Sunday, February 15, 2009

A little deja vu

Drifting around the 'Net on a lazy Sunday... the good guys at ALDaily drop this one in my lap.
Funds worth trillions of dollars start to plummet in value. Political pressure to be “socially responsible” distorts the market decisions of government-related enterprises, leading to risky investments. Investors who once considered their retirements safely protectedwake up to a sinking feeling of uncertainty and gloom.

Sound like the great mortgage-fueled financial crisis of 2008? Sure. But it also describes a calamity likely to hit as soon as 2009. State, local, and private pension plans covering millions of government employees and union workers with “defined benefit” accounts are teetering on the brink of implosion, victims of both a sinking stock market and investment strategies influenced by political considerations.

Now it doesn't matter how hard I try, I can feel some sympathy for the "beneficiaries" of this.

In the early '80's I had been contributing to a defined benefit plan superannuation scheme for some 20 years. The tri-ennial audit* certification was about 5 years overdue. (There is a different name here that I can not for the life of me put a neurone to). Then - revelation!!! It was announced by the Government that the fund was not technically but literally broke.

It turned out the the last released tri-ennial audit had shown an adverse trend in contribution account values and current pension values. That trend had not been reported by the auditors.

It had reached the point where the fund was paying current pensions from current contributions and had been doing so for some while.

Overnight, I lost in excess of 1/3 of the total value of my personal account plus the right to the guaranteed benefits.

Currently, my super funds are all specified as "Cash and Savings only" for investment. Yes the returns have been crap - less than 2 1/2% per annum for the past five years. But if they show a loss for last and this year there is going to be several different kinds of hell being raised.

*The missing word was "actuarial". Silly me.


Eugene Tan said...

You divulge info like you are doing a Shanghainese cheongsam striptease.

Button by button, you reveal what is below. And you really know how to drag it out!

The probligo said...


Actually it is the result of a few years arguing with Americans. TF and Al the Whig are pretty reasonable. Others who drop in at my place from time to time are less so.

The probligo said...

It occurs to me, Eugene, that one of the things I try to do is to explain why I have written.

It is not enough to just say "Read this..." without giving some clue to its importance.

That is one reason why I enjoy challenging Al, DaveJ, and some of the others where I comment. It is not sufficient (in my world) to say "Read this" without at least putting it into the context of my personal world.

Eugene Tan said...

Maybe that's why the magic and the seductiveness is lost. You know, the music, the dancer, the cheongsam and the button. No need to tell me what I'll see when the button comes off. Please don't tell me. Let my brain enjoy its own fantasies.

"Read this" is also something I avoid doing when I teach,(damn! the rice I am eating is undercooked :( ) though it is sometimes inevitable because I am not going to teach people how I think. It's a hard balance to achieve.

But Al does it largely because he's a lazy fella. He said so himself. (I want to take another mouthful of rice but the chalky taste... sigh.) You know how to push to right buttons to elicit responses though. ;)

Al said...

It's easy, really. I just think of you as my friend. You, too, Eugene. I'm talking about being reasonable, not the lazy posts. On that score, I want discussion. It helps to digest the info - I believe in dialog.

As far as the pensions go, I'm afraid to open the envelopes. I was raised in the seventies (and I had subscriptions to Time and Newsweek as a teenager), so I expect the crap to hit the fan now and then. But I like to be out of the room when it flies.