Three Things Every Pension Plan Member Should Do
Three Things Every Pension Plan Member Should Do by Justin Spittler – Casey Research
Justin’s note: If you or a loved one has a pension, please read today’s guest essay very closely.
It comes from our colleague Teeka Tiwari, editor of The Palm Beach Letter. As you’ll see, the pension crisis is quickly unfolding… and there are certain steps you should be taking today to prepare…
By Teeka Tiwari, editor, The Palm Beach Letter
It was the letter Jerry Deaton had been fearing.
Deaton, a 69-year-old retired truck driver, was waiting for his pension check from Teamsters’ Central States Pension Fund. It has 400,000 participants in 37 states.
The news was devastating. Deaton stared at the letter stating his pension would be cut in half.
Said Deaton, “It doesn’t leave you with much options. I’ll be 70 in December. Who’s going to hire a 70-year-old truck driver?”
Deaton’s story is a microcosm of America’s impending pension crisis.
While the mainstream media focuses on the looming insolvency of Social Security and Medicare, the pension system is quietly on the verge of collapse.
According to Moody’s, federal, state, and local employee pension plans have a combined $7 trillion in unfunded liabilities.
That’s 40% of U.S. gross domestic product (GDP).
In a moment, I’ll share three steps you should take to check the status of your pension plan. But first, I want to tell you what’s causing this crisis…
Pension Plans’ Dirty Little Secret
The failure of plans like the Central States Pension Fund is exposing a dirty little secret about the industry.
Let me explain…
Pension plans use something called a “discount rate” to determine their present value. In other words, they discount their liabilities by the expected return on their assets.
So the higher the plan’s expected return, the lower its liabilities… and the less participants have to pay into the plan now. But if the plan’s expected return is lower, then participants will have to pay more into the plan to get the same return.