Wednesday, May 11, 2005


Looting the Pension Fund - W's MBA Training Follows Industry Standards

During the "hostile takeover" craze in the 1980s and 90s, "overfunded" pensions were "relieved" of their excess capital.
As happened in the mid-1980s, rapid appreciation in the value of equity investments has pushed many defined benefit (DB) pension plans into a position of substantial overfunding. Unlike the mid-1980s, however, a pension plan sponsor cannot tap these excess assets for other corporate purposes. Or can it?
(Source: Michael S. Melbinger: Gaining Access to Excess Pension Assets [This article appeared in Pension Management, August 1995][Emphasis added])
Now, of course, the brilliant business strategy of tapping pension "surpluses" for extra cash has reached its inevitable outcome: suddenly all those "overfunded" pensions are now "underfunded."

Of course, this really is old news:
Underfunded pensions pose huge dilemma
Figure is estimated to be $300 billion after being $23 billion in 1999; rising costs threaten an already fragile economy with fiscal chaos
The pension time bomb is ticking -- and could ultimately explode in a savings-and-loan-like crisis.

An aging work force and the collapse of the stock market have combined to create massive underfunding of traditional corporate pensions. The Pension Benefit Guaranty Corp. (PBGC), the government agency that insures these pensions, estimates the underfunding at $300 billion, a total that was only $23 billion as recently as 1999.
(Source: Robert Samuelson, The Detroit News, July 17, 2003
Various examples of the victims include:
American Airlines employees (but not senior executives)"Guarantee your pension like American? Not likely"

Employees of Kemper Insurance:
...Kemper’s retirement plan has promised $1.05 billion in benefits to its nearly 12,000 participants—mostly retirees and former employees of operating unit Lumbermens Mutual Casualty Co.—but has just $515 million in assets.
(Source: Jerry Geisel, PBGC takes over Kemper pension plan, Business Insurance Daily News, Oct. 21, 2004

And, of course, today's new record holder:
United Can End Pensions, Judge Says
Ruling Clears Way For Largest Default In U.S. History

By Keith L. Alexander
Washington Post Staff Writer
Wednesday, May 11, 2005; Page E01

A bankruptcy judge last night approved United Airlines' request to terminate its pension plans, clearing the way for the largest corporate pension default in history and setting the stage for a possible strike by the airline's flight attendants.

The federal Pension Benefit Guaranty Corp. will take over the airline's $645 million in pension payments and receive in exchange up to $1.5 billion in securities in the reorganized airline.
(Source: Washington Post)
Interestingly, our CEO President, who went to MBA school with the same generation of business leaders, has looted the Social Security Trust Fund by spending the reserves meant to back it up - and now wants to resolve his problems by cutting the last guaranteed benefit program: Social Security. After all, who wouldn't want Social Security run the same way large businesses run their pensions?


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