America's Broken Retirement Plans and Pension Systems

2008-2009 saw a major financial crisis. In the worst stock market crash in 70 years, investors lost $10 trillion.

While this collapse was the worst within memory, it was actually the third major wealth destruction event in the last 20 years.

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First we had the S&L blowup of the mid-1980s, which involved the collapse of over 3,000 S&Ls. This scandal exposed major financial and accounting frauds. It cost U.S. taxpayers $150 billion. Investors in the publicly-owned S&Ls lost trillions.

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Just a few years later we had the 2000-2001 dot.com/telecommunications melt-downs.

Hundreds of Internet companies vaporized. Telecommunications saw scores of failures – epitomized by WorldCom and Enron. Again, financial fraud was rampant. Betrayed investors lost $8 trillion in this collapse.

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Most recently, our major financial institutions were rocked by scandal. Bear Stearns and Lehman Brothers failed. AIG and Citi might as well have. As the smoke of this fraud cleared, the taxpayers coughed up “upteen” trillions to bail out Wall Street. Investors lost $10 trillion in the worst crash since 1929.

These three massive wealth destruction events were the result of the teardown of the regulatory framework that had been erected over the prior 75 years to control our financial markets and protect investors and consumers from the inevitable abuses that flow from unregulated free market capitalism.

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Let’s take a brief look at history –

Free market capitalism exploded after the Civil War – in an environment of no regulation.

As Wall Street emerged: • Public corporations arose. • Modern financial/securities markets developed. • Robber barons and stock manipulators came forth. • Oil/steel/sugar and other trusts were put together by Wall Street.

With no regulation, abuses abounded. Child labor. Unsafe food. Monopolization. Price-fixing. Financial markets were corrupt. Stock manipulation was widespread. Economic excess reigned. People were victimized by corporate power.

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As Americans became disgusted by these abuses, regulations were slowly imposed – For example: • The antitrust laws criminalized price-fixing and monopolization – and empowered victims to sue. • Child Labor and Pure Food and Drug laws were passed.

But the Wall Street banks and the financial markets remained unregulated.

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• A stock market explosion in the late 1920s reflected a national mania with Wall Street and the stock market. Fueled by huge leverage - 10% margin requirements – stock investing became widespread. • But then came the 1929 Crash – ending the hopes and dreams of an American generation. • A horrible collapse – NYSE lost almost 90% of value. A majority of new stocks and funds sold to investors between 1920-1929 became worthless. • As market collapsed and J.D. Rockefeller said– “My sons and I have been buying sound common stocks” – Will Rogers quipped, “Of course they are, they’re the only ones with any money left.” • Groucho Marx said – “I lost $250,000 – I would have lost more, but that’s all the money I had.”

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As the 1932 Presidential election approached, the Pecora Hearings exposed: • Stock manipulation/pools, self-dealing and fraud by Wall Street banks, giving birth to the term “banksters.” • Massive short-swing “insider” trading by corporate insiders. • Secret payments to analysts/reporters for promotion of stocks. • Massive falsification of corporate financial statements and a lack of independence of accountants. • The overlap of commercial/investment banking – selling securities of corporate customers of investment bank side to the public in commercial depository bank lobbies.

The final humiliation came when Richard Whitney, acting president of NYSE was exposed – he had embezzled millions from NYSE fund to protect widows/ children of deceased members. He went off to Sing Sing.

America’s economic collapse led to massive unemployment and a social crisis.

It also resulted in huge public outcry for scalps. FDR – “a traitor to his class” – went after Wall Street --“the malefactors of great wealth.”

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A political revolution swept FDR into office. By 1932-1933 wall Street faced ruin. Most Americans would have flushed the bankers and corporate capitalists down the toilet. But instead of wiping out Wall Street – or nationalizing the banks and corrupt accounting firms – the newly empowered progressives chose to save capitalism – by creating a new system of regulated financial markets. They substituted caveat vendor for caveat emptor.

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In a burst of legislative innovation, the Roosevelt Administration: • Created the SEC to oversee our financial markets, giving it authority over accountants/accounting. They also required accountants to be independent and mandated truthful disclosure and honest accounting by public companies. • Strictly controlled stock sales by Wall Street underwriters and new public companies seeking money from investors. • “Insider trading” by big stock holders and corporate insiders was prohibited. • Glass-Steagall broke up the big banks and separated commercial/investment banking. • Strictly regulated the sale of mutual funds. • Empowered investors to sue to recover losses.

These new laws were administered by aggressive federal agencies and actively enforced by a generation of progressive federal court judges. They supported efforts of federal regulators and allowed victims to sue violators. Whitney, on way to prison, had claimed “grass will grow on Wall Street” if the “New Deal” legislation was adopted. He was wrong. Overtime, this new regulatory framework created the greatest age of economic growth and prosperity in the history of the world.

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Despite occasional recessions and bear markets – there were no investor wealth destruction events or financial crises requiring taxpayer bailouts. America became an economic colossus. Our financial markets became the most liquid and safest in the world. This economic miracle, the greatest in world history, occurred in the context of a – • comprehensive federal regulatory framework; and • a legal system that provided for accountability of perpetrators and gave powerful remedies to victims of financial misconduct.

Of course, as the U.S. became the world’s financial powerhouse – no one got more powerful than the Wall Street banks and the corporations they financed. And as they regained their financial strength and power they set about undoing the very regulatory framework that had spared them from extinction. Now they complained that the regulators that had spared them was restricting American competitiveness and economic growth. They also hated lawsuits of all kinds. As politics came to depend on massive infusions of cash, no one provided more of it than corporations and the Wall Street banks.

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Our citizenry – their collective memory of the past carnage having faded – was seduced by these promises of greater growth and prosperity. Government, which had actually been the key to the solution, became portrayed as the problem. Wall street captured Congress.

And, so with time came the regulatory teardown – • Early on they deregulated the S&Ls – permitting them to venture into long forbidden areas. • In 1995, Congress enacted the most severe cut backs on investor protections since 1933-1934 and sharply curtailed the ability of defrauded investors to sue. • Later, Glass-Steagall was repealed – allowing the long forbidden financial colossuses – investment and commercial banks – to recombine.

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The Wall Street/Corporate Phalanx also used its power to see that federal regulatory agencies passed into the hands of political appointees who were openly hostile to the regulations they were supposed to oversee and enforce. So rules were diluted or rolled back. Regulators permitted more mergers (especially of banks) which grew ever larger. They then allowed these giant banks to greatly increase their leverage. The also allowed the sale of increasingly complex and risky financial products. They permitted mutual fund advertising. Also, these “anti-regulation” regulators sharply curtailed legal enforcement blocking many cases – and agreeing to slap-on-the-wrist settlements. The legislative and regulatory framework erected to control financial risk and protect our citizens was torn down.

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The deregulatory juggernaut also used its influence to get both Republican and Democratic Administrations to pack the federal courts with procorporate judges. By the 1900’s, we ended up with the most pro-business, anti-regulation and anti-litigation Supreme Court since the 1920s.

The courts gutted the antitrust laws – mergers mushroomed – concentrating economic power. Legal actions against banks and corporations on behalf of defrauded investors were sharply curtailed. The ability of stock holders to sue corporate managers or directors from malfeasance was restricted.

The result: Behemoth banks; less regulatory oversight; less legal accountability. In many ways, the American economic/legal framework in 2000 looked a lot like the “Robber Baron” era of 100 years earlier.

In 1995, I testified before Congress and warned them of the consequences of cutting back on the investor protections of the federal security laws. But they ignored the warnings.

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So, what came from this era of de-regulation? Increased competitiveness? Strong - sustained economic growth? Greater wealth or prosperity for all Americans? No. Instead we got waves of fraud and repeated wealth destruction events. You will remember: 1) The massive S&L crisis of late ’80s epitomized by Lincoln Savings and Loan. 2) Telecom fraud waves. The 2001-2002 dot.com epitomized the Enron and WorldCom. 3) Then, the 2008-2009 financial institution crisis involving several of the “Too big to fail,” financial behemoths, epitomized by Lehman Brothers, Bear Sterns and AIG.

All these fraud waves involved massive doses of fraudulent accounting and insiders self dealing by corporate insider and Wall Street bankers.

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For the U.S. economy overall – the 2008-2009 financial crisis resulted in the worst wealth destruction in generations, leaving us with near ten percent unemployment – the highest in 50 years.

For years now, worker wages have stagnated.

Yet at the same time CEOs and Wall Street banker pay soared out of sight. Now CEOs’ salaries are 500 times that of ordinary workers.

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And the banker and CEO bonuses are – well – obscene. As the earnings disparity between ordinary workers and executives skyrocketed, the rich got richer – much richer.

Yet the U.S. stock market suffered one of the worst 10-year periods in history.

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It’s not hard to connect the dots between deregulation and these disasters. We just don’t learn from our history. Curtailing regulation and accountability breeds abuse.

Even the staunchest free marketers have admitted they were wrong and that lax regulation caused these financial implosions.

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There is another emerging crisis that is also a result of this rush to de-regulate – the impairment of -- and the likely collapse of -- our pension and retirement systems.

In short -- Wall Street has captured and abused these honey pots of cash – pocketing huge profits for themselves – but leaving retirees facing the loss of their promised benefits, workers with the prospect of increased contributions and ultimately taxpayers with another huge bailout bill. Another “gift” to the rest of us from Wall Street.

The post-World War II era saw the pervasive rise of retirement plans. In a few years, public employee, corporate and Taft-Hartley pension plans abounded. These plans soon accumulated trillions of dollars.

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These plans involved promises of future benefits made as trade-offs to demands for current benefits – like higher wages. The easiest promise to make is one you do not have to keep. So it was an irresistible temptation for politicians, executives and labor leaders making the promises to be generous, because they were not going to be around when the time came to pay for them. But pay for them now we must.

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The time to keep those promises is upon us. In the next several years, some 77 million U.S. baby boomers will hobble into retirement, expecting that their retirement dreams will be fulfilled. But it’s likely that fulfilling their dreams will create a financial crisis the likes of which we have never seen before. Unfortunately, the U.S. pension system area has become a fraud-infested house of cards – a ticking time bomb - a financial monster.

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A pension or retirement system is a bet on the future –

Some money is set aside currently, but not nearly enough to pay all the promised benefits later. So, how pension funds are invested/safeguarded is key.

Of course as Pension Funds’ investment portfolios grew, Wall Street money managers captured them. And then by assuring fund trustees that the increased prosperity and growth flowing from the ongoing deregulation would result in ever-higher stock prices – Wall Street guided trillions of dollars of retirement savings of workers into the stocks of the public companies that Wall Street bankers promote. Increasing stock prices they promised, would pay for the retirement obligations of the Pension Funds.

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At first, it looked like it might work. Fueled by the rosy promises of increasing prosperity due to deregulation, the greatest bull market in history pushed stock prices to all-time highs by the 1990s. Individuals with fat 401(k)s thought they were on “Easy Street”. Based on inflated stock prices corporate pension funds actually looked over-funded.

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Of course corporate executives exploited this. They slashed contributions to the plans to further boost reported earnings and their companies’ stock prices – and, in turn, their own bonus takes and stock option profits.

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As Wall Street money managers promised that continuing equity gains would keep the plans more than adequately funded, executives often raided corporate plans, taking retiree dollars and diverting them to other uses.

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But it didn’t last. After the S&L debacle and its investor losses, came the great market crash of 2000- 2002.

Corporate pension plans suffered a huge financial hit. $300 billion was lost in just nine months. As a result, by early 2003, corporate plans were over $400 billion under-funded.

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To evade making required contributions to plans, corporate CEOs manipulated pension accounting. One study confirmed widespread pension accounting manipulation by executives to boost corporate stock prices. One-half the biggest corporations put no money in their plans, despite bear market losses 2001-2002. By this trick they inflated corporate profits, their stock option trading profits and their bonuses as well.

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Now after the 2008-2009 financial crisis and collapse, the 100 largest corporate plans alone were $217 billion underwater. All corporate plans were over $400 billion short. The Financial Times calls them “Vampire Pensions,” which threaten the U.S. economy.

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Several years ago, when corporate “green eyeshades” realized how huge the true costs of their corporations’ pension plans would turn out to be, corporations and their Wall Street allies got Congress to create the 401(k) – individual retirement scheme.

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Corporations love 401(k) plans. If they set one up to replace a corporate pension plan, they no longer have to contribute to the federal pension insurance fund, saving tons of money. Also, because a 401(k) scheme requires workers to fund the individual pension accounts corporations save billions more. But the 401(k) retirement plans are also turning out to be disasters.

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The 401(k) system makes individuals – no matter how unsophisticated – make their own investment decisions. All to many have become “pigeons” for fast buck artists. Most were simply captured by the mutual fund arm of Wall Street, an industry infested with self-dealing and excessive fees and which is by definition always heavily invested in the stock market. The equity investments of 401(k)s have been predictably disastrous - losses of $2 trillion in the recent market collapse.

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Imagine the carnage if the Bush Administration had “privatized” social security – a Wall Street bonanza that the bankers still lust for.

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There is a joke – what begins with F and ends with K and means “screw your employees?” 401(k) plans are also subject to a special abuses. The pressuring of employees to put their retirement savings in the stock of the company they work for is a terrible abuse – violating the common sense rule against investment concentration. Enron, WorldCom, and AOL Time Warner are just a few examples of where workers got killed because their 401(k)s had been stuffed full of “company stock.”

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The pension plans that cover “ordinary workers” -- Taft-Hartley plans -- are also in terrible shape. Due to stock market losses, they have only 60% of the funds they need to satisfy their obligations. They are in even worse shape than corporate pension plans.

Over 640 Taft-Hartley plans are in “critical status” or “endangered” – billions and billions of dollars underwater. A bailout is already needed here – but its just the tip of an iceberg.

Unfortunately, our entire private pension system is a “sinkhole.”

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And the situation with our public employee pension funds – the ones that cover state and local workers, teachers and the like – is even worse. These plans are everywhere – in every state and large city – and they have become the largest concentration of pension monies in the world.

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The public funds also lost billions in the 2001- 2002 market crash, victims of that fraud wave when it decimated the equity markets.

After that market crash, 50% of all public funds were under-funded. But these funds remained overexposed to equity markets and really got killed in the 2008-2009 collapse.

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After the huge 2000-2002 losses, politicians refused to increase state contributions to funds to help cover their funds’ increased deficits. A GAO study found less than half state funds received the amount of funding their own actuaries said was required – leaving funding at its lowest levels in 15 years.

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The 2008-2009 investment losses of public funds have been stupendous –

CalPERS – lost $72 billion – one fund lost that much!

109 state funds lost $865 billion in about one year – the worst losses in history.

These funds are grossly underfunded. New Jersey and Illinois are $50+ billion under water.

It’s really impossible to describe how financially damaged these public employee funds are. They have also become “sinkholes”- and at a time when state and local government finances are in the worst shape since the 1930s.

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Properly accounted for, the public funds are $2-3 trillion underfunded.

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The Pension Crisis is also a global problem. These wealth destruction events hit foreign pension plans too.

Large European corporate pension plans are also underwater – another $400 billion hole.

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So, why has this happened? Why are our – and much of the world’s -- pension systems and plans in such precarious financial condition?

For sure, promises were made – that should not have been made – especially to public employees.

Firemen, policeman - even clerks – get pensions of $100,000-$150,000+. And they “game” the system to boost “final year” compensation to “goose” their lifetime pensions.

This is obviously an excess that must be addressed. But, before condemning workers remember..

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Corporate executives have been pocketing giant salaries and bonuses for decades. And, on top of that many corporate executives gave themselves huge specially funded pensions, structured so as to not be voided or cutback by bankruptcy like worker pensions are. Remember as well, generous pensions for public employees were promised as a trade-off for lower wages – something corporate executives know nothing about.

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Let’s place the fault where it really belongs- the real responsibility for this disaster rests with Wall Street.

As pension funds accumulated huge amounts of money they attracted the Wall Street sharks who smelled an opportunity to profit.

In short order, the vast bulk of pension funds’ monies were managed by Wall Street money managers. After they captured the funds, they exploited and abused them.

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Quite sensibly, originally the laws in California and many other states required pension funds to invest the retirement savings they managed mostly in safe, interest bearing bonds. But Wall Street couldn’t make as much money as they wanted from that. So they bankrolled initiatives and lobbied to get legislation to repeal these safeguards and permit pension funds to be invested in all kinds of the stuff they make big profits peddling.

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Pension fund trustees were told by Wall Street to use the bulk of retirement monies to buy corporate stocks.

This, they are told, would position funds to benefit from the supposed historic over performance of the equity investments Wall Street specializes in. They were told the stocks would go up – and thus pay for retirement costs. This led to an “equity addition” – where up to 80% of pension plan assets end up in stocks.

This conventional wisdom was neat and very profitable for Wall Street. And it was completely wrong! 1) We have seen three major equity wealth destruction events in last 20 years. 2) The SP 500 – down 5% in 10 years ending in 2009 – a terrible 10-year performance. 3) Equities actually lost ground in ‘30s, ‘70s and in the last 10 years – about 50% of the time.

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Who makes money on this equity addiction? Who manages the trillions of dollars of pension fund money? Who manages mutual fund portfolios that hold trillions in 401(k) monies? Who takes pension fund trustees to play golf? And on so-called “educational” weekends at lush resorts to enjoy lavish dinners? Wall Street does.

The myth of equity out-performance is a Wall Street lie. Bonds – safe and boring bonds – have frequently outperformed equities – but Wall Street can’t pocket gobs of money from simple, safe, dull bonds.

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The UC Pension Fund – a $60+ billion fund – is an example of the dangers of Wall Street capturing these funds.

For decades this fund was managed internally and emphasized long-term bonds and a very few high quality stocks.

Up until 2000, it was fully-funded. For 20 years no University or employee contributions had been required.

Then, control of the Fund passed into the hands of a pro-Wall Street group. The fund then hired Wall Street money managers -- paying $32 million in fees a year!

Soon the fund ended up with huge equity investments, suffered great losses and now faces a giant funding deficit!

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The UC Pension Plan may be imploding. Recent reports are that it is $40 billion short.

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Now the University and many of its employees will be required to make large contributions. And benefit reductions may be necessary.

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The U.S. Pension Benefit Guaranty Corporation, which partially insures Taft-Hartley and corporate pension plans, is itself way underwater. During the Bush Administration, the Wall Streeters got control of this government agency’s investment portfolio they pocketed huge fees and they put its funds in stocks.

It’s investment fund killed in 2008-2009. Billions in losses.

A government insurance fund to protect private pension funds that suffer losses due to stock market declines ends up invested in stocks! This is insanity!

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Of course pension fund insiders have known for years they were losing their shirts in equities.

After the 2001-2002 debacle, they did what losing gamblers often do when they lose – they took greater risks.

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Incredibly and again guided by Wall Street, after their 2001-2002 wipe-out Pension Funds took much greater risks to make up for the losses Wall Street’s equity investments had caused them.

Pension fund fiduciaries poured billions in to hedge funds. Billions more into “private equity.” And into speculative i.e. “raw” real estate. Billions more into that special Wall street invention – collateralized debt obligations (“CDOs”). They also engaged in securities lending schemes. They leveraged their equity exposure via “Alpha” investments. Then just a few years later the 2008-2009 financial crisis erupted – and these funds suffered their largest losses ever.

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So now – having suffered hundreds of billions of dollars of losses and ended up with trillions in funding deficits – and I am not making this up – Pension fund trustees – fiduciaries are still relying on Wall Street money managers – and are taking even greater risks. “Double-up to catch up.” “Reaching for yield.” - Going to Vegas.

They are playing right into the hands of the avaricious bankers, who having put them in equities and other exotic investments that blew up – are now only too happy to put them into even riskier investments to try to make up for losses.

More Private equity. More hedge funds. Commodities. Even buying “toxic waste” from the banks.

You can always create greater returns from greater risks -- for a while. But, these kinds of strategies have produced huge losses before – and they likely will again.

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But this is much worse than just un-sophistication negligence or even incompetence of Pension Fund Trustees. The Pension Fund field caught the Wall Street contagion – financial corruption. It’s called “Pay to Pay.”

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The SEC saw it years ago – but, of course with “free marketeers” in charge, did nothing.

In time a nationwide system of political contributors, payoffs/kickbacks emerged involving politically well connected “Placement Agents.”

The biggest funds have the worst problems. And, not surprisingly, the investments obtained by “pay-to-play” kickbacks and contributions have often generated horrific returns. This is an ugly scandal.

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Here is how this systemic corruption worked:

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The head of the New Mexico Pension Fund (the Governor's Campaign Manager) resigned after a $350,000 loan to him from the father of a man also who got $22 million in fees for “finding” hundreds of millions of Fund monies for Wall Street Managers.

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The scandal reached California. A CalPERs investment officer was forced to resign – he got an all expense paid trip to NYC from an investment group that got $600 Million from CalPERs. He was cheap. The middle men on that deal – two former top CalPERs officials – got some $20 Million to arrange this placement – on which CalPERs lost millions and millions.

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And Alan Hevesi – the former head of the New York State Pension Fund – pleaded guilty to doling out billions in that Fund’s assets to favored managers in return for huge payoffs.

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New leadership at the SEC claims it has finally outlawed this system of bribes and kickbacks. But the damage has already been done by Wall Street to the Pension Funds.

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The horrible funding deficit numbers Pension Funds admit to – actually hide an even worse reality –

How do you to determine if Fund is “funded”? You estimate (guess) how much your fund will earn in its investment portfolio in the future. Its called “the assumed rate of return.”

Guessing what a fund will earn on its investments in future years is like asking pitcher during salary negotiations – “How many games will you win next five years?” And the people who make these estimates are just as self-interested.

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Of course the estimate for the rate of return is subject to manipulation.

Today, almost all Pension Funds assume 7.5%-8%, even 9% annual growth for every year for ever in the future. That's over 100% compounded every 10 years! Now given the lessons of history just how realistic is that?

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The horrific $400 billion corporate pension funds deficit assume future investment returns that are grossly unrealistic. Assuming unrealistic future investment returns on their corporate pension funds allows CEOs to pad corporate profits – and protect their bonuses and the value of their stock options.

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In truth, public and private pension funds and their financial advisors are engaged in massive deceptions to conceal the true nature of their pension liabilities. They are concealing the massive black holes that haunt corporate balance sheets and public budgets.

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These ridiculous 7.5%-9.0% assumed rates of return continue to be used even though Pension Funds have had huge losses in many recent years – not gains.

This is no “little white lie” – it’s a Matterhorn -- Everest-sized whopper. If the three big California Public Funds (CalPERS/CalSTRS and Univ of Cal) used a 4.5%-5% rate of return instead of the 7.5%-8% rates they now use, these three Funds would be $500 billion underfunded – 10 times the shortfall they currently admit to. Since this is a nationwide deception – in both corporate and public plans – try extrapolating that out.

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In fact – this deception got so ridiculous that the SEC sued New Jersey for financial fraud in misrepresenting its pension liabilities when selling bonds to investors. But this “Toothless Tiger” then immediately settled – in return for a “promise” that New Jersey would not do that anymore.

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Some States claim they are taking steps to repair the finances of their Pension Funds. But they are fibbing again, counting billions in savings that might be achieved over the next 20+ years – as real savings right now. Just more financial chicanery.

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To show you how absurd this is – in the face of massive losses – New Jersey actually raised its assumed rate of return to 8.75% from 7% to avoid making a $1.5 billion payment to its pension fund.

Tragically, everyone in the system has an incentive to cover-up:

Corporate executives – to inflate short-term profits, and their stock options, bonuses and stock trading profits.

Union leaders – to avoid giving up wage/benefit gains, or increased employee contributions.

Public Fund Trustees/Politicians – to avoid tax increases or increased use of government funds to bolster funds.

Wall Street advisors – to justify past practices and keep hold of the Pension Funds they use as dumping grounds for the financial products they profit by selling.

Everybody is trying to avoid exposure of their complicity in this disaster.

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Some day – these assumed rates of return must be cut. The deception cannot be maintained.

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I want to reemphasize a point. CalPER’s says its going to take even more risks with the life saving/pension monies of its beneficiaries to overcome its huge losses. How do you think that will work out?

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This house of cards is likely about to be submerged by a Tsunami of retiring baby-boomers.

The precarious financial position of pension funds I have been describing has been created BEFORE these Pension Funds face the task of actually paying out billions and billions as millions and millions of baby-boomers retire in the next several years.

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Several adverse mega-demographic trends will converge as the boomers retire.

First: Some 77 million boomers will leave the workforce/curtail their contributions to plans/curtail their investments in the markets and become consumers of capital, including pension plan assets.

Some call it the “Geezer Glut.”

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Pension systems are going to come under incredible financial strain as the “generational storm” of the aging baby-boomer population overtakes them.

In 2000, there were 82 million people under the age of 20 in the U.S. – dwarfing the 35 million over 65’ers. By 2030, 77 million baby boomers will be retired. But, while we then will have twice as many retirees – there will be only 18% more workers.

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As the boomers retire, huge amounts of cash will be needed to pay for their retirements.

The retirees and the pension plans they rely upon – both former large buyers of stock – may transition into sellers.

As the pension funds become sellers of equities, who will buy them? The next generation will – but it does not have nearly the economic clout that the baby-boomer population did. And de-regulation era has left the American economy impaired – its industrial base gutted – its potential for economic growth curtailed.

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If the immutable law of supply-and-demand turns, stock markets -- which long benefited from pension funds’ buying demand - could be negatively impacted by selling/supply pressure for many years!

I don’t know when this house of cards will collapse – but it will and then --

We will see reduced benefits – increased employee contributions – increased taxes.

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In Europe it has already started. The retirement age is going up and benefits are coming down.

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Here in the US – • Promises are already being broken. • Several major corporations have sought to curtail retirees’ benefits.

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The dreams of happy retirement are fading as retirement savings have been decimated.

Many have had to delay retirement.

Many others have had to go back to work.

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Lets hope that a late retirement/early death option or patricide doesn’t become a reality. While we joke about it – it’s really very sad – and it’s primarily the fault of Wall Street and deregulation.

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Don’t kid yourself – this is going to spark a major political battle – And will perhaps result even in generational warfare as well.

The conservatives are going to “scape goat” public employees as a privileged – protected – class.

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And you can be sure younger tax-payers are going to grouse loudly when their taxes go up to make good on these pensions for old folks.

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But like it or not, one way or another taxpayers are going to end up paying for this fiasco. Rather than sit by and await the disaster, why not try to deal with it proactively? There is a solution that could help protect retirees and at the same time help finance the huge federal deficit we face.

• First - stop allowing Wall Street money managers to speculate with workers’ retirement savings. • Second, create a new, 6- 7% (inflation indexed) US Treasury retirement plan bond with staggered maturities – 5 - 10 - 20 - 25 years. Only qualified retirement plans can buy them. They must be held to maturity. • Third, over a 5-7 year period – require 70% of all pension retirement plan assets to be put into these U.S. Treasury retirement plan bonds. • This restructuring of retirement plan investment portfolios will provide safe, low cost returns to funds and stop Wall Street speculation with the life savings of workers. • And this will also help finance the huge federal deficit we face. At least the interest payments on these bonds that will be paid by U.S. taxpayers will go to support U.S. retirees – not China and other foreign governments.

While the interest rate on these bonds are high – remember – taxpayers are going to pay to bail out the funds some day anyway, this is a rate that will let funds meet their obligations and the interest payments are going to U.S. retirees who will spend the money in the U.S.

It’s a simple, elegant solution - but Wall Street and the politicians they control will never permit it.

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America's Broken Retirement Plans and Pension Systems

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Transcript of America's Broken Retirement Plans and Pension Systems