The Motley Fool Discussion Boards
Retirement Discussions / Retire Early Liberal Edition
|Subject: Re: George W. Bush Killed Retirement||Date: 11/6/2012 10:11 AM|
|Author: telegraph||Number: 46110 of 93020|
You got even more problems to worry about
"More companies are considering so-called annuity settlements as a way to pare down their burgeoning pension liabilities, even though historically low interest rates make the strategy significantly more expensive.
Last month Verizon Communications Inc. VZ -0.02% bought an annuity that transferred $7.5 billion of pension obligations, about a quarter of the phone giant's total pension obligations, to Prudential Financial Inc. PRU -0.05% Over the summer, General Motors Co. GM -0.22% shifted roughly $25 billion of its pension obligations—or about 20% of its global total—to Prudential through an annuity deal.
The approach works like this: a company transfers pension obligations to an insurer by buying a group annuity for its employees at a price that includes a premium. The insurer agrees to use the funds it gets from the company's pension plan to make regular payments to company retirees for as long as they live.
So what we have is companies offloading existing pension obligations to 'insurance companies'.
You have good solid companies like Verizon and GM, earning billions, with rock solid business (cellphones, etc).....likely to be around for generations....
offloading to 'insurance companies' ..who will 'invest' (think derivatives and hedge funds).....and then pay the retirees.
The companies then have no further pension obligations...no need to keep 'topping them off' to 80% of future obligations.....in downturns of the market.
Meanwhile...since the Pension Guarantee Board insures 'pensions'......the retirees lose that protection.
NOw they have 'annuity contracts'...which can disappear if the insurance company goes bust. Tens of billions of them...and likely they'll get most of the pension obligations of companies over the next deade.
Then when the next crisis hits...all the insurance companies will go 'bankrupt' and retirees will have squat...
Same goes for 'towns'...those pensions will get slashed to near zip when the towns/cities/states go bankrupt.
|Copyright 1996-2016 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|