Is the new autoworker accord creating a death spiral for all Pension Plans?

Laurel Magri: lying, deceptive, manipulative whore.

As the GM/Chrysler saga plays out, is the death knell sounding for pension plans?

When bankruptcy for Chrysler was first being discussed, GM brought the issue of pension to the forefront through a restructuring plan they submitted to the Canadian Federal and Ontario provincial governments. GM said that it was being crippled by pension payments and it was crucial they be relieved on those responsibilities.

Suddenly the subject of pensions for members of the Canadian Auto Workers - and who pays for them - became a hot-button topic and a toxic issue for politicians.

Angry constituents complained bitterly that they did not want to see taxpayers' money used to absorb the autoworker's pensions should the companies collapse.

As part of the recent autoworker negotiations, Canadian auto workers made a historic concession to pay into their own pensions. Newly hired Canadian autoworkers will now contribute $1 for every hour worked or about $1,700 a year.

CAW president Ken Lewenza rationalized the move in an interview saying that newly hired members of the United Auto Workers in Detroit will have no pensions. The CAW needed to act to maintain Canada's competitive position.

Meanwhile the New York Times reports that the plight of carmakers could upset all pensions.

Stating that the US goverment is considering taking over the pension plans of General Motors and Chrysler, the Times noted that for hundreds of thousands of retired auto workers a federal pension takeover would mean sharply reduced benefits.

Pension experts predict that a US government takeover of those giant pension plans could accelerate the decline of other traditional pension plans as the move will spur other auto companies and all types of manufacturers to abandon such benefits for competitive reasons.

“If one of these companies solves its pension problem by shunting it off to the federal government, then for competitive reasons the others have to do the same thing,” said Zvi Bodie, a professor of finance at the Boston University School of Management and longtime observer of the government’s pension insurance system.

“That is the death spiral,” said Bodie.

"Not only would Ford have reason to opt out of the expense of maintaining a pension plan, but so would Toyota and Honda, which also have pension plans at their American plants", said Teresa Ghilarducci, a professor of economics at the New School for Social Research.

In Canada, the wolves are already gathering at the pension door. Ontario Premier Dalton McGuinty says Ontario doesn't have the resources to put more money into its pension safety net (which is the government vehicle that bails out private pension plans that fail).

Yet, Ontariio has all the resources necessary for to protect and support public service (and MPP) pension plans.

Those public service plans, like GM and Chrysler's private sector plans, are also under stress from shortfalls. But they are 100% funded from tax revenue. It seems a double standard that public sector pensions are 100% per cent protected against shortfalls, while private-sector pensioners can be thrown to the wolves.

How long before the private sector pension death spiral brings down the public plans too?

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Email: village_whisperer@live.ca

The Next Bubble and Financial Time Bomb

As everyone now knows, the epicenter of the current financial meltdown was the housing bubble and an accompanying complex mortgage funding morass. And that mortgage funding fiasco isn’t over by a long shot. There is another estimated $1.5 Trillion dollars in Alt-A and Jumbo Prime mortgages destined for failure/foreclosure later this year.

Making matters worse is another financial time bomb that is only just starting to reveal itself.

Pension Funds.

Pension plans are a bubble that is now bursting wide open. Five major factors contribute to the crisis: mounting stock market losses, optimistic plan assumptions, longevity (retirees living longer), overly generous payouts, and a surge of boomer retirements.

Last week we got a taste of what lies in store when Canada's biggest pension fund manager, Caisse de depot et placement du Quebec, reported that it had lost a massive $39.8 billion in 2008.

The Caisse, an arm's length agency that manages investments for various public and private pension plans in Quebec, blamed tumbling stock prices and a depreciating Canadian dollar for its record loss, a loss bigger than the GDP of some small countries, such as Kenya or Latvia, according to 2007 World Bank figures.

And the Caisse is only the canary in the coal mine for a looming disaster. It is conceivable that that the phenomenon of “retirement” may be limited to one generation.

After World War II, for the first time ever, workers were promised that — after working thirty or so years — they would be able to securely retire. That was largely the case…for one generation.

The second generation is having a devastating reality check. 2008 was supposed to be a watershed year for retirement: it was the first year that the baby-boomers turned 62, and the retirement frenzy was to begin.

Early in the year, however, a study was conducted that found one-fourth of these boomers were delaying retirement. The economy has since nosedived, and many more retirements are being delayed.

The experts are calling this the “perfect storm” for retirement. Everything that could go wrong is in fact going wrong.

At the end of September, just as the crisis was beginning to gain steam, it was discovered that in the previous year the value of stocks in retirement accounts had fallen by nearly $2 trillion! Much more has been lost since then. This is especially devastating since almost one-third of those in their 60s had 80 percent of their retirement savings in stocks.

And government pension funds have been similarly destroyed.

Every “safe bet” for investing has been proven unsafe; the recession has left nothing untouched. After the dotcom bubble burst — taking with it millions of people's retirement savings — the housing market became the place to invest. Now the safest possible investment, too, has turned sour. For millions of people, the home they lived in was their nest egg, which they had planned to sell and move into a smaller place.

No more.

And as real estate values are ravaged, many are turning to see many corporations in big business starting to declare bankruptcy and escaping any “pension obligations”.

This sudden evaporation of pension obligations apply with equal weight to workers already retired, many of whom are seeing their pensions slashed in half, forcing them out of retirement.

This phenomenon is at the center of the GM debate as the giant automaker lumbers under the weight of the pension and health care benefits of its retired workers.

The autoworkers struggle is at the forefront of a looming pension struggle nationwide.

Public employees will soon find their pensions under immense attack as the economic crisis intensifies, and government budgets are depleted.

With each passing day of this economic crisis, the looming obligations of both public and private pension funds grows as the next great catastrophe.

And it escapes largely unnoticed by the vast majority of Canadians for whom it will affect.