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Author: DCWD40 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 49978  
Subject: Re: Opposition to Iger Date: 2/21/2013 1:18 PM
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Their projections for return on their investments are much too high (at 7.5%) for a pension fund that must hold significant fixed income securities that pay very little.

I was born and raised in So Cal so I pay attention to CA politics although I have lived outside the State since 1985. Five years ago, CalSTRS was being praised on CNBC for not having a 10% targeted return. Today, that 7.5% target is in question...

Unfunded pension liabilities are a problem that is like the Federal deficit. It gets news print but it won't get fixed until the bottom falls out.

A friend, who recently passed away, was a lifelong GMAC employee. He never thought his pension was ever going to be in trouble. How bad could a car loan be? He didn't know the final answer would be that sub-prime mortgage loans, a business that was not part of GMAC when he left, would sink the ship. Here is Wikipedia's summary of what happened to his "company."

In 2006, General Motors Corporation sold a 51% interest in GMAC to Cerberus Capital Management, a private equity company. (The next year, Cerberus acquired Chrysler Corporation.) Also in 2006, GMAC divested a majority stake of GMAC Commercial Holdings, its real estate division, to a trio of investors — Goldman Sachs, KKR and Five Mile Capital Partners — thereby creating Capmark Financial Group Inc.[6] Capmark later filed for bankruptcy and was acquired in part jointly by Leucadia and Berkshire Hathaway.

Every time the control of his division changed, he had questions. He couldn't get answers. All that was ever said was that everything was safe. After bankruptcy, there was only talk in the press of The Pension Benefit Guaranty Corporation -- a government program to shore up underfunded pension plans. When he called the "if you have questions" number on his monthly pension statement, there was a recording saying that they didn't have information after the funds future. In other words, there is not a soul to talk to when your program fails.

I find it hard to understand why politicians just let this issue go unresolved. If a company is gushing money, there is no oversight to question why an underfunded pension isn't fully funded immediately. If a company is marginally profitable, there still isn't anyone asking why the pension isn't being fully funded. Only when it fails is the question address -- in bankruptcy court. At that time, the best the employees can hope for is that the money in the fund is still there.

CalSTRS is making Disney news too:

The nation's second-largest pension fund said Thursday it will vote against the nomination of several directors at Disney's next shareholder meeting, including chairman and CEO Bob Iger.

The objection from the California State Teachers' Retirement System, or CalSTRS, is one it has raised several times before -- that one person should not be both chairman and CEO.


http://www.hollywoodreporter.com/news/giant-pension-fund-wil...

Then there is this Disney move away from the defined benefit plans:

Salaried workers hired starting next year won't be eligible for the revised pension, known as a "defined-benefit" retirement plan. Instead, they will have access to the company's 401(k) program and will receive payments from Disney in the new, defined-contribution retirement accounts.

Disney told stock analysts earlier this week that it expects the changes to save it between $350 million and $400 million over five years.

"We expect these changes will reduce our pension expense by 25 [percent to] 30 percent versus what we would have incurred under our historic program," said Jay Rasulo, Disney's senior executive vice president and chief financial officer.


http://articles.orlandosentinel.com/2011-05-12/business/os-d...

The reason for my comment earlier about GMAC is this from a 2010 Fool article:

Yet even in the favorable market environment, many companies saw some big slips from last year. Disney (NYSE: DIS ) fell from being 94% funded in 2008 to a 2009 funding level of 69%.

http://www.fool.com/retirement/general/2010/04/22/pension-pr...

So, when is it necessary to fund a pension to the level necessary to pay retirees? Why is it not while the company is making money?

In CalSTRS case, is this not a double problem? If CalSTRS is underfunded, and the companies it invests are underfunded, what happens if a second depression comes? Maybe lawmakers will react by forcing companies to fully fund their pensions (to save the government from having to fund them) thereby reducing the value of their stocks (which would hurt CalSTRS). Just a thought...

W.D.
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