As the mainstream media’s financial pundits focus on President Trump’s new tariffs, China’s response to the new tariffs, politics surrounding the upcoming spending bill and Facebook’s loss of value, one very important bit of financial news has been almost totally ignored.
Amidst all the chaos that surrounds Washington politics, Congress is quietly working on finding a way to bail out pension funds. Like all other bailouts, the hundreds of millions of dollars that would be needed to pay for such a scheme would come from tax-payers.
The massive spending $1.3 trillion bill that President Trump just signed contains a lot of hidden surprises that a lot of people are bound to strongly dislike — including conservatives. One of the items not getting very much attention is a provision snuck in by Congress to create a committee that would use federal funds to bail out up to two hundred multi-employer pension plans. Congress also considered a proposal pushed by private sector unions and employers to use taxpayer money to make loans to private, union-run pension plans. These loans would essentially be bailouts under a different name.
The fact that the government is even considering such plans is extremely alarming. There are over 1,400 multi-employer pension plans in the United States, and they are facing a collective shortfall of over $550 billion. A quarter of all these plans are expected to be broke within the next decade. Given these stats, Congress’ plan to bail out 200 plans seems laughable, especially when considering the fact that the plans that would be bailed out are not even the ones that are expected to go broke the fastest.
At the same time, Congress’ willingness to throw taxpayer money at pension plans sets a dangerous precedent. If Congress did in fact decide to bail out some pension plans, what criteria would be used to decide which plans get bailed out and which do not? Would Congress only bail out pension plans considered to be “too large to fail”, leaving individuals who are part of smaller pension plans to fend for themselves?
Another factor that is well worth considering is the fact that many state pension plans are facing the same funding problems as multi-employer pensions. States are already trying to come up with ways to fund these plans so that current retirees and those who are set to retire in the future can have the pensions promised to them. If the federal government gives itself the authority to bail out pension plans at its discretion, state governments will certainly take note.
Yet another problem with the government’s plan to bail out pension funds is that this action would most likely encourage pension funds to make unrealistic promises to future workers, underfund pensions and then come calling on the Federal government to pick up the slack.
While instability in the financial markets coupled with long-term, historically low interest rates have made it very difficult for many pension funds to turn needed profits, some politicians and pension fund trustees are making investment decisions based on political correctness rather than maximizing investment return. Many pension funds have been banned from investing in tobacco stocks, even though these pay high dividends and consistently perform well. Pension funds across the country are facing calls to divest from gun stocks and a number of liberal politicians are looking for ways to mandate divestment from fossil fuels.
Taxpayers across the nation should not have to fork over their hard-earned cash simply because pension plans mismanaged their finances.
There is no easy solution to the pension crisis facing the nation. People on the verge of retirement, many of whom have contributed portions of their salary to the company pension plan, expect to receive the pay and benefits they were promised. Unfortunately, the money promised is simply not there and cannot be created out of thin air.
Having taxpayers foot the bill for a pension bailout is a recipe for disaster as it encourages future pension fund mismanagement. Instead of throwing billions of dollars at the problem at hoping it goes away, it would behoove the federal government to regulate pension funds to ensure they are properly managed in the future. At the same time, individuals who are counting on pensions for retirement should seriously consider making a “Plan B” and set money aside in order to enjoy their golden years.
~ Liberty Planet