Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Minyan Mailbag: Pension Benefit Guarantee

By

PrintPRINT

Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column with that very intent.

Prof. Succo,

If the UAW stays its course, it is conceivable that General Motors (GM) takes a bigger dive. My question is about the pension liabilities. Does the U.S. Pension Board guarantee that liability dollar for dollar, and if so what are the implications for stocks and bonds?

Thanks for sharing your knowledge.

Minyan Rick

Rick,

The Pension Benefit Guarantee Corp. is a government entity. Companies with pension plans of a certain size are required to contribute "dues" to the public fund which is used to guarantee companies' pension plans. We all know that the PBGC is itself under-funded.

When a company goes bankrupt, or otherwise indicates that its pension is under-funded, the PBGC steps in and guarantees dollar for dollar the unfunded pension liabilities. In most cases (which is where companies don't actually go bankrupt), this is a psychological underwriting which is an attempt to just keep things going and hopefully the pension fund grows out of its problems. In this way all these underfunded pensions just get pushed along where the problem can actually (and has) become worse.

In reality the PBGC would not underwrite all of the unfunded liabilities. Most likely the plan would be re-structured where the plan owners (Mom and Pop) would settle for some cents on the dollar.

Regards,
Prof. Succo

< Previous
  • 1
Next >
position in gm

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE