Obama Will Not Let PBGC Go Bankrupt

[goldtpa]

Did anyone hear that Pres. Obama said that he will not let the PBGC go belly up? Supposedly he said that his method of protecting them was not to allow businesses to do a distress termination if the reason for the distress termination was due solely from the market losses from '08.

Did anyone else hear this?? If so can you point me to a link? Thanks.

[Effen]

You act like you are surprised by his statement? Did you think he, or anyone, will let the PBGC fail? Just like Social Security and Medicare - won't fail. What do you expect him, or any politician, to say... "Today we have decided to let the PBGC eventually fail".

From their website - "The PBGC pays monthly retirement benefits, up to a guaranteed maximum, to more than 640,000 retirees in 3,860 pension plans that ended. Including those who have not yet retired and participants in multiemployer plans receiving financial assistance, PBGC is responsible for the current and future pensions of about 1,305,000 people."

These people are all about getting re-elected. They aren't going to make 1.3 million voters unhappy. Prepare for higher premiums, higher taxes, older retirement ages, lower benefits and yes, maybe more onerous distress termination rules.

[david rigby]

My favorite rant:

http://benefitslink.com/boards/index.php?s...st&p=104851

[Guest mjb]

Did anyone hear that Pres. Obama said that he will not let the PBGC go belly up? Supposedly he said that his method of protecting them was not to allow businesses to do a distress termination if the reason for the distress termination was due solely from the market losses from '08.

Did anyone else hear this?? If so can you point me to a link? Thanks.

How is he going to prevent a business from filing a distress termination which is permitted under ERISA 4041c2 in the event of bankruptcy or reorganizaton? Give the sponsor a bailout? If the plan cannot be terminated the benefits will continue to accrue which will result in larger cost to the PBGC when the plan is terminated at a later date. Years ago the PBGC successfully prevented LTV from terminating a pension plan after a reorganization only to see the plan terminate years later with larger unfunded liabilities insured by the PBGC when LTV filed for bankruptcy. And of course lets not forget Pan Am which was granted waviers from the funding standards by the IRS for 15 years until it filed for bankruptcy which left the PBGC as an unsecured creditor with an unfunded liability of $700M or over $1B in todays $. Its better to kill these beasts off when a company files for bankruptcy then keep them going while accruing larger losess and unfunded liabilities. Has the PBGC ever notified all of the Pan Am retirees of the amount of their benefits and allowed them to commence benefits? Last time I looked there was still lawsuits pending against the PBGC for failure to perform fiduciary duties in notifying plan participants. The PBGC will become another insolvent financial institution that that will become part of bailout nation along with Fannie may, Freddie mac, AIG, GM and Chrysler.

[AndyH]

My favorite rant:

http://benefitslink.com/boards/index.php?s...st&p=104851

Better than the old 412(i) rants with Dom?

And the VUL rants with George?

And Blinky versus Moe Howard?

And the animal fight that Dave Baker had to break up? That one brings a smile.

[goldtpa]

effen

No I did not and do not expect to hear him say that he will let the PBGC fail.

Someone told me that he said something to the affect that he will not allow companies to file a distress termination due to market losses.

I was trying to find a link of where he said that.

Obviously he wont let the PBGC fail. This is certainly one way to prevent the PBGC from failing. However look at all of the companies that paid PBGC premiums over the years. Now all of a sudden they may not be able to file a distress termination? That's like buying life insurance from Buzz Buzzard's Low Life Insurance Company only to find out that the policy doesn't pay benefits.

[SoCalActuary]

effen

No I did not and do not expect to hear him say that he will let the PBGC fail.

Someone told me that he said something to the affect that he will not allow companies to file a distress termination due to market losses.

I was trying to find a link of where he said that.

Obviously he wont let the PBGC fail. This is certainly one way to prevent the PBGC from failing. However look at all of the companies that paid PBGC premiums over the years. Now all of a sudden they may not be able to file a distress termination? That's like buying life insurance from Buzz Buzzard's Low Life Insurance Company only to find out that the policy doesn't pay benefits.

This is just another example of the tangential results of the big problem.

The stock market prices are sensitive to profits and inflation. Profits are down. Inflation is up.

Every funding problem with low asset valuation is going to respond to this fundamental economic issue.

In 1999, everyone was ready to promise infinite pension benefits.

In 2001, everyone was ready for the sky to fall.

In 2007, we were back to irrational optimism.

In 2008, the sky fell, again.

Let's recognize that some people will make decisions based on what they know right now. Others will take a longer term view.

[Don Levit]

In regards to whether or not Obama can make this promise, I found an interesting statement in a recent paper from the PBGC.

On Page 32, it states, "ERISA provides the U.S. government is not liable for any obligation or liability incurred by PBGC.

Go to:

http://www.pbgc.gov/docs/2008_annual_report.pdf.

Don Levit

[david rigby]

I never noticed that before. ERISA sec. 4002(g)(2).

Perhaps the stakeholders (plan psonsors) should rise up and demand their right to have a say in the management of this "corporation."

[AndyH]

Their management is great.

They even give you those pop-up surveys before you have even done anything on their site. Talk about being proactive!

And they even invest in equities now, starting last fall I think.

And they keep their premiums in lock boxes, and they change them often so nobody can find em.

And they do on-site audits mostly in good weather and in vacation areas, so morale stays high that way.

And they have the most convoluted missing persons premium calculation so nobody can figure it out and that helps motivate sponsors to find their missing people.

And they used to be so efficient that if you had a problem with a rep you just called the probem resolution line and chances are the same rep would answer! And they have terrific memories; if you do complain they are certain to remember you next time you call.

[Guest Sieve]

Andy -- You've apparently have had more than one "memorable" PBGC experience . . .!!

[mwyatt]

Freshman missteps (I hope). Of course, this premise of getting into a trade war with China in the midst of issuing $2 trillion in new treasury debt does make one wonder if the new gurus ever googled Smoot-Hawley in their research on the Great Depression.

Cumberland Advisors on Geithner and China

PBGC may be the least of our problems.

[Guest mjb]

effen

No I did not and do not expect to hear him say that he will let the PBGC fail.

Someone told me that he said something to the affect that he will not allow companies to file a distress termination due to market losses.

I was trying to find a link of where he said that.

Obviously he wont let the PBGC fail. This is certainly one way to prevent the PBGC from failing. However look at all of the companies that paid PBGC premiums over the years. Now all of a sudden they may not be able to file a distress termination? That's like buying life insurance from Buzz Buzzard's Low Life Insurance Company only to find out that the policy doesn't pay benefits.

Just how is the President going to prevent employers from filing a distress termination? Issue an executive order preventing the PBGC from accepting them in violation of ERISA 4041c3?

I thought that he has promised to restore the rule of law to the US government which means he has to enforce all of the laws of the US including ERISA 4041©(3).

The US government can prevent the PBGC from failing by simply loaning the PBGC funds as has it has done for Citibank (45B) and Band of America (45B), or amendment of 4002(g) by making the PBGC liabilities an on line budget item of the federal government like Social Security. (SS was an off budget agency until 1969 when LBJ brought it on the balance sheet of the US government's budget because the SS surplus offset the budget deficits resulting from the cost of the Vietnam war.)

[Don Levit]

David:

Thanks for providing the particular section of ERISA.

mjb:

Can you provide us your understanding of the Social Surplus surplus, other than as an accounting entry?

Do you believe there is any substance behind the notional surplus account?

Don Levit

[Guest mjb]

David:

Thanks for providing the particular section of ERISA.

mjb:

Can you provide us your understanding of the Social Surplus surplus, other than as an accounting entry?

Do you believe there is any substance behind the notional surplus account?

Don Levit

SS is nothing more than an accounting entry on the US govt balance sheet: X dollars received from FICA taxes and Y dollars paid out as benefits in a FY. SS is considered a mandatory entitlement program for each year without any liability on the govt balance sheet for future payments since, unlike a pension plan, no person has any legal entitlement to future SS benefits. As long as the $ received exceeds the dollars paid in a FY there is a surplus on the US govt balance sheet.

The SS surplus account is invested in US Treasury bonds that pay a specified rate of interest. The bonds are IOUs backed by the full faith and credit of the US Government never having defaulted on any debt in 230 years. For the next few years the FICA tax collected will exceed the amount of annual SS payments. However beginning in 2017 there will be a shortfall in the FICA tax collection as boomers retire which will require that SS cash in some of the Treasury bonds it is holding in order to pay benefits. The US gov will have to increase taxes, decrease spending or borrow money from other investors (China, Japan) to maintain benefits at the current levels projected as the bonds are cashed. By 2041 all of the bonds held by SS will be cashed in and benefits levels will fall about 25% to equal the levels of projected FICA contributions.

[goldtpa]

mjb

A client of mine heard that Pres. Obama said something about the PBGC and the fact that he would not let it go bankrupt. I checked with another TPA to see if he heard anything about it. he said yes he did. The TPA I checked with, stated that Pres. Obama inferred that PBGC distress term may or would not be available to underfunded pension plans, whose underfunding was due to the market losses in 08.

I agree with you, how would he do it?

The question is did he infer it in a statement he made?

The TPA I spoke to was surprised that in the first days in office, Pres. Obama was addressing this. Thus I have to believe that something was said. Just what it was I do not know.

[Guest DOM]

My favorite rant:

http://benefitslink.com/boards/index.php?s...st&p=104851

Better than the old 412(i) rants with Dom?

And the VUL rants with George?

And Blinky versus Moe Howard?

And the animal fight that Dave Baker had to break up? That one brings a smile.

[Guest mjb]

mjb

A client of mine heard that Pres. Obama said something about the PBGC and the fact that he would not let it go bankrupt. I checked with another TPA to see if he heard anything about it. he said yes he did. The TPA I checked with, stated that Pres. Obama inferred that PBGC distress term may or would not be available to underfunded pension plans, whose underfunding was due to the market losses in 08.

I agree with you, how would he do it?

The question is did he infer it in a statement he made?

The TPA I spoke to was surprised that in the first days in office, Pres. Obama was addressing this. Thus I have to believe that something was said. Just what it was I do not know.

If he said that he would not allow distress terminations of underfunded pensions plan he is being disingenuous because under currrent law plans cannot be terminated simply because they are underfunded or have investment losses. Section 4041©(2) of ERISA prohibits a distress termination of an underfunded pension plan unless the employer is being liquidated or is under reorganization under chapter 11 of the bankruptcy law where a bankruptcy court determines that the corporation will be unable to pay all of its debts under the plan of reorganization unless the plan is terminated.

The only other distress termination events are if the employer will be unable to stay in business and pay debts unless the plan is terminated or the plan has become unreasonably burdensome solely as a result of a declining workforce covered by participants under all of its single employer DB plans.

The vast majority of plans are terminated on account of bankruptcy.

[Guest DOM]

My favorite rant:

http://benefitslink.com/boards/index.php?s...st&p=104851

Better than the old 412(i) rants with Dom?

And the VUL rants with George?

And Blinky versus Moe Howard?

And the animal fight that Dave Baker had to break up? That one brings a smile.

[Don Levit]

mjb:

So you do agree that there are no assets in the Social Security trust funds, for the dollars are strictly in a notional account-like fund?

And, do you agree that the federal government has spent the payroll taxes on non Social Security (and Medicare) expenses?

And, do you agree that this combination of issuing government debt and spending the payroll taxes on other general expenses merely doubles the debt that is actually owed to the taxpayers?

And, do you agree that by borrowing from the Treasury to pay Medicare benefits that an additional debt has been created?

If so, do you agree with the government's accounting that when Medicare borrows from the Treasury (the government borrows from itself), that a corresponding asset is created, thus providing a wash, for accounting purposes?

Don Levit

[Guest mjb]

mjb:

So you do agree that there are no assets in the Social Security trust funds, for the dollars are strictly in a notional account-like fund?

And, do you agree that the federal government has spent the payroll taxes on non Social Security (and Medicare) expenses?

And, do you agree that this combination of issuing government debt and spending the payroll taxes on other general expenses merely doubles the debt that is actually owed to the taxpayers?

And, do you agree that by borrowing from the Treasury to pay Medicare benefits that an additional debt has been created?

If so, do you agree with the government's accounting that when Medicare borrows from the Treasury (the government borrows from itself), that a corresponding asset is created, thus providing a wash, for accounting purposes?

Don Levit

Don:

The answer to your questions is:

SS and Medicare are the world's largest ponzi schemes.

[SoCalActuary]

mjb:

So you do agree that there are no assets in the Social Security trust funds, for the dollars are strictly in a notional account-like fund?

And, do you agree that the federal government has spent the payroll taxes on non Social Security (and Medicare) expenses?

And, do you agree that this combination of issuing government debt and spending the payroll taxes on other general expenses merely doubles the debt that is actually owed to the taxpayers?

And, do you agree that by borrowing from the Treasury to pay Medicare benefits that an additional debt has been created?

If so, do you agree with the government's accounting that when Medicare borrows from the Treasury (the government borrows from itself), that a corresponding asset is created, thus providing a wash, for accounting purposes?

Don Levit

Don:

The answer to your questions is:

SS and Medicare are the world's largest ponzi schemes.

Medicare is not a ponzi scheme - it is a wealth transfer to assure that our health care industry is always adequately funded. There is no guarantee of future benefits of any significant degree.

SS is simply another tax & spend program, but with some window dressing to make it look like you earned a benefit that you paid for.

[Guest mjb]

mjb:

So you do agree that there are no assets in the Social Security trust funds, for the dollars are strictly in a notional account-like fund?

And, do you agree that the federal government has spent the payroll taxes on non Social Security (and Medicare) expenses?

And, do you agree that this combination of issuing government debt and spending the payroll taxes on other general expenses merely doubles the debt that is actually owed to the taxpayers?

And, do you agree that by borrowing from the Treasury to pay Medicare benefits that an additional debt has been created?

If so, do you agree with the government's accounting that when Medicare borrows from the Treasury (the government borrows from itself), that a corresponding asset is created, thus providing a wash, for accounting purposes?

Don Levit

Don:

The answer to your questions is:

SS and Medicare are the world's largest ponzi schemes.

Medicare is not a ponzi scheme - it is a wealth transfer to assure that our health care industry is always adequately funded. There is no guarantee of future benefits of any significant degree.

SS is simply another tax & spend program, but with some window dressing to make it look like you earned a benefit that you paid for.

They are both ponzi schemes because people are paying in currently to pay back the investors who paid into the system at an earlier date and now are asking for the benefits that they paid for. If there is no guarantee of future medicare benefits why is congress proposing to expand the system to cover more people, e.g., all persons who attain age 55 and have no health care?

[Don Levit]

SoCalActuary:

In Medicare, what is the wealth that is being transferred comprised of?

I say it is an intangible asset, which is the goodwill of the U.S.

Do you agree?

Is that type of wealth really secure?

You are correct that SS is window dressing so that it seems like you have earned benefits, due to your payment of payroll taxes.

Legally, we know that SS is a system in which citizen payments are mandatory, yet the benefits from the "trust fund" are optional.

In fact, according to the GASAB, the accounting counsel for the federal government, benefits paid from the trust fund can be viewed as the federal government actually providing a windfall to the taxpayers - paying us a benefit we don't deserve.

mjb:

You ask an excellent question about expanding Medicare.

I would say that social insurance is even more risky than the standard ponzi scheme, in that the wealth that is accruing is government debt, which is an intangible asset, the goodwill of the U.S.

Other than God, the U.S. government can also create something out of nothing, wealth from debt.

Don Levit

[SoCalActuary]

SoCalActuary:

In Medicare, what is the wealth that is being transferred comprised of?

I say it is an intangible asset, which is the goodwill of the U.S.

Do you agree?

Is that type of wealth really secure?

I need to be more obvious.

Medicare transfers 2.9% of earned income to the govt, who pays administration and medical vendors.

Congress/laws/US Govt. has made a promise of lifetime benefits to recipients, but they cannot promise the quality of those benefits. For example, there was no promise of kidney treatment in the original Medicare. They could take that away just as easily.

All the Medicare bureaucracy has to do is determine that a particular type of treatment will not be reimbursed in the future. People who counted on that treatment would then be left out. The govt has the power to ration.

[jpod]

This is all so uplifting, isn't it?

[Don Levit]

SoCalActuary:

Where in the Medicare law is lifetime benefits promised?

Benefits are promised for the next year.

That is why benefits extending beyond a year are not considered liabilities.

Don Levit

[SoCalActuary]

SoCalActuary:

Where in the Medicare law is lifetime benefits promised?

Benefits are promised for the next year.

That is why benefits extending beyond a year are not considered liabilities.

Don Levit

Ask the old folks in any Congressional district if they believe that Medicare will not be there next year.

They believe it is a lifetime promise. The SSA also makes their projections as if it will always continue.

Budget whoring is not very interesting to me. Politicians do it all the time, because their definition of long-term is the next election date. California has a finely developed concept of budget whoring.