Underfunded private pension debt bomb


Private Pension Shortfall

Jim LaCamp: We should be concerned about this. It's a huge problem. It may not represent the systemic problem that Greece does, but it could be a harder problem to solve here because we can't print our way out of this. Corporations can't print money to pay these people that they owe. It's another broken promise to our retirees and oddly enough the Fed is partly responsible for this because they've kept interest rates artificially low and it's been very difficult for these pension plans to make money. So, this money is going to either come out of corporate profits, which is going to hurt the stock market or it's going to come directly out of the pockets of retirees who are already facing higher food prices and fuel costs. So, yes, it's a very big problem.

Wayne Rogers: You have to be worried. You have to be worried anytime a worker or somebody says, "I'm contributing to some sort of retirement plan and I'm not going to get my money back." You have to blame the politicians on the public side and you have to blame your company on the other side. If they're not managing it properly and Jim makes a good point, during this time of interest rates being so low, they have miscalculated by a wide margin what they thought these pension plans would be worth because they base them on interest rates of eight percent and nine percent and they're not getting that at all, and they're mismanaged in some cases and in some cases, they're not even making the contribution. So, yeah, it's a big worry.

Julian Epstein: You have to distinguish between public and private. The big problem has been on the public side, but 43 states have made reforms. Labor unions have made concessions. We're not anywhere like Greece, because Greece has so much more of its problems on the public sector side. On the private sector side, you have to understand that there are changes that are already happening. To your question about the reforms that private sector companies are making, many of them are going from defining benefit to defining contribution plans. There was a law in 2006 that required that they have a certain amount of reserve for pensions that they are obligated to. As was pointed out by Wayne, many of the pension plans just aren't making money because the interest rates have been so low. Companies are sitting on $2T of cast right now, and this is not a big problem on the private sector side. It's something that is going to have to be dealt with, but largely, it is being dealt with. And to the extent that there is a problem here, it's that the funds just aren't making money.

Jonathan Hoeing: I think the affect of private pension funds and their under funding is much less than the problem within the public sector. We're talking about $435B, the public sector short-fall is about $1T, and in fact, we've all talked about mistaken assumptions, the private sector pensions have made much more conservative assumptions across the board than the public sector pensions have. So, you know, I'm much more worried about the public sector blow-up than the private. In fact, look at what's going on in Europe, it's the pensions and the unions that are riding, not those at the private pension, so you know, I'm not as worried.

Tracy Byrnes: The upshot, though, is that we've only got 10 percent of these companies that we cover all the time that are still offering these kinds of benefit plans. It's changing. The days that someone went to work at IBM and worked for 30 years to collect their pension are so long gone. People have to be aware that any money that they put in anything that is out of their hands has to become a worry. You are worrying that someone is not managing your money properly, and unfortunately, some of that money was not managed properly.

More than 3M Young Adults Able to Stay on Parents' Health Care Plan

Tracy Byrnes: Look, I am an Italian mother and I want to take care of my children until the day they die, but go get a job! Go out and go get a job! And this notion that just because you have health care now gives you the freedom to go find yourself-forget it! If you need it, God forbid, it is there. That's what it's for. It is not there to make our youth lazier than they already are.

Wayne Rogers: I don't think so at all. Look, whether you have health care or not is immaterial to going out and getting a job. Everybody who is young, especially after spending time in education, wants to go and do something with it. They want to go get a job. That has nothing to do with health care one way or the other. If they are covered, that doesn't make them lazy or anything else. That sounds like some sort of moral argument about; "Oh well, if you don't have health care you're going to lie around and smoke dope all day." That's crazy! That doesn't have anything to do with it. One is a totally separate subject than the other.

Julian Epstein: If you go 18-30, the unemployment rate is closer to 30 percent. And the problem with Tracy's argument is that there aren't jobs for all of these young Americans to go find. The idea that health care would somehow disincentive them to go out and go find a job, I just disagree with. The reality is, is that we should be happy about this. Because 18-30 year-olds is the lowest risk age group out there. So, by having them in the insurance pool, they actually lower the premiums for the rest of us. Additionally, if any of them get sick or have a catastrophic injury, under the health care law that President Reagan signed in 1986, they have to get health care help and assistance in an emergency situation. So, it cuts health care costs in emergency rooms as well. So this is a good thing for all of us.

Jonathan Hoeing: According to Forbes, at least, what's called the "slacker mandate," what we're all talking about, actually raises the actual cost of insurance for the average family by about $400, so you know, I'm sorry but there is no free lunch. In fact, this is a cost. I also think it's a cost on Americans. I mean, for the Health and Human Services Secretary to say it gives people freedom, is Aurelian double-speak on the highest level. I mean it is propaganda. There is freedom and there is force. Obamacare is force, it's not freedom and it is a disincentive because it builds the entitlement mentality that society owes you health care, it owes you a job, it owes you a whole list.

Jim LaCamp: Of course they are going to keep it because they have more people under their nurturing umbrella. When this law was passed, Nancy Pelosi said that this will give young people the freedom to pursue their dreams of being an artist or musician. So, while they're sitting around playing stairway to heaven, it's a financial path to hell. The system needs incentives. You can talk about whether it is a disincentive or not, but it's absolutely an incentive to get health care. A lot of people that are 24, 25, 26 are newly married, they're starting families and having health care is absolute incentive to go out and get a job.

U.N. Official: Western Nations Don't Need More TVs and Cars

Jim LaCamp: Who puts these things together? Look, when you buy a TV an iPod or a laptop or an iPad, you should wave to China or somewhere like that because you just helped somebody get a job. You're helping those countries. And this is called globalization. Maybe they don't make as much money as we do over here to do the same thing, but eventually their wages will come up and it will help the entire globe. The one problem is that if we're using debt to buy these things, that is a problem, but beyond that, idiocy.

Jonathan Hoeing: I don't care. I don't have to justify my Lexus to the United Nations, or my delivery sushi, or my big screen TV. I earned them and I have every right to enjoy them. I don't have to sacrifice myself, nor do our viewers, for some blood-soaked common good, which is exactly what the United Nations is all about. Whether it's Zimbabwe's leader of tourism, down the list, it is the most corrupt enterprise on Earth.

Julian Epstein: I think this is a knucklehead who made this statement. The two things that I think are very important in addition to the international markets when it comes to developing countries are one: the institutions that stop corruption because there is an enormous amount of corruption in these countries and that stops the economies from developing and the infrastructure. They badly need infrastructure. If we can deal with corruption and infrastructure in these developing countries, you would see their free markets flourish and that's what we need to be focusing on and talking about.

Wayne Rogers: It's your money and you have the freedom to spend it on whatever you want if you've earned it and I agree with Julian, it's knucklehead economics and I don't know where it comes from.

Tracy Byrnes: I'm pretty much agreeing with Julian today. I think the UN needs to mind its own business. That's what I think.

What do I need to know for next week?

Tracy Byrnes: The Supreme Court ruling against unions would be a win for the job market.

Jim LaCamp: (GLD) Shines even more despite U.S. bank downgrades.

Wayne Rogers: Even as incomes fall, (AGNC) will continue to rise.

Jonathan Hoeing: "Ride out" the rocky market with great companies like HOG