Private Company Defined Benefit Pension plans ending in US as companies react to U.S. Government

[papau]

Private Company Defined Benefit Pension plans ending in US as companies react to U.S. Government destroying unions' power, FASB accounting changes, and 2006 Pension Protection Act funding requirements..

McKinsey and Company, the giant pension and welfare benefit consulting firm has completed interviews with the vast majority of private defined benefit pension plan sponsors ( http://www.mckinsey.com/clientservice/bankingsecurities/pdf/coming_shakeout_in_defined_benefit_market.pdf ).

Planned employee benefit cut backs mean there will be only about a 1% per year growth in the $2.3 trillion assets current backing defined benefit pension benefits. It appears the U.S. companies have decided that there is no longer a viable threat of unionization or even union reaction as the U.S. government will not pass any laws in the future that will increase union power or ability to organize, despite trade treaties that sometimes say the U.S. will abide by the UN's ILO international union standards. Up to 75% of all defined benefit pension plans will be in a frozen benefit or terminated state by 2012, with this projection based on conversations with those companies as to their plans and what they are assuming in their projected budgets used for planning.

For employees McKinsey has no advice, but for the asset management companies currently trying to grow as asset managers of defined benefit plans assets, the firm warns that this is zero sum game where taking asset share away from another company is the only way to grow other than raising fee levels, so it will be those that develop expertise in moving the over $1 trillion of equities that will be sold so as to buy into long duration fixed income, hedge funds, derivatives, and private equity that will prosper as companies try to stabilize earnings via asset/liability risk management.

Indeed the 2006 Pension Protection Act is expected to speed the change over as it forces proper funding in concert with the accounting FASB rules now showing the funding surplus or deficit on the companies balance sheets (if the FASB rule had been in effect at the end of 2006, corporate net worth would have been $130 billion less per the firm Credit Suisse - with the expected requirement for annual reflection of pension funding gains and losses to be announced in FASB phase two expected to scare CFOs worried about volatility into the rapid change to the limited volatility afforded by non-equity investments and asset/liability matching).

Indeed the only reason the amount of assets that are backing defined benefit promises are not expected to drop, and to only move from equities to bonds, is the existence of the limited number of collective bargaining agreements with unions as in the automotive or transportation sectors, and the labor short or world wide talent competing areas of health care and pharmaceuticals industries that face a competition for talent, plus the small company pensions that act as a tax dodge for the owner who under the rules adopted a few years back for permitted disparity (owner gets 90 to 95% of all plan benefits/assets still gets tax deduction) view the plan as a personal investment.

And in this world, the political leaders of the GOP want to end the only defined benefit pension that may be left to keep the aged from starving while retaining their dignity by not being on welfare - Social Security - by replacing that guaranteed benefit with the luck of individual account investing. The American people will get what they vote for in the future just as they got Reagan's increase in the Social Security retirement age to 67 from 65 and Bush's war. Do Americans really think they can get affordable universal health by being anti-union , anti-progressive, anti-control of corporations, anti-government, forgiving of reduced employer benefits and in favor of sending premiums to insurance companies? Do they think there will even be a middle class in the future?

[Robson]

1. Not so for elected officials & public sector employees

Isn't it utter hypocrisy how our elected officials have the best pensions that money can buy while they foist their open trade (but unfair) policies that result in the private sector having their pensions and benefits cut?

It is politically impossible for them to cut pensions for their government employees while maintaining their own. This needs changed so our elected officials feel the same pain as the private sector employees.

[papau]

2. We only elect multi-millionaires to office because of no Federal Financing of elections -so

they will not miss thir pension

[antigop]

3. So with the sale of $1 trillion in equities, can we expect a depressed stock market? n/t