Pension follies (farce as tragedy)

GM Pensions May Be ‘Garbage’ With $16 Billion at Risk
2009-04-08 17:07:50.395 GMT By Holly Rosenkrantz

Commentary: So we've gone full circle from Studebaker's 1963 bankruptcy (the genesis of ERISA) to ERISA in 1974 to GM & Chrysler's all-but-ineviatable bankruptcies in 2009: the sweet short stupid life of phony actuarial standards, liability-blind investing, and political compromise. The laws of finance are as immutable as those of physics: they cannot be 'gamed' forever (barely 35 years) and will not be compromised.

As I showed several years ago, if the PBGC had put on the perfect hedge (short 100% of common) at the perfect time (all-time high stk price) they still could not have hedged their United Air losses, which excludes pensioners' uninsured losses. So they probably could not have hedged GM either. You must regulate ALM if you want DB plans to survive.

There is no PBGC or other backstop for public plans, whose actuarial & accounting "standards" are far worse.

My research shows the DB model and 60/40 asset allocation actually could have worked, if ALM were properly managed. In fact, we should be able to retire at over 100% of final average salary, over 200% for some cohorts; but that's not going to happen. We'll be lucky to collect even 60% of FAS.

What can I say about all that now, except "too late".

JRB

4/8/09