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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Elroy Jetson who wrote (20173)	1/2/2005 7:04:25 PM
From: mishedlo	Respond to of 116555

Warning over US pension insurance fund liabilities The US pension insurance fund faces a possible tax payer-financed bail-out similar to that of the savings and loans industry in the late 1980s unless Congress changes the rules that govern its funding, prominent economists have warned. In a paper prepared in December, the Financial Economist Roundtable said it was “dismayed” by the increase in the liabilities of the Pension Benefit Guaranty Corporation. The FER's statement was signed by several of its most prominent members, including, from the US, William Sharpe, Nobel economics laureate, and Elroy Dimson, of London Business School. The FER blamed a surging deficit at the PBGC on a 2004 law that allows cash-strapped companies to both underfund their pension schemes and reduce the insurance premiums they pay into the fund. Employers' groups, particularly those in the airline, autos and steel industries had argued hard for the 2004 law, saying that funding their pension schemes adequately would force them to cut jobs. The paper comes amid growing alarm in the US about the quasi-public insurance body whose deficit had ballooned to more than $23bn as of September, more than double the year before. Some private estimates of the deficit put it at $100bn. Last week, the PBGC took control of the $5.7bn in liabilities for United Airlines' pension scheme over the objections of the company and its members, saying it needed to act quickly to prevent yet more debts falling into it. In taking over the scheme, Bradley Belt, executive director, said: “I hope the plight of participants in airline pension plans puts an exclamation point on the need for Congress to strengthen the funding rules for defined benefit plans.” The FER economists called on Congress to require companies to use a more realistic rate to discount future liabilities. Current rules allow companies to shrink calculations of future liabilities by assuming investment returns they have not yet earned. The paper also suggested barring pension funds from investing in unmarketable or illiquid assets such as real estate. It urged that companies with large pension deficits be required to pay much higher premiums closer to those that a commercial insurer would charge, and to require companies with pension fund shortfalls to be charged high penalties until those deficits are made up. news.ft.com