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Spotting Trends in Pensions

international investment trends

Gary Scott

Spotting trends can help you invest and live better. The huge trend in the Western world is the demise of money and pensions.

The old paradigm of receiving a pension plus some sort of social security to finance one's retirement is fading fast.

A December 7, 2005 USA Today article, "Even healthy firms freeze or cut loose traditional pensions” shows that even companies which are making good profits are shedding pension liabilities to remain competitive. This article pointed out that the latest company to make this shift is Verizon which froze its traditional pension which covers 50,000 managers. Even though Verizon earned $1.9 billion in its third quarter of 2005 and reported overall sustained earnings and growth, it made this move to keep up with rivals.

The stunning fact revealed in this article is that according to the American Benefits Council (ABC) half the pension plans in the U.S. have been lost in the past decade!

The American Benefits Council (the Council) represents Fortune 500 employers and other organizations that assist employers of all sizes in providing benefits to employees. Collectively, the Council’s members either sponsor directly or provide services to retirement and health plans covering more than 100 million Americans. 

They show that the trend to freeze or terminate retirement plans is a trend that has been growing for decades and is accelerating. 

Look up the 35 page May 26, 2004 paper entitled "The Multiple Threats Facing Our Nation’s Defined Benefit Pension System- Pensions at the Precipice.”

Be prepared for a shock.

This report shows numerous facts including:


"In spite of the value defined benefit plans provided to employees, employers, our national retirement income system and our economy, employers have been forced to exit the defined benefit system in alarming numbers in recent years. The total number of (Pension Benefit Guaranty Corporation) PBGC-insured defined benefit plans decreased from approximately 114,396 in 1985 to 32,321 in 2002.6.

"Looking at this decline over just the past several years makes this downward trend all the more stark. The PBGC reported that it insured 39,336 defined benefit plans in 1999 – a loss of more than 7,000 defined benefit plans, or 18 percent, in just four years.

"Further highlighting the decline in the defined benefit system, the quoted statistics do not take into account pension plans frozen by employers (rather than terminated) — an event that, like termination, typically results in no additional accruals for existing employees and no pension benefits whatsoever for new hires. If frozen plans were tracked, the decline of our nation’s defined benefit pension system would be even more severe.

"Just since 2001, 23 percent of Fortune 1000 companies announced their decision either to freeze or actively consider freezing their defined benefit pension plans. The trend shows no sign of slowing with a number of large employers announcing similar disturbing news in recent months."

This is a huge trend that has very disturbing implications for our economy. 

According to the report:

"Generations of Americans have relied on these plans as a vital source of retirement income for themselves and their spouses. Defined benefit pensions are valuable to employees, employers, our nation’s retirement income system, and the economy as a whole.

"Defined benefit plans also play a critical role in our national retirement income delivery system. As of 1998 (the most recent year  for which official Department of Labor statistics have been published), more than 18 million retirees were receiving benefits from defined benefit plans, with over $111 billion in benefits paid out in that year alone. Without these hundreds of billions of dollars paid to millions of retirees and their families, a huge hole would exist in our retirement income system.

"Indeed, in the absence of defined benefit pensions, it is certain that fewer Americans would be financially prepared for retirement, more American seniors would live in poverty, and many more Americans would be forced to rely even more heavily on already strained federal entitlement programs such as Social Security, Medicare, Medicaid, and Supplemental Security Income (SSI).


There is a great article on pensions at this legal publisher's blog.
Look for the article "Pensions and moral hazards"

Value to the Economy

"Even following declines in defined benefit plan sponsorship in recent years, private-sector defined benefit plans held $1.6 trillion in assets as of 2002, including 6 percent of all U.S. stock equity holdings."

In short this trend of failing, frozen and terminated pensions can have a very detrimental effect on the U.S. economy which is the engine has been driving the global economy.

This trend creates problems even before we look at further difficulties that will be created by shortfalls in Social Security, U.S. Federal debt and inflation.

There is only one sure solution to this problem. Be sure to continue to adapt to change and be ready to serve. Avoid depending on a fixed income! Those who can work and add benefits to the economy will be more protected while those who depend on fixed income.

Tomorrow’s message shows one way to cash in on the trend created by this problem. 

Until then, good global business and investing.

international investment trends
international investment trends


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