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Pension Reform Unintended Consequence: The Pentagon Is Broke
New standards that were set in place in 2006 as part of the Pensions Protection Act that change rules on pension fund liability calculations looks set to push The Pentagon to budget DefCon 1 as they note the costs are "way more than a book-keeping question". As Defense News reports, the rule, which takes effect this week, requires the US government to reimburse its contractors to a far greater degree for their employee pension costs. The unbudgeted line-item is estimated at billions of dollars but perhaps what is most concerning is DoD Comptroller Hale's comment that the cost to The Pentagon will depend on how the companies' pension funds fare in the stock market. If investments do well, costs will be lower, but if investments do poorly, pension funds become further underfunded and this will mean more costs to the Pentagon. Yet more vested interest in the economy stock market's levitation, but given the 2006 law change, we tend to agree with the Center for Strategic and International Studies who note: "How can this have snuck up on us and caught us unaware? I didn't hear any alarm bells!" How indeed? Maybe Dow 13k is even more important than we know?
Defense News: New Accounting Rule Could Cost DoD Billions
The Pentagon may pay billions of dollars more for weapons programs in coming years because of an obscure new federal accounting rule.
The rule, which takes effect this week, requires the U.S. government to reimburse its contractors to a far greater degree for their employee pension costs.
The Defense Department has not yet budgeted for the additional pension costs, but estimates they “could be billions of dollars, conceivably,” Defense Department Comptroller Robert Hale told “This Week In Defense News” on Feb. 23.
...
The cost to the Pentagon will depend on how the companies’ pension funds fare in the stock market, Hale said. If investments do well and earn money, a greater part of the plans will be funded, he said.
However, if investments do poorly and pension funds become further underfunded, affected contractors would be forced to make greater payments to cover those liabilities, pension experts said. And that will mean more cost to the Pentagon.
The new rule stems from the 2006 Pension Protection Act, which set new accounting standards for companies to use in calculating their pension fund liabilities.
...
Specifically, the cost accounting rule allows contractors to recoup all of their pension costs over four years.
Starting in 2014, contractors can add 25 percent of the difference between what they are required to pay under the Pension Protection Act and what they can charge the government under cost accounting standards. The percent of additional costs that can be charged increases to 50 percent in 2015, 75 percent in 2016 and 100 percent in 2017.
Take the example of a contractor who is required to pay $120 million to its pension fund under the Pension Protection Act, and yet federal cost accounting rules recognize only $100 million of that as reimbursable by the government. In 2014, the contractor would be able to add a quarter of that difference — $5 million — to what it can charge the government, for a total of $105 million. Under the same circumstances, the contractor by 2017 could bill the government $120 million.
With its roots in a 2006 law, the rule’s impact should have been anticipated, giving Defense Department officials plenty of time to budget for the expected costs, said David Berteau, director of the Center for Strategic and International Studies Defense-Industrial Initiatives Group.
“How can this have snuck up on us and caught us unaware?” he said. “I didn’t hear any alarm bells.”
...
According to the 10-k reports of four major defense contractors, the difference between pension plan assets and future pension liabilities ranged from $2.9 billion to $13.5 billion.
Lockheed Martin’s plan assets, for example, are $13.5 billion short of future liabilities, meaning it is about 33 percent short of being fully funded. Northrop Grumman is $2.9 billion short on assets for its projected benefit costs, or 13 percent underfunded. General Dynamics’ plan assets are $3.9 billion below projected benefits costs, or 40 percent short of fully funded. Raytheon’s plan assets are $6.1 billion short of future benefit costs, or 28 percent underfunded.
Contractors are required to fund their employee pension plans according to the federal Pension Protection Act standards. But until now, federal cost accounting rules have calculated pension costs at a lower rate, meaning contractors have been unable to recoup all those costs from the government, said Terry Albertson, a partner with Crowell and Moring government contracts group.
The new rule will not mean that contractor pension plans will be fully funded by 2017, said Don Fuerst, senior pension fellow at the American Academy of Actuaries.
The gap between what contractors have been paying toward their plans and what the government has reimbursed will narrow, he said.
“But most contractors will still be contributing more than they’re reimbursed,” he said.
...
The impact of the new rule on government contracting costs could be dramatic given the tight budget environment most Defense Department agencies are operating under, Berteau said.
“This is way more than a bookkeeping question,” he said.
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Yeah, is that a chopper I hear?
Quick!!! Get to the chopper!!!
Oh!
So What the Fuck!?!??!
So now the gubamint has to reimburse the defense contractors for shortfalls in the contractors pension funds?
Last I looked the contractor was responsible for that shit.
Not the Taxpayer.
Just Like Fucking Theft.
Pension fund does good, recpature by decreased contributions... big bonuses
Pension fund does poorly... taxpayer ponies up.
WHAT THE FUCK?
TBTF
All the Pentagon needs to do is find that missing $2 trillion that was announced on Sept. 10, 2001, and this problem will be remedied right away.
They also might want to find those pallets of $100 dollar bills that were air lifted to Iraq.
Well, they would, but the papertrail "ended" when a "jumbo jet" hit the office of the squidees working on the $2.3 trillion.
Funny, how they were working in the only area of the Pentagram that wasn't hardened, yet....
If the markets fail the muni's fail and it all comes crashing down. Meredith Whitney had her sights on the right target, just underestimated the effort that would be put into protecting it at all costs. This is the turd that will be levitated until the very last moment... because we all know the endless promises that have been made can't be kept without said promises being made worthless in the process.
Interestingly some say all government is theft, and at the point of a gun???
It may be true look at how they clear out the OWS people with violence.
Makes me start to look. hummm.
Peace
check this guy out
Freedomainradio.com
The purpose of the Pentagon budget is to subsidize weapons contactors anyway. Now its just more obvious
No one could have seen this coming!
defense contractors...tbtf
They don't call it "white man's welfare" for nothin'.
BROKE BITCHES
TANKRUPTCY
The fault of Bush.
Note to self: become a defense contractor, pay self handsomely with a VERY generous defined benefit plan, seek recompense from DOD accordingly.
Get in line...
The Pentagon is broke?
Great. That's just great...we've got another major war coming up, those dipshits!
Now we have to make a call to The Bernank.
Hence the Libertarian creed of a strong national DEFENCE, paid for with excise taxes, not by playing rigged casino games. FUCK!
WTF??? Is everyone in Govt retarded? Sorry, dumb ass question.
http://news.yahoo.com/incompetent-people-too-ignorant-know-175402902.html
This article explains everything you need to know about government employees. LOL
This is why I despise corporate contractors for defense.
What ever happened to the good ole days of paying someone, straight cas hhomey under the table, to do your dirty business?
It's just a good thing that this stealth tax increase and transfer payment won't affect any of Obama's middle class.
Please forgive my ignorance (but in my defense, I'm in Illinois)...
The US government pays private contractors' employee pensions? Really?
The contractors don't pay their own employees' pensions?
I'm with you Kid. If you've been following the voracious attitudes of lobby groups, it's apparant that laws are created to favor those companies with the most "boots on the ground" on Capital Hill.
It appears there were some accounting rules that allowed a certain portion of all contracts to protect the pensions of the employees at these contractors. Like always, the leaders of said companies underfunded the pensions "on accident" because they set up models that claimed future earnings would be greater than reality. Now that these contractors are in the hole big time, the lobby efforts are back and now say that the contractors have to fully fund the underlying pensions. Americans are sold the story that everything is on the up-and-up in that companies are simply becoming compliant and doing the right thing. But the reality is, the government will now pay for any shortfalls through the backdoor.
So watch for this... Those underfunded pensions like Lockheed's at $13.5B? How much you wanna bet that sometime in the next 4 years, there will be a recaculation that says, "oops! We are really underfunded by $22B. Nobody could have known about it and we are really sorry for our poor math."
They didn't pay retirement for defence contractors when I was one. But that was a long time ago, who knows. They paid us cost plus fixed fee for what we did (mostly research). That included pension input costs, but nothing about investment returns or lack thereof. Really pensions are a huge part of the pentagon bugdget anyway - most people don't realize that when they harp on how we should cut defense - we should, but it's not even most of the money, it's pensions, since they get to retire so early mostly, and the pensions are good. Many retire early enough to take some other government job and get vested in that pension too - kind of a triple dip.
I see the witch Pelosi is not being blamed for this abominable legislation...then again neither are the GOP scum that are responsible for this newest MIC gift.
For the former defense contractor employees who received no retirement benefits try not to confuse your slave status with executive compensation packages.
What do you think happens when one of these contractors goes belly up and takes the retirement fund too?
hilarious.
Those "boots on the ground" will also ensure that any future dollar devaluation will not result in any loss for certain protected accounts.
More like "pigs at the trough"
What do you want to bet that everyone's pension planners made the same (perfectly reasonable) assumptions that real estate valuation climbs 5% a year forever and ever without interruption? How about MBS being held by Lockheed to cover pension cost?
I'm not suprised at any of this happening, but I am surprised that folks continue to pretend anything is shocking.
I expect *everyone* to have to kiss their retirement income goodbye at some point. It's just a question of how long we keep acting like we don't know this is coming.
(For whatever reason, I'm reminded of the bombshell story about Michael Stipe coming out as gay. Heh.)
Great Rush tune, by the way.
http://www.youtube.com/watch?v=jsTxxPOqzc4
So few people get the Rush reference.
I'm amazed that the government gets to pay private corporations' pensions. How do I get my companies to hook up to that?
After further reflection, I guess I'm not amazed.
Why does Rush sing somewhat approvingly (?) of the "New World Man?" Am I missing something?
Simply move up on the contributors' list.
I worked for a military contractor until recently. NO, the gov't does not pay them pensions. Who ever stated that in this article if full of BS.
The new rules go into effect in 2014 according the the Defense News article.
Confiscate 401k. Force people to buy stocks. Support the cowardly men and women murdering children because they were ordered to by MIC.
Fucking slaves.
well Looks like china might bear on the flood of kidney and liver sales on the asian black market... G I sleeping with one eye open
"...this will mean more costs to the Pentagon."
You meant to say, "more costs to the taxpayers" right?
I feel warm and cozy knowing that we are not only bailing the bankers, house flippers, speculators, deadbeats and EU banks....but now we get to pay for contractors' pensions.....wtf?!
Ron Paul said that our welfare-warfare state is unstainable because we are bankrupt. But he's just a kook.
Yeah. I participated in the illusion of a democratic society today.
Well organized. Showed my serfdom residency card driver's license, and they highlighted my name for future detention . Filled out the future detainee's pickup point proof of address, got the ballot for Ron Paul the Republicrat Republican dictator presidential nominee.
Filled in the circle, after laughing at names like Huntsman, Bachmann, Perry and Cain. No shit, they're on there.
Then I walked over to the Diebold machine, which sucked it in like Michelle Bachmann Hoovering a corndog, and reflected what a sham it all is.
How come the strikeouts aren't working?
yep, just read an article on Obumbler cutting military healthcare benefits and raising co-pays and deductibles on active and retired servicemembers.
edit: and private union healthcare and pensions remain untouched.
http://freebeacon.com/trashing-tricare/
courtesy Drudge
I just cannot stop laughing. And along the same lines from our big Apple. No not Tim Cook but New York. Lead article in NY Times today. Many cities in NY do not have enough money to fund their state and city pension plans. So a while back NY passed a new law...No bullshit guys. Cities and towns can legally borrow the money to fund their pension obligations from.....Their Pension funds.
You cannot make this shit up. They are thinking when the stock market is at DOW 20,000 all will be well.
I kid you not. Wait till Tyler gets a hold of this one. :)
So... then maybe the funds will be able to obtain an 8% ROI after all? Why it's a true win-win!
Linky :
http://www.nytimes.com/2012/02/28/nyregion/to-pay-new-york-pension-fund-...
All the big government defense contract players, GD, NOC, BA, RTN, and LMT feed from the $820G+ Security/DoD pie. Don't forget BAE Systems, the British defense wankers milking the us market.
They'll probably try some crazy scheme to fix this, like printing massive amounts of dollars to ramp up the value of the stocks in the pension plan portfolios. Why, next thing you know some state will try borrowing from its own pension fund to pay the required contribution to the fund. Oh wait...
The interconnectedness of all the shit and the degree to which it is all fucked up is the only thing that surprises me lately...
if this breaks the pentagon, we can only thank god that we might finally get some peace, provided that the cia goes broke with it....
Pentagon wil get more money. All the $$$$ it needs
Defense Contractors will get more Contracts$$$$$
Fed will create the money and loan to the Pentagon. More Interest Income $$$$$ to the Fed.
Taxpayers will get the Shaft and go deeper into debt slavery to support the groups listed above.
Almost Everybody benefits.
You got it Vince. At this rate of printing, in roughly 2015 gas will cost $6. Bankers and large swaths of government will still be able to afford to live but more than half the population won't. A lot like the Soviet Union, defense will be the last protected industry before... Ahem...
Perhaps it is wise to now start discussing what to call America 2.0 considering Uncle Sam handed the wealth East, shot himself in the head and took the population down with him. The brand is dog-*hit now. Let me think about some names or words for America 2.0. The word 'united' is the opposite of the abounding sentiment and 'bitter states' doesn't have much flair. Oh gee, I guess I'll have to think about it. There's time. But precious little...
In many parts of the world, they already call us "Emetica." I think it's catchy.
What's the problem, all part of the O-struction plan, you didn't get the memo?
The Cash for Crusaders memo?
Now I am the first one that states one day does not a market make but don't you all agree it is nice to see our miners ramp, HUI at day high and most averages flat. If nothing else it keeps the trolls away for a day or so. Nice day for gold and silver. Well deserved me thinks.
Please do a 'Find/Replace' on the article and replace 'Pentagon' with 'Ass-Raped US Taxpayer'.
What a ripoff.
This is how a system is setup for failure and why it takes so long for the corrective measures to be enacted-- too much bullshit predicated on other bullshit.
This is nothing short of ridiculousness and to me a prime example of how fucking ass backwards our spending have become. Like all other things tied to the bubble of Keynesianism this too will have to be corrected.
Contractors : the fine folks at Blackwater and Dyncorp... you know, the people involved in rape, murder, children and women sex trafficking... those nice folks need their pension funds!
WTF... Ron Paul voted for this...
http://www.govtrack.us/congress/bill.xpd?bill=h110-7327
Dec 10, 2008: This bill passed in the House of Representatives without objection. A record of each representative’s position was not kept. Dec 11, 2008: This bill passed in the Senate by Unanimous Consent. A record of each senator’s position was not kept.Of course, we don't even know if Ron Paul was in the room at the time.
PPA was signed into law Aug. 2006
http://www.irs.gov/retirement/article/0,,id=165131,00.html
it's official, shorts are now terrorists - and any bad news is heresy
as long as they can deliver on the payments... regardless if watering down the dollar renders said payments to barely fill a tank of gas
So let me get this straight. Rumsfeld announces the day befor 911 that there's 2.3 Trillion missing from the Pentagram. The Illusionary jet crashes into the exact area of the Pentagram where the supposed stolen record of the Trillions went missing. Many Naval intelligence personnel were killed and records destroyed when the new offices in the Pentagon were blown up, allegedly by a humungous, hi-jacked commercial airliner making an impossible flight path even by an expert pilot with "the plane" making a hole in the wall that obviously was far too small for its size. And all those plummy C.I.A. records and IRS records also went down with the demolition of Building 7, which took 7 to 8 seconds for the fall; 10 and 12 seconds for the respective Towers. World Trade Center 7, held financial records that could imprison the top tier of Wall St criminals. The records held within were imperative in over 4000 SEC investigations into the Dotcom bubble.
Follow me so far? Good. Add in the fact that all the Military Pensions have already been stolen by the Banking Orligarch Elite in the Derivatives scam and you're telling me you're broke? You'e not broke, you're up to your eyeballs in Crimes against Humanity.
well there was this part you left out...
from: http://911research.wtc7.net/sept11/trillions.html
btw System Planning Corp's "Flight Termination System" is interesting stuff...
cached here: http://911research.wtc7.net/cache/sept11/sysplan_fts.html
There's PNAC, again.
Their fingerprints really are everywhere, and no - no tinfoil was used in the making of this statement. If anyone thinks so, they're simply ignorant of facts and recent history.
Letter to President Clinton on IraqThat's PNAC's own words, posted on their own site, suggesting, in 1998, that President Clinton act forcefully and decisively on taking out Saddam (the jackals failed).
And then, well, you all know the rest (I'm NOT confusing correlation with causation, but it's extremely coincidental, at the very least).
Dov Z didn't sign on to that Iraq letter to Clinton, but he did this one:
Kosovo - Project for the New American Century
"extremely coincidental"
exactly...
The PNAC's Rebuilding America's Defenses document which mentioned a 'new Pearl Harbor' can be found here:
http://www.newamericancentury.org/RebuildingAmericasDefenses.pdf
excerpt from page 63:
FWIW:
"Dov Zakheim 9/11 Mastermind"
http://youtu.be/HlNQTG8B6hw
more here:
Dov Zakheim retires from Booz Allen Hamiltonhttp://open.salon.com/blog/gordon_wagner/2010/07/19/dov_zakheim_retires_...
What's more is that before our 'friend' Zakheim left the Pentagon and landed on his feet at Booz Allen Hamilton another cool Trillion came to be unaccounted for in 2003:
Military waste under fire / $1 trillion missing -- Bush plan targets ...
Ratical.org had some more on the DoD trillions here:
http://www.ratical.org/ratville/CAH/DODtrillions.html
Of course as pointed out in the article anyone questioning this at the time was considered 'unpatriotic.'
Money speaks bitchez...
The Department of Homeland Security would like to have a word with U, sir, over in this black van with tinted windows.
Even Humble Pension-Holders Are In The FATCA Net, Tech Firm Warns Tom BurroughesGroup Editor in London
27 February 2012
News Analysis
The US tax compliance net will spread to catch people with pension portfolios, highlighting the extent to which financial businesses need to get their client details in order as deadlines approach, a technology firm has warned.
http://www.wealthbriefing.com/html/article.php?title=Even_Humble_Pension-Holders_Are_In_The_FATCA_Net,_Tech_Firm_Warns_&id=44595
More creeping fascism.
All those defense contractors are heavily populated with retired senior officers (nearly all generals take such jobs) and the people who weaseled their way up by coercing, cajoling, glad-handing and perhaps bribing those officers along the way.
The pyramidibubble is closing in on its popacollapse soon though.
the stock market is now part of national defense. bankers rule.
I think there is a carrier in Chugwater WY they can rent.
This explains why, if you look at the size of the pension funding deficits and the BS math governing the expense recognition, defense firms have the weakest-funded plans amongst public companies!
its again time to stay out of tall buildings
I'm getting out now. Going to leave them play with themselves. They cheated and I quit!
Merican fascist business model in action.
Military/banking complex will not be denied.
Sheesh. Just when have we ever worried about actually having the money we spend. Just sell a few trillion treasuries to Uncle Ben and spend it. Buncha cry babies.
I'm long gold, silver and defense contractors, because each time an empire is broke, it goes to war. Do you think because the US are broke, they gonna let China be number one? no way...They are going to keep exporting their dollars with wars in order to roll on their debts.