LEGISLATIVE REPORT: Coronavirus Making Pensions Outside LACERS Unstable


RLACEI

LEGISLATIVE REPORT:

Pension Law and Policy,
By Michael Karsch,
Legislative Representative

 

Well, what more can one comment on the past month’s disastrous slide into recession due to the COVID-19 virus? We are in perilous times, with people out of work, businesses closing up for good, restricting social activity to one’s house, hoping to avoid catching the virus, etc. But for us Retirees, we have our pension checks and our healthcare for which we are truly thankful. As I have told my children and grandchildren, government jobs give you protection, which makes for a good life. Most did not heed my advice, sadly, but we do have freedom of choice.

Some notes I have saved are interesting relative to pension plans’ viability — how are the employers handling it?

  • In Illinois the Exelon Corporation in Chicago plans to inject $541 million this year into its defined benefit plan for all subsidiaries (per Pionline.com). Their corporate support for the same plans in 2019 was $356 million. They were taking care of their employees.
  • In New Mexico via the Associated Press, the State Senate approved a proposal aimed at shoring up that state’s overextended pension fund for about 110,000 government workers and retirees. The measure is addressing an unfunded liability of $6.6 billion.
  • In California’s private sector, the McClatchy newspapers (Miami Herald and Kansas City Star, among others) filed for Chapter 11 bankruptcy due to problems in their pension funds and related worries in financial strength. The newspaper group has operated for more than 160 years. It is expected to transfer management of the $1.4 billion pension plan to the U.S. Government’s Pension Benefit Guaranty Corp. The chain had built up a solid pension fund over the years but recently the newspaper industry overall has suffered serious revenue losses to the online draw of the internet. Workers will still get their pensions, but it is likely that the pensions will be less than expected.

A mid-March article in City Journal had a subtitle stating: “As investors flock to bonds to avoid risk, pension plans face shrinking returns.” Low bond rates are becoming “more normal.” There is fear in the bond market, normally a recourse for investors leery of stock market declines, that the bond market also is offering less promise. This means an increased likelihood of a recession. The bond market picture is dimmed by the coronavirus sledgehammer to the economy, but bond yields were already trending down for other reasons, per City Journal. Bond yields are now negative. The report states that the current environment of low interest rates and negative bond yields is especially hard on retirement accounts. As reflected in a recent Wall Street Journal article in its Business and Finance section, “investors fear the worst is yet to come.”

 

 

 

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