Underfunded private pension debt bomb
Report: Shortfall is size of Greek debt
- Duration 8:03
- Date Jun 23, 2012
Report: Shortfall is size of Greek debt
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Everyone -- worried about Greece's debt bomb -- 35 billion and counting.
But -- -- about this 435.
Billion that how much private company pensions are underfunded here in the US.
Hi everybody -- Cheryl Casone walk -- -- passionate.
I kept secret this week -- writers -- holiday and Tracy Barnes also joining us this week.
Julian Epstein and Jim -- camp so.
Welcome to all of you and -- ominous start with you the amount of under funded private pensions in this country.
Now -- same amount as the debt in Greece typically should be concerned about office.
Well we should be concerned about it it's a huge problem in.
It while it may not represent this systemic problem that Greece does it could be a bigger a harder problem to solve here because we can't -- our way out of this corporations can't print money.
To pay these people that they -- another broken promise to our retirees.
And oddly enough the -- is kind of responsible here because they've kept interest rates artificially low it's been very difficult for these pension plans to make money.
So this -- -- either come out of corporate profits which is gonna hurt the stock market or it's gonna come directly out of the pocket of retirees.
Whoever -- facing higher food and fuel costs so yes it's a very big problem.
Wayne how much should we be -- we've been talking so much about -- so much about Greece are we look at in the wrong direction.
No no I think you're you have to be where you have to be worried at a time when that window work or somebody says I'm contributing into some sort of a a retirement plan and I'm not gonna get my money back.
I mean you've got to blame the politicians in a minute and the public sided you have to blame your own company on the other side that if they're not managing it properly -- raises a good point that.
And this time of of interest rates being so low.
They have missed calculated by a wide margin what they thought these these pension plans would be worse because they base a month.
8% not present then not getting that it all in -- mismanaged in many cases and is some gays is that not even making a contribution so yes it's a big worry.
You know Julian companies in this country are trying to deal with these private pensions because they again -- -- underfunded they don't have the money.
General Motors perfect example they actually cut.
26 billion dollars from their pension obligations you think that more US companies are gonna have to address this issue.
I think they -- you have to distinguish between public and private the big problem has been on the public side but 43 states have made reforms labor unions have made concessions.
We're not anywhere like Greece because Greece has so much more -- problem and the public sector side on the private sector side.
-- -- and there are changes that are already happening to your question about the reforms that private sector companies are making many of them are going from defined benefit to defined contribution plans.
There was a -- 2006 that required that they have a certain amount reserved for pensions that they were obligated to as was pointed out by winning.
Many of the pension plans just aren't making money its interest rates have been so low.
But you know companies are sitting on two point 22 trillion dollars of cash right now this is not a big problem on the private -- side -- -- -- is gonna have to be dealt with.
It it is being dealt with and to the extent that we there is a problem here -- said that the funds to start making money.
Robert Johnson -- -- to the point here I mean look four point four as a 20104 point four million Americans.
We're drawing from private pensions mean that is a big piece of the economy that they're spending in particular when their 401 -- -- a the other dozen vehicles have gone down.
So should we be concerned about that about the effect of the economy.
What -- -- -- -- I think the effect of thought of private pension funds and and there are underfunding is is much less.
I can't -- I think this would all agree with Julian and the problem within the public sector I mean we're talking lot of -- 35 a billion dollars the public sector shortfall is about a trillion dollars and in fact.
We -- talked about you don't mistaken assumptions the private sector pensions and made much more conservative assumptions.
Across the board in the public sector pensions have so you I'm much more worried about the public pension blow up in the -- and in fact.
Look at what's going on in Europe it's the it's the public -- -- the unions -- riding -- not those of the private pension but I'm not worried that Tracy.
On the private sector side the company's that you and I cover on Fox Business news.
These are the ones that are facing the issues this is a bigger piece -- the public.
Present pension program in the United States is ever going to be it's a much larger scale issue that we've got.
On the private side right and that's shot though is that only about 10% of these companies that we cover alzheimer's so offering these defined benefit plans and -- as a result.
We are said -- and -- -- it's changing you know the days where someone went to work for IBM for thirty years to collect their pensioners so long gone.
People have to be aware that any money being put in anything that is out of their hands has to become a worry.
You are working -- worrying that someone is not managing your money properly and unfortunately.
Some of this money will not manage -- -- -- -- just say -- mean the concern here is for the companies themselves have been appointed to the General Motors example.
They -- the biggest issue when it came to that private pension issue.
But at the same time many American companies are having the same problems and that also hurts the US economy.
Well it does and it doesn't have following since -- -- -- Jillian and and the -- touched on it may mean that companies that changing from a defined.
Benefit plan which means I'm committed to making certain payments because of the benefits as opposed to a defined contribution plan which means I'm gonna make a certain amount contributed each month whatever comes out the other side is that it is secondary.
So in that everybody has to convert to that we almost 10% of the kids haven't we got about 90% of the -- -- I state who converted to that.
The rest will do so it has to be.
Johnson everything I think that's why I'm not as worried about that a private fund Cheryl is that to Wayne's point they have.
Their response that you talked about General Motors lot of this -- are off loading their pension obligations.
I'm sure I'm the insurance companies so they're being responsible for their own -- and -- also for the pensioners -- the public funds.
-- have no incentive to change a system they literally keep kicking them at the can down the road for futures had the bail amount.
I am so that they just go away all together these defined benefit plans because the people man rely on a certain amount of money going to our red -- and you know what you can't anymore.
People had to unfortunately the world has changed and so this notion that you had these poor people.
You know worked all their lives waiting for something that they're not gonna get it's it's gut wrenching but it's now I'm not gonna happen anymore Julio and I.
I hate to be hey I agree with Tracy and I I I think and as -- went out we are moving to a defined contribution rather find.
Benefit plan and -- the point again that many these companies aren't even offering it.
I offering these -- -- the -- third piece of this puzzle however is the economy of the reason that these -- these pension plans are not making money right now is because the economy has been in the tank.
For the last 45 years and interest rates are low -- the economy comes back.
And -- at three or 4% growth and interest rates return to what their normal historic averages are.
Then you have less of a problem you have these plans that will be at least the ones that are in place will be.
-- able to generate some income.
So you have the three factors affected the companies and are covering it reported part of contribution.
And if the economy comes back these plans are gonna -- to start making some money so I just don't see this is a huge.
But Jim the problem really that we kind of -- out earlier is the fact that fifty plus Americans many of those Americans four point four million still depend.
On these private pension plans that are underfunded.
And that baby than generational -- -- -- he had our economy -- Yet you talk about the percentage -- all you -- her how it's a small piece of corporate America and that's all true.
The fact of the matter is those people that are impacted.
Are being yet and with four over 400 billion dollars is a tremendous amount of money that is a vacuum in the economy so.
At the looking at three to 4% growth in the market -- return to normal interest rates with all the -- in the system don't bank on that -- times in this is going to be a problem for awhile.
Guys great discussion all right come.