Daily Management Review

The largest US pension fund is running out of money


04/21/2016


The present national crisis can begin in the United States, if the situation continues to deteriorate. The idea is that one of the largest pension funds in the country intends to reduce its payments to the participants.



pixabay.com
pixabay.com
Central States Pension Fund, which handles pension benefits for current and former members of the trade union Teamster truck drivers, applied for the reduction of payments to its members.

According to the organization’s statement, the benefits would be reduced from 1 July 2016. Already by 2025. the fund will be completely insolvent. In 2015, its profitability was negative (-0.81%).

Teamster union unites drivers in various states, including Texas, Michigan, Wisconsin, Missouri, New York and Minnesota, so the event itself is quite massive. In addition, Central States Pension Fund is one of the largest US pension funds.

Now, more than 250 thousand people keeping savings are in the fund will face a reduction of their income, which for many is the only one source of money.

Reducing the promised benefits from the pension fund is a new and unusual thing for America, yet not unexpected. For many years there were federal programs and ways to protect people from such cases, but that all changed in 2014. Then, a bill to reduce budget spending by $ 1.1 trillion allowed pension funds to reduce payments if money are about to end in 10-20 years.

Given the global financial crisis and the Fed’s current monetary policy, the first such case with a large fund was just a matter of time.

Now the Central States Pension Fund pays $ 3.46 in the form of pension payments for every dollar it receives from employers. This led to the fact that during the year, the fund has paid $ 2 billion more than the contributions received. 

If nothing changes, the Fund will become insolvent by the 2025. Each year, the fund pays approximately $ 2.8 billion.

The average total income of families, where both pensioners receive money from the Central States Pension Fund, will fall from $ 7 thousand to about $ 3 thousand. Most of these families have to spend more of their savings to cover all expenses. Others are going to go to work.

One of the presidential candidates of the Democratic Party Bernie Sanders proposed to abolish the measure that allows to reduce the payments. Instead, he encourages the Government to provide assistance to troubled funds.

In other words, the authorities are offered to save the pension system directly. The only problem is that even a government agency Pension Benefit Guaranty Corporation (PBGC) became insolvent and, according to CNN, more than 1 million current and future retirees may face a reduction in payments, as their agents meet the criteria allowing to apply for insolvency. 

The Center for pensioners’ rights say that it is a national crisis for millions of pensioners and members of their families. Funds and agencies will start to reduce payments across the entire country. 

source: washingtonpost.com






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