Last fall, the federal corporation charged with protecting many Americans’ private retirement funds issued an ominous public warning: the amount of pensions at risk inside failing companies had more than tripled during the recession. The Pension Benefit Guaranty Corporation’s announcement stunned many retirement fund experts when they indicated that tens of billions of new dollars may be required to rescue traditional pensions paid by U.S. firms whose economic collapse left them unable to meet their retirement obligations to workers.
In November 2009, the PBGC announced that it had been cited for “material weakness” in its audit. That is “Fedspeak” (a deliberate dressing-up and clouding of simple everyday terms into a code that is difficult to understand) for having received the accounting equivalent of an F in its audit. One of the terrible conclusions we must draw is that the governmental agency mandated with cleaning up failed companies assets and rescuing workers’ pensions is in serious financial trouble itself. A second conclusion is that these workers’ pensions could be in serious jeopardy.
Why this huge problem? One reason is that PBGC has been inundated by new participants and their primary responsibility is to make sure those people get paid. In short, PBGC has been swamped from the intake processes that have diverted many of their financial resources. Other reasons include mismanagement, unethical practices, and “apparent dishonesty” in erroneously reporting it had implemented solutions to past problems.
Is this a harbinger of what is to come to your pension plan, or a company in your city, town, or county? While many would dismiss this as a small problem, consider that, nearly one in six Americans relies on the PBGC to guarantee the pensions for which they’ve worked a lifetime to enjoy.
What are the likely results of this ominous situation? The answer seems to lie in a simple dichotomy: either a series of government bailouts or a situation where millions of pensioners take substantial losses in their retirement accounts.
This is not an exclusively American problem. Many European nations are facing the same results including: Great Britain, France, Spain, and Greece to name a few. Retirement funds have dwindled to the point that governments are raising retirement ages in their countries. This unpleasant certainty may also be played out in America’s Social Security program or the time will come when benefits will have to be adjusted downward.
What is the major lesson to be learned from this tragic situation? Widely diversify your retirement funds and participate in a variety of financial arrangements when it comes to your retirement nest egg.