Decline in Calpers Assets May Lead to Increased Employer Contributions
U.S. Pension Benefit Guaranty Loses at Least $3 BillionBy CRAIG KARMIN and JENNIFER LEVITZ, Wall Street Journal
The California Public Employees' Retirement System, the nation's largest public pension fund, said recent investment losses from the financial crisis could cause cities, counties and other state employers to pay more money to the pension fund, starting for some in July 2010.
Calpers said that assets have declined by more than 20% from the end of the June 30 fiscal year through Oct. 10; total assets as of Oct. 20 were about $193 billion. It would lead to an estimated increase in employer contributions to the fund of 2% to 4% starting in July 2010 for some employers, and for the rest in July 2011, unless those losses are reversed, according to a Calpers memo.
The increased contributions would be greater if the fund's assets decline further by the end of the fiscal year of June 2009. However, the contributions would be smaller, or even nothing, if the fund reverses those losses.
The declines are taking a toll on Calpers funding status, which is the fund's assets divided by its liabilities. That ratio would be down to 68%, based on the market value of its assets, unless Calpers reverses the current level of declines. Analysts suggest that the ratio for healthy pension funds should be at least 80%. At the end of the June 2008 fiscal year, Calpers was 92% funded. It was at 102% funded at the end of June 2007.
A spokeswoman said that Calpers now puts aside 14% of the fund's assets to serve as a cushion during bad times, and as a result any employer contribution increases will be less than they were during previous downturns.
Calpers said employer pension rates for fiscal 2008-09 won't be affected by recent market losses. The rates were based on investment returns from earlier periods, so the effect of this month's market downturn won't be known until investment returns are determined for the fiscal year ending June 30.
"No large change in investment performance in one year will directly translate into the same level of change in employer rates in a single year" because losses or gains are applied over a 15-year period, said Kurato Shimada, chair of Calpers's benefits and program administration committee.
Separately, a House committee said the U.S. Pension Benefit Guaranty Corporation lost at least $3 billion in stock investments in the 11 months through August.
Documents obtained by the House's Education and Labor Committee show the agency invested a "significant portion of its funds in mortgage-backed securities," according to a statement by the committee.
It is likely that losses will be "substantially worse" after September results are reported, the committee said.
PBGC is a government agency that insures private pension plans, manages failed pension plans, and pays benefits to workers in those plans.
The committee says the losses came in the agency's "trust fund," which holds the assets of terminated plans that have been turned over to the PBGC. The agency, acting as trustee, then pays out benefits to workers.
Charles Millard, head of the PBGC will testify before the House Education and Labor Committee Friday regarding the "agency's financial problems that may threaten the retirement security of millions of Americans," according to a statement by the committee.
The committee said Mr. Millard "rebuffed a committee subpoena in July that demanded the agency to turn over documents regarding a report into the agency's mismanagement and lax governance practices."
Write to Craig Karmin at craig.karmin@wsj.com and Jennifer Levitz at jennifer.levitz@wsj.com
26 comments:
Remember.
PBGC has no income from Congress and has 44,000,000 people in line to get pensions.
You might want to check your LANS 401k too... also GM just announced today that its suspending its matching of employee 401k contributions.
Please give a reference or confirmation such as from a employees with paystub for LLNS suspending 401K matching contributions.
Umm... I think he meant General Motors.
PBGC invested heavily in mortgage backed securities and lost big time money. They have enough funds on hand to keep paying out checks to the busted pensions for about 12 months. After that, they'll be in line with everyone else for a big government bailout. Dang! It just keeps getting worse. The dirty 'D' word doesn't sound so far fetched any more.
The Dow today is at around 8,200 and dropping fast. Government production figures indicate that business has pretty much fallen off a cliff. Housing prices keep dropping and can't find a bottom. Foreclosure are ramping up to very high levels.
Given all this, the recession will likely be very steep and very long (~2 to 3 years?). Maybe not a depression in terms of official stats (and who believes those figures any longer?), but it's going to feel like nothing most people have ever experienced. Viewed in this context, using the infamous "D" word may be entirely appropriate.
"Housing prices keep dropping and can't find a bottom."
They will find a bottom at 2-3x the median income where they will become affordable to the average person once again. Overpriced housing benefits no one. Why we have to go through all this to figure that out is beyond me.
Unlike CALPERS or UCRP, I doubt LANS or DOE will be willing to contribute a single penny to TCP1 shortfalls. It's all going to come out of LANL salaries.
Calpers is now being forced to sell assets to meet current obligations. Not a good sign.
Calpers selling stock to meet some obligations - Oct. 26, 2008
(MarketWatch) -- California Public Employees Retirement System, the largest U.S. pension fund, is selling stocks to ensure it has enough cash to meet obligations to private-equity firms and real-estate partners, The Wall Street Journal reported on Saturday. Calpers had $188.8 billion under management as of Wednesday; it normally keeps less than 2% of its assets in cash but has had to raise that level, the Journal reported. The Calpers board's investment committee met last week to discuss ways to raise cash, people familiar with the matter told the paper.
Everyone else in the world is selling to meet cash requirements. How could CALPERS be different? If it were, their Directors should be immediately appointed to prophet status. If this distresses you, you should turn off your TV and cancel your newspaper until things get better (a year ot two).
BTW, PBGC has nothing to do with CALPERS - it doesn't bail out public pensions.
Both Calpers and URCP have been forthright in telling people exactly where their pensions stand in terms of their financial state.
Meanwhile, back here at LANL, we hear almost nothing from LANS. Wallace came up with a 7% loss figure as of the end of August, but little information was given as to exactly how the loss was calculated. Since late August, the markets are down about 30% and many of pensions holding mortgage backed securities have been hit very hard with additional losses.
The pension reform law passed by Congress last year requires all pensions to be fully funded by 2013. If TCP1 has undergone losses, it won't be long before serious salary reductions might be required to make it whole. You would think that LANS might want to give the employees a heads-up about what might be coming. If this is what you thought, then it appears you would be wrong.
That giant sucking sound you are hearing now is LANS removing is giant phallus from your collective asses.
Grip the table very hard now and if you are still dumb enough to be in the stock market, push your 401 towards stocks like KY or Vaseline.
7:09 pm: "Grip the table very hard now and if you are still dumb enough to be in the stock market..."
So, you sold your stocks while the market is down and prices are low? Good thinking. You'll probably buy them back when they are high, after the market recovers. Idiot.
No, no, no 8:14 PM. I don't think you understand what 7:09 PM is trying to tell you. Let me help:
"Sell high, Buy low".
Got that?
Read that sentence over very slowly several times until you can fully grasp all the big words it contains.
Enough with the sophomoric LANS/Vaseline remarks, people.
This is more of a "buy low, sell lower" type market. It's very ugly and is raising stress levels of anyone holding a 401k.
I didn't know LANS had a giant phallus. However, I heard Mikey singing this catchy little song as he walked down the halls last week:
www.southparkstudios.com/
clips/165193/?tab=featured
What, What In the Butt - SouthPark
11:07 AM: "This is more of a "buy low, sell lower" type market. It's very ugly and is raising stress levels of anyone holding a 401k."
Sorry, but any respectable financial advisor will tell you that if you need to check on, or even worry about your stock or stock mutual fund holdings more frequently than about six months, you shouldn't be in the market.
Sorry, but any respectable financial advisor will tell you that if you need to check on, or even worry about your stock or stock mutual fund holdings more frequently than about six months, you shouldn't be in the market.
10/28/08 9:29 PM
You've got to be kidding me? The stock markets have suffered an extremely steep decline of over 40% in just a few months and the US appears to be heading into the worst recession since the 1930's. The consumer confidence figures that just came out today were at the lowest figure ever recorded!
Get real, anyone with half a brain should be concerned about the state of their 401Ks. Only a fool would not be paying attention at this point in time.
Note the article below about company pensions from Bloomberg News.
Companies must, by law, start cutting employee pension benefits if the pension assets fall below the 80% mark of liabilities. At 60%, companies are required to freeze out their pension plan. I'll bet most people have no idea these laws are part of the recently passed Pension Act of 2006.
Of all the companies mentioned in this article, Raytheon seems to be doing the most to help look out for their employee's interests. UC is also on record as saying they are going to share the pain between UC and their employees to cover for the growing UCRP shortfalls.
Lots of companies are starting to talk to their employees about the condition of their pensions. In this regard, the silence from LANS regarding the LANL TCP1 pension is disturbing, to say the least.
The key question is... will LANS or NNSA help cover for pensions shortfalls in TCP1, like Raytheon and UC, or is the burden for making up pension shortfalls going to be completely dumped on the shoulders of the employees?
+++++++++++++++++++++++++++++
Lockheed, Ryder Drain Cash as Crisis Hammers Pensions -- Bloomberg News, Oct 29, 2008
+++++++++++++++++++++++++++++
Oct. 29 (Bloomberg) -- A trade group whose members include Lockheed Martin Corp., Dow Chemical Co. and General Motors Corp. is pressing Congress to help close a record $200 billion deficit in U.S. pensions created by this month's global stock-market collapse.
The Committee on Investment of Employee Benefit Assets is kicking off a lobbying effort today to delay provisions of the Pension Protection Act that it says will force companies to drain cash flow to comply with funding rules set to take effect next year.
``This will be real money that companies will have to come up with,'' said Judy Schub, managing director of the Bethesda, Maryland-based group, which represents 110 of the nation's largest retirement plans holding almost half of U.S. assets. ``The law will be forcing people to be taking money out of operations at the worst possible time.''
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The value of so-called defined benefit plans fell to $1.1 trillion by Oct. 24 from $1.3 trillion at the end of September, according to Mercer, a pension consulting unit of Marsh & McLennan Cos., as the Standard & Poor's 500 index declined 36 percent this year. The $200 billion gap between U.S. retirement plan assets and liabilities indicates that pensions are about 85 percent funded, said Adrian Hartshorn, who advises corporate programs at New York-based Mercer.
The Pension Protection Act of 2006 compels companies to cover 94 percent of retirement-plan liabilities to be considered fully funded in 2009. The legislation was passed after funding dropped following the technology sector collapse in 2001. Plans covered 104 percent of obligations and posted a $60 billion surplus at the end of 2007, Mercer said.
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Companies must cut benefits if assets fall below 80 percent of liabilities and eliminate lump-sum payments below 60 percent, according to the law. At that level, companies must also freeze their plans and prevent participation by new hires.
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The first deadline most companies will need to meet is Dec. 31, when they will have to calculate their funding ratio and develop budgets for contributions beginning in the second half of 2009.
``Companies will be facing quite significant cash calls in 2009 and 2010 and more than a few will find it difficult to meet these,'' Hartshorn said.
The impact of rising pension expense is making companies cut spending in areas including dividends, said Howard Silverblatt, an S&P analyst in New York. Dividends will fall 10 percent this quarter the worst year-over-year decline since 1958, he said.
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Next year's pension costs will be determined by 2008 returns on plan assets and interest rate assumptions that won't be made until year-end, according to federal rules.
``Like every other defined-benefit plan, we'll have suffered losses in line with what the markets have done, and we'll have to see what happens,'' Burlington Northern Santa Fe Corp. CFO Thomas Hund said in an Oct. 23 call.
``We were fairly well funded, although not fully funded, prior to the disruption this year,'' said the second-biggest U.S. railroad's CFO. ``And so, there will be funding required if the assets don't return back to previous levels.''
The Dec. 31 deadline to set next year's plan contributions gives Congress, which returns from recess Nov. 17, less than six weeks to resolve the issue.
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About 59 percent of the 100 largest U.S. pension plans will fall short of the required 2009 funding level, even if stocks pared their decline to 13 percent, Pomeroy said.
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Raytheon Co., the world's largest missile maker and fifth- largest U.S. defense contractor, predicts it will meet the new pension-funding levels.
Raytheon, based in Waltham, Massachusetts, contributed funds to its pension plan ``well in excess'' of requirements, spokesman Jon Kasle said in an e-mailed statement. In 2007, the company added $1.3 billion, of which $900 million was discretionary. This year, the company will add about $550 million, he said.
``Raytheon is focused on managing its pension plan to the guidelines of the Pension Protection Act with an objective to be fully funded well within its required timeframe for our company,'' Kasle said.
It's interesting to observe, yet again, how highly paid American executives are trying to weasel out of pension obligations they have made to their workers. The Pension Act of 2006 was suppose to put a stop to this nonsense, yet here we see companies lobbying to roll back this pension protection law after only two years since passage! Have people already forgotten the horror stories of the last few years in which companies destroyed their pension plans to benefit greedy CEOs?
If earnings are reduced due to corporate pension contributions, then greedy executives won't meet their earnings targets. This will require them to give up their big fat bonuses. Kudos to Raytheon for doing the right thing.
What will LANS do?
Terry Wallace said the TCP1 pension was in great shape just last month. Can we trust him?
Obama says he want to protect worker pensions. He even mentioned it last night in his 30 minute infomercial. I've yet to hear a single word from McCain on the subject.
Over the last few years, we seen plenty of greedy corporate executives raid and destroy their company pensions. It's amazing that they've been able to get away with doing this for so long. Where are all the regulators? It's mind-boggling to see this happen in America.
What will LANS do?
screw it up
Terry Wallace said the TCP1 pension was in great shape just last month. Can we trust him?
His wife doesn't trust him.
What will LANS do? screw it up
10/30/08 8:52 PM
You forgot to add, screw it up and then product a nice, glossy brochure heralding how they really care about their employee pensions. I must say, LANS is exceptional good at producing nice, glossy brochures that are chock full of spin.
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