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Politics : The Castle -- Ignore unavailable to you. Want to Upgrade?

To: Neocon who wrote (153)	11/8/2002 11:57:32 AM
From: i-node	Read Replies (1) \| Respond to of 7936

I would be happy to have it clarified. I'm no expert on pension liabilities. But the general idea is as follows. If I work for a company, there may be a pension plan which calls for me to receive a certain benefit payout, 30 years hence, for each year I've worked at the company. It is determined that, in order for me to receive the benefit to which I'm entitled (30 years hence), it is necessary for the company to deposit $3,000 into the plan today, which will grow (through investments) over 30 years to provide the required funds at that time. The process is essentially one of determining how much the required benefit (30 years hence) will be, then discounting that amount at the average earnings rate to determine how much to deposit into the plan. This process must be repeated for each participant (each of whom will retire in a different number of years, receiving different levels of benefits). But the bottom line is that the company MUST DEPOSIT today enough money to grow into the required amounts over time. Now, think about what SS does. There is no attempt to deposit today sufficient funds to grow into what we can reasonably expect future retirees to require. Benefits are established by law. Funds deposited into the plan this year are used to pay out current benefits. If all employees who are working today suddenly stopped, there would be no money to pay current beneficiaries (actually, there would be a "little" money, but VERY little -- this is from the so-called annual "surplus"). This is prohibited in private plans. One other point. This scenario is what accountants refer to as "cash basis" accounting -- i.e., money is shown as "income" when it is received, and is shown as "expense" when it is paid. It is well-established that cash basis is unacceptable for pension plans (and for any substantial sized business entity). Why? Because huge, legitimate business transactions can and do occur that don't involve any cash at all. Liabilities can accrue, assets can be purchased, expenses can be incurred, all without any cash involvement. This is the reason that "cash basis" accounting is not an acceptable method of accounting. Anyway, that's the "short answer" <g> to your question...