Pension Pulse

Colin Barr, senior writer at CNN Money reports that Pension tension is on the rise : Retirement plans are on the mend, but the healing process is going to be long and painful. In addition to taking a big chunk out of individuals' 401(k)s, last fall's market meltdown left 92% of corporate pension plans underfunded at year's end, according to a study by investment consultant Wilshire Associates. As bad as that sounds, it pales in comparison to the shortfalls in public pension plans. At the end of 2006, public pension plans were already underfunded by $361 billion, according to the Pew Charitable Trusts. That was before the stock market collapse, soaring unemployment rates and tumbling tax revenues dealt municipal finances another blow. The federal insurer of corporate pensions, the Pension Benefit Guaranty Corp., reported this month that it was $22 billion in the red in the most recent fiscal year. The PBGC takes over pensions when they are underfunded or when their sponsors ...

Jonathan Lynn of Thompson Reuters reports that global trade volumes rise sharply in third quarter : World trade volumes grew sharply in the third quarter of this year, data from the Dutch CPB research institute showed on Friday, in a further sign that the global economy is pulling out of crisis. CPB said trade volumes in the third quarter were 4.3 percent higher than in the second -- the second biggest quarter-on-quarter increase since it started tracking trade flows in 1991, and contrasting with a record 12.3 percent drop in the three months ended February. The turning point appears to have been this summer, when trade in the three months ended July turned positive on a quarter-on-quarter basis for the first time since May last year, the institute said in its latest World Trade Monitor. Looking at volatile monthly figures, trade in September grew by a record 5.3 percent after falling 1.5 percent in August, reflecting higher exports and imports in all regions, said the CPB Netherlands...

Diane Urquhart sent me this Toronto Star article by James Daw stating that bankers' group wants to continue to protect you : C anada's bankers have woken up. Hearing the cries for a supplement to the Canada Pension Plan or other larger-scale plan, they decided to use some gang-style protection tactics to guard and expand their turf. Don't let the government suck money into a single, quasi-public, one-size-fits-all plan, their Canadian Bankers Association warns in a report released Friday . Let us continue to protect you. "Requiring younger people to belong to a new contributory public retirement plan could have the effect of diverting income they need for other purposes such as near-term savings objectives and also may not result in actual increases in overall savings rates." The report has several ideas for improving private-sector offerings – described in words familiar to careful readers of a 2008 paper by Toronto pension lawyer James Pierlot, A Pension in Eve...

Greg Bryanski of Thomson Reuters reports that Russia's Putin sees economy boost from higher pensions : Russian pensioners who will have 46 percent more money in 2010 than this year will provide a much needed boost for the flagging economy as they spend, Prime Minister Vladimir Putin said on Wednesday. 'Our decision to increase pensions may contradict (the goal of maintaining macro stability). But at the same time it is a stimulus. It is consumption,' Putin told a pensions conference in Moscow. Putin said the pensioners, who spend 80 percent of their meagre income on consumption, shun expensive imported goods and tend to buy domestically produced ones. Russia, hit harder by the economic crisis than most other major emerging economy, is very slow to recover due to the very weak domestic demand and Putin has vowed to continue stimulus policies, helping the demand recover. Russia is raising pensions by 35 percent in 2009 and plans to raise them further in 2010, envisaging t...

Laura Cochrane and Tal Barak Harif of Bloomberg report that Dubai Debt Delay Rattles Confidence in Gulf Borrowers : Dubai shook investor confidence across the Persian Gulf after its proposal to delay debt payments risked triggering the biggest sovereign default since Argentina in 2001. The cost of protecting government notes from Abu Dhabi to Bahrain rose, extending the steepest increase since February as Dubai World, with $59 billion of liabilities, sought a “standstill” agreement from creditors. Its debt includes $3.52 billion of bonds due Dec. 14 from property unit Nakheel PJSC. Dubai credit-default swaps climbed 90 basis points to 530 after yesterday increasing the most since they began trading in January, CMA Datavision prices showed. “There is nothing investors dislike more than this kind of event,” said Norval Loftus, the head of convertible bonds and Islamic debt at Matrix Group Ltd. in London, which manages $2.5 billion of assets including Dubai credits...

Jim Christie of Reuters reports that Los Angeles' budget gaps may force dramatic change : Los Angeles must take dramatic steps in coming months to bring its budget back into balance, including measures to slim the size of its government and reduce how much it spends on pensions for retired employees, the city's top budget official said on Wednesday. Los Angeles, California's biggest city, is seeing a steep drop in revenues fueled by the state's 12.5 percent unemployment rate, a slump in consumer spending, an uncertain housing market and a weakening commercial real estate sector. Fitch Ratings has grown so concerned about Los Angeles' budget woes that on Tuesday it downgraded the city's general obligation debt to AA-minus from AA. Fitch said it expects the city's economic decline to impede financial recovery. Among problems it cited were high unemployment, sales tax weakness, assessed value losses, high home foreclosure and negative amortization mortgage exp...

Karen Mazurkewich reports that according to a survey, plan sponsors worry about pensions : The swell of negative pension news continues. RBC Dexia released a poll Monday revealing that the majority of Canadian plan sponsors are pessimistic about the future of their pension plans. According to their survey, 89% of defined-benefit plan sponsors are concerned that the pension system is poorly positioned to deliver on its promises. Just weeks before the Dec. 17-18 meeting in Whitehorse between the provincial finance ministers and Jim Flaherty, Minister of Finance, in which pension reform will be a major topic, the RBC Dexia results serves as yet another warning about the problems inherent within the system. The biggest concern expressed by respondents is investment risk. With markets in a free fall last year, 41% of plan sponsors expressed fears over bad returns. Not surprisingly, their second-greatest fear is that plans will not generate sufficient returns to offset obligations. Despite c...

My boss emailed me this afternoon telling me the former governor of the Bank of Canada, David Dodge, was in Montreal. He asked me whether I would like to go listen to his speech and I immediately jumped at the opportunity. David Dodge is one of the smartest people in finance and listening to him speak was a real treat. If I were running a big global macro hedge fund, I'd hire him as a senior advisor. His knowledge of economics and global economic issues is deep and comprehensive. Mr. Dodge was the guest speaker at CIRANO . His presentation was entitled "Emerging from the Crisis: the Fiscal and Monetary Policy Challenges Ahead". He began by going over the origins of the crisis, paying close attention to global imbalances, financial market innovation and underpricing of risk. He then discussed how central banks and governments dealt with the crisis through liquidity provisions and government bailouts. He emphasized that automatic fiscal stabilizers accounted for over 50% o...

Peter Boockvar, equity strategist at Miller Tabak. recently appeared on Tech Ticker claiming "it's dangerous to short this market" : Despite a penchant for bearishness , Boockvar says the rally can continue as long as the Fed keeps rates at zero. "When you cut rates to nothing you're encouraging people to take risk," Boockvar says. "As long as asset inflation is [the Fed's] goal, the market could go higher but there are obvious consequences," including inflation, as discussed here . The Fed is trying to create "the illusion of prosperity" by fueling asset price appreciation, Boockvar says, staying true to his reputation as a deficit hawk. Even if the U.S. stock market keeps rallying, "non-dollar assets" like commodities and emerging markets will continue to outperform, he says. Unlike the U.S., emerging markets are "not weighed down by enormous debt levels" and local consumers are "much better off" than t...

Independent financial analyst Diane Urquhart sent me her latest research report, Induced Bankruptcies Cost Canadian Taxpayers Billions of Dollars Federal Government Not Stopping the Abuses . Here are the key conclusions: The credit default swap (CDS) invention of 1997 and the trend of private equity funds making leveraged acquisitions of large public corporations over the past decade are causing a proliferation of bankruptcies today in both the U.S. and Canada. The damages to the Canadian taxpayers and the economy from these induced corporate bankruptcies will be in the billions of dollars. Canadian Federal bankruptcy laws are allowing corporations to walk away from their employee benefit obligations and to download onto Canadian taxpayers the additional costs for public social security programs and lost income taxes from the former employees whose employee benefits are being severely cut. For example, I estimate that the Nortel liquidation will cost Federal and Pr...

Norma Greenaway of Canwest News Service reports that pension expert proposes fix for Canada's retirement saving shortfall : A supplementary pension plan is needed to give middle-income Canadians without workplace pensions a better crack at securing a comfortable retirement, says Keith Ambachtsheer, one of the country's leading authorities on pensions. Ambachtsheer, director of the Rotman International Centre for Pension Management at the University of Toronto, says governments must plug the hole in the system that leaves about four million Canadians on their own to build a better nest egg than the public pension system guarantees. Ambachtsheer says the public system provides adequate income replacement for workers whose annual incomes are $30,000 or less. But, he says, the combined income from the Canada Pension Plan, Old Age Security and the Guaranteed Income Supplement won't finance the type of retirement envisioned by many of those earning between $30,000 and $125,000 a...

Bloomberg's Brian Parkin reports that German Government Forecasts Pension Growth Over Next 15 Years : German Chancellor Angela Merkel’s government forecast state pensions will grow over the coming years, defying political and other critics who say that worker and company contributions will have to rise to finance growth. Even with a freeze on pension increases this year and next, payments for retirees in the compulsory plan will grow by an average 1.6 percent per year to 2023, the Berlin-based Labor Ministry said today. Monthly contributions from gross pay will vary from 19.9 percent now to 20.6 percent in 2023, it said. Labor Minister Franz Josef Jung hailed the pension program as a success, “proving itself, not least in the economic crisis.” The plan is “secure in spite of demographic change,” Jung said in an e-mailed statement. Merkel’s coalition, which took office on Oct. 28, is under pressure to keep vows made to pensioners, who make up a qu...