Brandon Smith
April 7, 2015
FINC 3700-002
John Jahera
Underfunding of Pension Funds The luxury of a defined-benefit pension plan could become a nightmare for thousands in the next couple decades. This type of retirement plan pays benefits to people a sum based on years they have worked and how much they were paid while with the company. Defined-benefit pension plans currently hold billions more in liabilities than they hold in assets leaving retirees all over the country with underfunded pension plans and soon-to-be retirees to continue working. This underfunding does not start with the financial crisis and recession but has been steadily increasing for the last ten years. Underfunding is measured by either the Government Accounting Standards
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Executive director of California Common Sense, Autumn Carter says “for many public pension funds, the hole is so deep—in the range of many tens of billions of dollars for some of them—that they would need decades of double-digit returns to approach full funding” (Reuters). States promised pensions that they were not able to afford and has become one of the largest expenses and costs are rising. Pension obligations are a major problem in recent bankruptcies, such as Detroit. Most cities are required by their state constitution to pay all pension obligations before other debts. Not among these cities, Detroit plans to cut promised pensions for current and future retirees. If Detroit is able to follow through with the plan then bankruptcy could be a viable option for cities with pension deficits. In other cities, pension plans are improving but has not reached the amount needed. “Robust returns over the past two years may have stabilized shortfalls for many systems but some pension plans will likely struggle to narrow funding gaps,” according to Rachel Barkley with Morningstar (Reuters). She explains that this is because the fund paid each year has fallen short of what is needed (Reuters). 2015 is predicted to improve the shortfalls but offer only short term relief. While inadequate funding is a poses as a problem for pension funds, unexpected low returns left many retirees unable to continue a comfortable
Can We Keep Our Promises? The purpose of this paper is to provide a summary of the article called “Can We Keep Our Promises?” by Robert D. Arnott, and to help better understand the three key risks facing each investor. Robert Arnott describes risk and return as “having two sides of the same coin” meaning risk is inseparable from return. Arnott points out the most important risks that are faced by managers of company pension plans: underperforming other corporate pension funds (their peers), losing money (mostly associated with portfolio standard deviation or volatility), and underperforming the values of pension obligations and therefore losing actuarial ground.
The push for Congress to pass legislation protecting the rights of employees and their retirement was inevitable. Retirement plans are extremely important for all working individuals. Having funds to keep or exceed ones current standard of living and to enjoy one’s life beyond expectations after retire...
Patrick, C 2004, The Guardian: Australia may hold key to pensions, 12 October 2004, retrieved 21 July 2006
Personal Differences. In this case, Dan Richardson, a partner in Educational Pension Investments (EPI), founded EPI with a philosophy of maintaining low-risk investment portfolios with moderate income; a philosophy that has been in place for 50 years. This risk adverse philosophy found Dan considering the merits of a more aggressive investment approach to offset the fact that EPI’s growth has not kept pace with other investment opportunities. (Whetten & Cameron, 2011)
Recent budget controversy in Congress and the media has once again brought to the forefront the pressing desire for fiscal responsibility in the United States Government. Although Congress came to a compromise over the budget in the proverbial eleventh hour, the extra attention afforded to the budget issue has reignited a lingering controversy: is the current system of transfer payment programs a financially viable one, or should these programs be recognized as an economic burden? As new waves of retirees stream into the system, it has once more become necessary to consider whether or not the U.S. Government can truly afford to keep the implicit promises it has made, and if the next generation to reach retirement age will see the benefits that it pays for current claimants to enjoy.
To illustrate these tendencies, several macro-level trends and events in Illinois’ recent history warrant brief discussion. First, Thomas Walstrum, a business economist from the Federal Reserve Bank of Chicago, published a striking analysis in 2016 concerning Illinois’ fiscal situation that succinctly illustrated how the state’s current fiscal trajectory essentially began in the late 1980s. In his article, “The Illinois Budget Crisis in Context: A History of Poor Fiscal Performance,” he posits that the state could have been categorized as a low-expenditure, low-revenue state prior to the 1990s (Walstrum). Starting in the mid-1990s, however, his analysis shows that the state began consistently spending more than it took in in revenues, significantly outpacing the national average (see figs. 1-3). From the years 1994 to 2010, Illinois’s spending averaged 115.9% of its revenues compared with 105.7% for the typical U.S. state (see fig. 4). The main source of this increased spending was pension-related and since revenues continued to remain low, the state began accruing debt to cover these liabilities (Walstrum). This imbalance between revenues and expenditures indicates that Illinois’ budget has not really been balanced since this period in the 90s. In his analysis, Walstrum also treats the yearly change in pension liabilities as an expenditure, treating future payments as if they were being made right now. In doing so, he demonstrates that Illinois was actually a much higher expenditure state than commonly believed since it was merely deferring those expenditures in the form of pension fund payments well into the future
This summation of the state of Social Security was written more than a twenty years ago. Looking back, it seems as though the Social Security system frequently reaches a state of crisis in which predictions of its end arise. Since it was enacted in 1935, Social Security has been amended often, most recently in 1983, when Congress imposed a tax on the benefits of high-income retirees, raised the retirement age, and revised the tax-rate schedule.
Bibliography Cubeddu, Luis. A. "Intragenerational Redistribution in Unfunded Pension Systems." International Monetary Fund Staff Papers March 2000: 90. Fast Facts and Figures about Social Security. August 2000.
Social security, since instituted in 1935, has kept many elderly people from running below the poverty line (Hosansky). In 2015, the Social Security Administration predicted that the funds would be depleted by 2034 (Max). This poses a serious threat to the living situation of future generations when they retire. Our elderly, by today’s standards, enjoy a comfortable lifestyle. They are able to retire and still make over one thousand dollars a month. Some people also have private pensions which allow them to live even more comfortably. But with social security funds running out, we must ask the inevitable question. Is it worth having social security anymore? Social security should be kept. One must never fully rely on social security. In addition
...s for generations to come, which in essence, needs to start now. Using a conservative economic projection should be one of the steps taken for the growth of future social security. We all know there are no free rides in life; someone is always taking the bill, much less in social security. Any of the changes discussed in this report would impose a real alteration in the level of benefits, taxation and risks. Ultimately, we need to look forward with complete understanding and full acceptance of changes, while keeping faith in a system, which has served us so well.
Schaefer, S. (2013). Detroit files biggest municipal bankruptcy on record. Forbes Magazine, Retrieved from http://eds.b.ebscohost.com.proxy-library.ashford.edu/eds/detail? vid=2&sid=b6189574-03df-4c57-b7ad-a175dc56aebf@sessionmgr113&hid=102 &bdata=JnNpdGU9ZWRzLWxpdmU=
Physician-Assisted Suicide is assisted suicide from a physician to a person to make it as painless and dignified as possible. There is also Euthanasia, which is to end a person life so they don’t have to go through any more pain and suffering without the patients consent. As of right now, only Montana, Oregon, Vermont and Washington have legalized Physician-Assisted suicide. To be eligible for Physician-assisted suicide, a patient must have a terminally ill disease. There are many pros and cons in this if you are having unbearable pain and want to end the suffering.
Social Security is not a reliable investment for total financial stability after retiring. Social Security was created in 1935 to ensure financial stability in the lives of the elderly and disabled (Dewitt, 2010). Later there was an additional benefit added to include the families of the disabled or diseased that had contributed to the program. Realistically, for every employee working hard and trusting in the United States Government to put aside money for a secure future, there are two, three, or even more who may be receiving additional support by the tax money taken out of the employees checks. As a result of these changes, the...
The investment of money is essential to attaining many goals throughout our lives. Parents are able to carefully save and grow money for their children’s future education, individuals can put away money that will eventually be utilized for the purchase of a new home, yacht or business, and families can save for the golden years of life—retirement. Whatever the end goal may be, there are many investment vehicles that can help get you there. One such vehicle is a mutual fund.
Allers, Kimberly Seals. "How Fit Are Your Finances?" Ebony 68.9 (2013): 93-97. Academic Search Complete. Web. 15 Nov. 2013. Bauer, Gabrielle, and John Southerst. "A promising retirement: your life, your way." Maclean's 18 Feb. 2013: 37+. Opposing Viewpoints in Context. Web. 15 Nov. 2013.