- The hole in the pension plans of US labor unions now stands at $369 billion Credit Suisse has calculated with the aid of new reporting standards.
- Multi-employer pension schemes, managed by trade unions on behalf of members working for many different employers, are now just 52% funded.
- Credit Suisse's findings contrast with the approach used by the plans themselves whereby funding levels are calculated on an actuarial basis which smooths investment returns over several years and discounts the size of future payments to beneficiaries at an expected rate of investment returns of 7.5% annually.
- Critics argue that this produces an overly optimistic view of assets and liabilities: on this actuarial basis multi-employer plans are 81% funded, a gap of only $101 billion. Safeway last week said that its liability was $1.88 billion “on the basis established by the Pension Protection Act of 2006”. Credit Suisse estimates that a fair value for the liability is $7 billion, more than the company’s market capitalization.
Canned Goods:
- What can possibly go wrong with accounting methodology currently used, and avocated by, large corporations?
- What's wrong with using an assumed 7.5% annual return on your investments into perpetuity?
- Note to Safeway union members (truck drivers, store workers, etc.): retire now and get as much as you can before this blows up!
Source: http://www.zerohedge.com/news/union-pension-underfunding-time-bomb-soars-75-one-year-nears-400-billion
Source: http://www.washingtonpost.com/business/economy/union-reaches-deal-with-safeway-and-giant/2012/03/29/gIQAhQjtjS_story.html
Source: http://www.ft.com/intl/cms/s/0/45dbbafe-7838-11e1-bffc-00144feab49a.html#axzz1rXaDmFNf
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