What Stock Drop Means for Pensions

The 6% drop in the Dow in 2018 (from 24,834 to 23,327) could have been worse, according to CNBC, if not for pensions funds:
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Even with the pension-fueled comeback last week, losses in 2018 will have repercussions since plans, in chasing returns, have increasingly moved into stock-related investments and were expecting to make, not lose, 6% in value annually.

What I expect:

  1. PBGC premium spike (more than usual) driving more single employer plans to act (either put in a lot of money so plans can terminate or go bankrupt and let PBGC pay).
  2. Another ‘funding relief’ law (ie. MAP-21; HATFA) attached to some budget bill that further weakens PPA minimum funding requirements.
  3. Multiemployer Plan bailout (and not only because of union pressure on the Democrats they bought) as the inanity of investing your way out of insolvency becomes clearer.
  4. Nothing significant for public plans as valuations are done years in advance and with ever more creative ways of defining the ‘actuarial value’ of assets 2018 might even be made to look like an up year for public plans.

 

 

5 responses to this post.

  1. Posted by stanley on January 1, 2019 at 2:17 pm

    I hope your forecast proves sound. A great many are depending on others to look after them, more than likely a very unwise strategy. And, more than a few are depending on the little 20% correction in equities to be all that is required so that the market can power higher delivering a bounty to many. I would bet more on everything falling apart over everything staying pretty much upright.

    Bill Bonner is a prescient man, IMO, and he asked recently if this could be one of those rare times when the doomsayers understate the difficulty that lies ahead.

    Reply

  2. Posted by Tough Love on January 1, 2019 at 3:47 pm

    In about 5 years (sooner if there is a market meltdown) America is going to experience the riots now common in France ……. with the MOOCHERS still demanding all that was “promised”.

    Reply

    • Posted by NJ2AZ on January 2, 2019 at 12:49 am

      When that happens, be interesting to see if the inevitable government propaganda to deflect the blame to “the banksters” works

      people are pretty stupid so i’m guessing it will

      Reply

  3. Even with the pension-fueled comeback last week, losses in 2018 will have repercussions since plans, in chasing returns, have increasingly moved into stock-related investments and were expecting to make, not lose, 6% in value annually.
    CalTURDS, the largest public pension in the nation, is now NEGATIVE for the first half of the fiscal year. NEGATIVE! I have a feeling the second half will be worse than the first half, magnifying the losses and further depressing the funds solvency and funding levels.

    Reply

  4. Do you mean in reality, or politically?

    In reality pension plans were always in the hole, because the actual income (dividends, interest and rent) on investments were not enough to pay benefits. But temporary stock, bond and real estate bubbles were used to cover this up, by assuming average future returns, including capital gains and losses, from temporarily inflated asset values.

    https://larrylittlefield.wordpress.com/2013/11/29/pensions-the-nature-of-the-lie/

    A real stock market crash could reduce stock prices back to something like normal. That would reduce the nominal value of assets in pension funds, but might also allow future returns closer to those already being assumed.

    No real change. But politically, they’d have to come up with a different lie.

    Reply

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