open for some serious raping. Get them before they get yours.
Man up.
President Barry Obola has the cure for the pension funding problems
No problem. That's why the lever operators have taken over the markets. Get the Dow up to 50K and there is no longer any pension problem.