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
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
either sponsor directly or provide services to retirement
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:
THE DECLINE IN DEFINED BENEFIT PLAN SPONSORSHIP
"In spite of the value
defined benefit plans provided to employees,
employers, our national retirement income system and our
employers have been forced to exit the defined benefit system
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
"Looking at this decline
over just the past several years makes this
downward trend all the more stark. The PBGC reported that
39,336 defined benefit plans in 1999 – a loss of more
defined benefit plans, or 18 percent, in just four years.
the decline in the defined benefit system, the
quoted statistics do not take into account pension plans
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
tracked, the decline of our nation’s defined benefit
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
According to the report:
"Generations of Americans
have relied on these plans as a vital source of retirement
income for themselves and their
benefit pensions are valuable to employees, employers, our
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
retirement income system.
"Indeed, in the absence
of defined benefit pensions, it is certain that
fewer Americans would be financially prepared for retirement,
American seniors would live in poverty, and many more Americans
would be forced to rely even more heavily on already strained
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
assets as of 2002, including 6 percent of all U.S. stock
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.