How do you anticipate the bailout affecting retirement plans?

[Guest Enda80]

How do you anticipate the bailout will impact retirement plans? Or, how has it already affected them?

[GBurns]

Is there a relationship?

Retirement plans have their funds in all sorts of investments. These investments are subject to changes in values based on how the investments respond to the various markets and their changes. The bailouts are not directed at or to any market.

As far as I see, the bailout/bailouts are not directed at anything directly related to these investments in general,, except for the investments held in Fannie, Freddie, Lehman and AIG stock. These should be a minimal percentage anyhow.

So while I see the downturn affecting retirement plans, I see no relationship with the bailout.

[Guest mjb]

How do you anticipate the bailout will impact retirement plans? Or, how has it already affected them?

Qualified plans will be eligible to sell their depressed collaterized mortgage securities (and other securities) under TARP which will have two immediate effects: the plans will be able to get cash for distressed assets and all retirement plans will have to mark down these securities held in their portfolios to the values offered by the Treasury which could require additional contributions to meet funding standards. Treasury will begin buying depresed securities in the next few weeks.

Some plans are holding mortgage backed securites issued by fannnie and freddie which the Treasury will guarantee against default.

The Treasury is not buying common stock of any distressed company. Fannie, Freddie and Lehman stock have already been marked down to 0 because of their insolvency. AIG is trading at 2-3 a share on the NYSE. Treasury has lent $91B to AIG in preferred stock while AIG unwinds $440B in credit default swaps and sells assets.

[JanetM]

Simplistic view - the bailout will increase the liquidity in the market. Helping the stock & bond markets in general.

[GBurns]

That raises concerns :

Which of the bailouts ? One of the US various bailouts or one the many foreign country bailouts or all together ?

When will the effects be felt and be verifiable ?

How will we know whether it was attributable to one of the bailouts and not to other action by FDIC or Fed Reserve rate cut etc ?

[JanetM]

George, I meant the US bank bail out relating to morgage loans and frozen credit markets. Similar bailouts and backing by FDIC type entities is happening in all corners of the globe. S Korea, I believe is the most recent to guarantee deposits and shore up banks.

The effects will be seen when the credit crisis eases, lessening the cost of short term lending between banks and companies. The recent run up in cost is related to drop in funds available. Now LIBOR is dropping and money is flowing. Stock prices are recovering. Retailers are borrowing to buy inventory to sell. The economy will stumble along.

How can rate cut or FDIC protection help anyone if no one is lending. FDIC only protects what you don't spend. If you don't spend you don't stimulate the economy. The FDIC move only acted to stop folks from taking funds and putting in the Bank of the Mattress.

[Guest Sieve]

Hey. International economic policies aside, since the bailout bill added a bicycle transportation fringe to IRC Secton 132, I'll live longer into my retirement (or live long enough to be able to retire in the first place) because I am now encouraged to cycle to work and be healthier. Now there's a bailout for ya' . . .

And, Janet, I think the Bank of Mattress might have been one of the banks that came through Detroit and took over my bank for a few days a while back, but I can't be sure -- my bank has changed hands/names now at least 3 times in the last 5 or 6 years or so (& twice in the last 2 years). My checks never seem to catch up with the proper name. Now, by golly, we've got that patriotic Bank of America. Drum roll, please . . . !!

[david rigby]

Q. How do you define diversification?

A. Putting your money under several different mattresses.

[jpod]

To mjb's comments, I listened to an ALI-ABA teleconference last week and one of the panelists, a well-known benefits lawyer, now lawyer/lobbyist, said that while the language of EESA is such that a pension plan could be eligible to participate, his understanding is that providing relief to pension plans is pretty low on Treasury's priority list, if they are even on Treasury's list.