Tuesday, November 1, 2016

Pension Plans

Employee pension plans have unsustainable unfunded liabilities.  The vast majority of pension plan participants are government employees.  When cities and counties go bankrupt, these pension benefits are in jeopardy.

Defined Benefit Pension Plans have nowhere to go to earn money on their money.  Interest rates are zero and the stock market is unstable.  These plans need to be converted to defined contribution plans.

I terminated the pension plan at Electromagnetic Sciences, Inc. in 1993.  The company was over 20 years old and had over 1000 employees.  The PBGC rate was particularly high at the time, so we could get a good lump sum amount for participants.  At the time it was not underfunded. We had always contributed 5% of payroll to the pension plan and we chose to continue that to fund an “age weighted plan” to protect those close to retirement.  We had earlier adopted a 401K plan. 

We allowed employees to take a taxable lump sum distribution of their pension plan payout or have it transferred to the age weighted or 401k plan. This change allowed the company to avoid the trouble we anticipated by continuing the pension plan.  Most private and public companies terminated their pension plans in various ways.

Those who did not terminate their pension plans at that time included utilities and many fortune 100 companies.  Government employee pension plans were generally continued even to today.  The government and utility employees who still have pension plans need to know that our current investment environment will destroy their pension plans.


Norb Leahy, Dunwoody GA Tea Party Leader

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