By Sameepa Shetty January 30, 2013
For reporters covering personal finance and retirement, the pension industry warrants some attention. Although fewer companies offer pension plans each year, a significant portion of American workers still rely on them to fund at least part of their retirement. Today, about one out of every five Americans participates in a pension plan, according to the Bureau of Labor Statistics. The problem for them is that America’s pension funds are drying up.
Most modern retirement plans require participants to contribute to their own private accounts throughout their employment, putting the onus of savings on the worker. Pensions are different. They’re funded entirely by employers, and workers who participate need only to wait before they collect.
Because pension funds hinge on the financial health a single entity, they are significantly more vulnerable to market volatility at any given moment than individual retirement accounts.
Recently, shrinking market returns, a weak economy and in some cases, poor management have left pensions in trouble. In 2012, the pension funds sponsored by the nation’s largest companies run a deficit of more than $400 billion, roughly the value of Greece’s national debt. If the industry cannot bridge the growing gap between what it dole outs each year and what it receives in contributions, millions of people will lose a source of revenue they had depended on in retirement.
Some companies like AT&T, GM and Verizon have responded by scaling back their pension obligations. Others have abandoned their plans altogether (See the airline and steel industries).
Now, as more workers find their retirement funds threatened and investors clamor for pension reform, reporters covering pensions will find no shortage of stories. The trick is to approach each one impartially, recognizing the points of view of the companies, investors, workers, retirees and, in some cases, taxpayers involved.
Here are a few tips to get started.
Stay Current With the Law
All private pension funds must comply by the Employee Retirement Income Security Act of 1974, a law that sets federal standards for keeping pension plan participants informed, funding pension accounts and holding fiduciaries accountable.
If a pension plan is shut down, some benefits are still guaranteed by the federal government. The agency responsible for handling those benefits is the Pension Benefit Guaranty Corporation.
The Pension Protection Act of 2006 strengthens pension funding requirements, calls on plan sponsors to provide greater transparency and a creates a stronger insurance system.
The latest changes and proposed policy amendments can be found here.
Learn How to Break Down a Plan
Public companies publish the details of their pension plans in their annual earnings reports. There, anyone who looks can find the plan’s investment strategies, how well-funded it is and expectations for returns. (Pension information is typically published under the “Notes to Consolidated Financial Statements” section of a 10-K.)
Reporters should pay particularly close attention to pension funds’ asset allocation, the percentage of the fund invested in fixed income, equities, private equity, hedge funds or other alternative investments. A significant change in to asset allocation is usually a precursor to long-term shift in investment strategy. For example, moving more money into bonds suggests the fund is trying to curb risk.
Having independent asset managers assess such changes can help frame questions about how a company is managing its retirees’ money. Management’s commentary on the plan can also be informative.
In union-heavy industries like autos, decisions on employee pensions cannot be made by management unilaterally. Reach out to unions to learn more about the concerns of participants or retirees regarding proposed changes to the fund.
Develop sources in Washington
Federal policy plays a large role in pension funding, maintenance and payouts, so a list of Washington sources is vital for assessing the impact of new or proposed legislations. Reporters will also want to check in frequently for advanced tips on upcoming proposals.
The Washington-based Pension Rights Center, an advocate for plan participants, posts updates on recent legal developments and links to helpful fact sheets and reports. The Employee Benefit Research Institute, a non-partisan research group, publishes issue briefings on worker benefits, including pensions.
Follow the Money
Financial services firms like State Street, Bank of NY Mellon, T Rowe Price and Legg Mason offer investment management services to billion-dollar corporate pension plans. Sources within these institutions can offer a real-time glimpse into how pensions are coping with market volatility and what strategies they’re using now.
Pension consultants introduce public and private pension funds to the investment managers. They also advise corporations on their investments. Sources within this community can provide insight into new asset allocations strategies, buyouts in the works and the latest industry research.
Vanguard, Milliman, Pyramis and Towers Watson are some of the prominent industry consultants. Milliman and Vanguard also publish lists of the largest US corporate pension plans, which can be helpful for pieces about industry trends.
Although access access to consultants and portfolio managers is handled tightly by corporate communication departments, some will talk more willingly on background. Otheres are more easily approachable at investment conferences.
Prepare for Industry Changes
As more large corporations find their pensions underfunded, many are selling them to insurance companies that are also broker-dealers. Then, those insurers can collect asset management fees on the plans. Commercial giants like Ford, GM and Verizon have already entered into deals with insurers such as Prudential and MetLife to lower their pension obligations, and more are expected to follow. By reaching out to the corporate communications officers at the top insurance companies now, you’ll have established relationships when the next is deal is made.
This entry was posted on Wednesday, January 30th, 2013 at 6:50 am. It is filed under On the Beat and tagged with banks, insurers, pension, retirement, Washington. You can follow any responses to this entry through the RSS 2.0 feed.
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