For many American workers, their pensions could be hit with a devastating blast because the companies they work for are collectively 300 billion dollars in the hole in pensions owed workers! This is vitally important because forty-two million Americans will rely on a corporate pension for a majority of their retirement income.
The 30,000 companies that pay a defined benefit in the future (a pension) place money in a trust fund to pay the future retirement obligations. That trust money is then invested with the intention of paying those obligations.
When the stock market was flying high, most companies had plenty of money in the funds to pay those responsibilities. However, these trust funds have lost an estimated 500 billion dollars over the past two years, according the Greenwich Associates research firm, creating a black hole for many companies.
For example, General Motors expects to reduce earnings this year to compensate for the increased pension payouts. Also, American Airlines, emerging from bankruptcy, was able to walk away from 2.5 billion dollars of pension liability (the liability was absorbed by U.S. government insurance).
The key problem for these and other companies was that they invested a very large chunk of the assets in the stock market, which was great when the market is up but disastrous when the market is down. Companies need to heed King Solomon, who said, “Divide your portion into seven, or even eight, for you do not know what misfortune may occur on the earth” (Ecclesiastes 11:2 NASB). Companies that violate this principle by failing to diversify run the risk of being hammered in a down market.
Many companies are rapidly moving away from these defined benefit plans and instead are contributing to employee individual retirement accounts. The advantage to the company is that once the payments are made each year, the liability ends; and the advantage to the employee is that their future does not depend on the investment wisdom of their employer.
Currently, these 300-billion-in-the-hole pensions are “guaranteed” by the Pension Benefit Guaranty Corporation, but if the stock market flounders and companies are unable to make up the difference, the expected retirement income of millions could experience a meltdown.
Check out your company and determine how secure your retirement really is.
Steve Marr is the former CEO of the fourth largest import-export firm in the U.S., a company which facilitated international trade for many of the largest companies in America. Currently, Steve consults with with businesses and ministries utilizing ancient Biblical principles for success in today’s marketplace. Click here to contact Steve, or visit his website at www.businessproverbs.com.
