I ran across a letter recently that was addressed to the participants of a company’s retirement plan. From what I gathered, it seemed like a pension plan. You know, those old-fashioned things where you work X number of years and they will pay you Y dollars for the rest of your life? Well, if you haven’t paid attention to that, (and if you haven’t, that’s excusable, because pensions are pretty rare anymore) you would find that companies are doing anything they can to avoid having to pay out those Y dollars.
I read a book a while ago that explained the multiple schemes that were being performed to avoid any sort of pension plan funding. That book is Retirement Heist. It’s a good book and you should read it. This letter to pensioners was just an illustration of those exact cons, and the letter was selling it like it was the greatest thing ever.
Here’s the gist of the letter. Because of two laws, and I need to write these laws out because they are totally insane, the Moving Ahead For Progress In The 21st Century Act and the Highway And Transportation Funding Act of 2014 (blahhhh), pension plans are allowed to calculate their numbers differently. Differently in that they can make the badness go away.
So, in this example, before the laws, in 2016, the pension plan was short $8.3M dollars to cover the costs of the members’ retirement. After the laws? $0. Percent funded before the law? 86% After the law? 104% The law completely fixed the problem of not having enough money! Amazing!!!
How was this done? The projection of how much money would be needed was based on interest rates for the last two years. Why are they looking at interest rates? Because that’s how the fund stays solvent while money is being withdrawn, through investments with interest. If the plan doesn’t make enough money in interest, the corporation has to pitch in extra money to keep it going. Hmmmmmm.
If you have a savings account in the last couple of years, you know that you’re not making any money off of it. And a pension fund wouldn’t be making any money either. So because the fund is not sustaining itself from its investments, that means the corporation would have to supplement it with additional money. Corporations everywhere collectively said, “Fuck that” and instead spent the money on lobbyists to change the laws.
They succeeded. Now, instead of considering that interest rates in the future will be the average of two years, now it’s going to be the average of 25 years. 25 fucking years. Fortunately that range includes the late 90’s and early 00’s, where interest rates were around 5%, instead of 0.1%
So, do you get it? They refuse to accommodate current market conditions and instead want to pretend the future is going to be as great as the past. But here’s the thing, if these corporations would just fucking suck it up and pay into their pension funds now, like they are supposed to, when things get awesome in the future like they CHANGED THE LAW to reflect, they wouldn’t have to pay anything then, because the funds would be fully funded or even overfunded.
Now the infuriating part. This letter says all of this. It doesn’t hide anything. They can tell the truth because a) lots of people won’t understand what just happened, and b) it’s the law; it’s all perfectly legal now.