Retirement 2005 Flash Back Predictions

The retirement news of 2005 has been dismal. Flash Back On Track?

Social Security Woes

On March 23, 2005, the Social Security Agency posted a news release titled, Little Change in Social Security Solvency: Trustees Recommend Timely Action. In the 2005 Annual Social Security TrusteesReport to Congress, the Trustees announced:

  • In 2017, tax revenues are projected to fall below program.
  • By 2041, the Trust Funds expected to be exhausted.
  • In order to pay all scheduled Social Security benefits, the Trust Funds require an additional income equivalent to $4.0 trillion in today's dollars.
  • "[We] recommend that projected trust fund deficits be addressed in a timely way to allow for gradual changes and advance notice to workers."

In the report, Jo Anne Barnhart, the Commissioner of Social Security stated, "For nearly 70 years, Social Security has provided financial security to American workers and their families. Our grandparents and parents were confident that Social Security would be there for them.  Current retirees and near retirees can be just as confident.  But for our children and grandchildren, unless changes are made, this report shows that their promised benefits are not secure.  I am confident that by coming together in a bipartisan way we can ensure that Social Security continues to provide financial security for future generations."

The entire 2005 Annual Social Security Trustees Report to Congress can be accessed on the Social Security website at www.socialsecurity.gov/OACT/TR/TR05/index.html

Pension Plan Underfunding and Defaults

United Airlines joined US Airways, in that it has stopped funding its pensions and deferred it to the Pension Benefit Guaranty Corporation (PBGC).  The PBGC is a federal corporation created under the Employee Retirement Income Security Act.  Basic pension benefits earned by 44 million American workers and retirees participating in over 31,000 private-sector defined benefit pension plans are guaranteed by the PBGC.  The PBGC web site is www.pbgc.gov

The Executive Director of the PBGC, Bradley D. Belt, testified on June 7, 2005, before the Committee on Finance of the United States Senate, regarding the urgent need for comprehensive pension reform.  Mr. Belt testified "...the amount of underfunding reported by the 4010 filers grew by 27 percent as compared to a year ago?for an average funded ratio of 69 percent."  4010 filers represent only a portion of the pension plans covered by the PBGC.  Only companies with pension plans underfunded by more than $50 million are required to file 4010 reports.  The table below shows a summary of these pension underfunding filings.

Summary of Pension Underfunding Filings

 

2000

2001

2002

2003

2004

Number of Plans

221

747

1058

1051

1108

Underfunding (Dollars in billions)

$19.91

$110.94

$305.88

$278.99

$353.73

Funded Ratio

82.8%

80.0%

65.1%

69.7%

69.0%

Underfunding of pension plans is not confined to the airlines industry. The steel industry has taken its turn and the automotive sector has the potential to strain the pension insurance program to the breaking point.  In continued testimony, Mr. Belt stated "Credit rating agencies in May downgraded the debt of General Motors and Ford to below investment-grade status. While the manufacturers have substantial liquidity, their financial problems may cascade down to other companies in the automotive industry. For example, some auto supply firms have had their credit lines restricted because of the downgrades in the debt ratings of General Motors and Ford. At least a dozen auto suppliers' credit ratings have been downgraded to below investment-grade status. More significantly, half a dozen automotive parts suppliers have filed for bankruptcy in recent months - three of them since the last Committee hearing. These bankrupt companies sponsor defined benefit plans with more than $800 million in unfunded pension obligations..."

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