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Many Retirees Need To Ready For The Death of the Pension Plan

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Many retired senior citizens have spent a significant portion of their lives working for a single corporate employer. For some, perhaps incentivized pension plans had something to do with their company loyalty, a seemingly fair exchange for their years of labor. Sadly,  the way in which many of these corporations have paid them back can only be described as unconscionable.

We know that pension plans, in both private and public sectors, are generally overburdened. Many companies are questioning whether they can afford to continue providing such a program. This shouldn’t be surprising, as, on a global scale, the pension plans have amassed an exorbitant debt burden of over $400 Trillion among institutions worldwide. Pension programs carry so much weight that it would be no surprise if an institution sheds the incentive–and all the retired senior citizens who depend on it–in order to save itself.

But in addition to this burden, some companies have taken further steps into questionable ground, poisoning the very incentive they had promised to many of their now-retired former employees–this, likely due to absolute incompetence or just outright negligence.

Walgreens – Hemorrhaging Retiree Funds in Healthcare

Take Walgreens, for instance. Walgreens is being sued for allegedly costing employees “$300 Million in potential retirement savings” by failing to abide by fiduciary standards and responsibilities, according to a Chicago Business report:

The complaint filed today alleges the Deerfield-based retailer breached its fiduciary duties when a collection of ten target retirement funds failed to match industry benchmarks over the last decade. More than $3 billion was invested in those ten plans managed by Northern Trust, and Walgreens retained Northern despite years of underperformance, the suit details.

In 2013, they loaded the plan with a suite of poorly performing funds called the Northern Trust Focus Target Retirement Trusts (“Northern Trust Funds” or “the Funds”). Walgreen Defendants kept these Funds throughout the Class Period despite their continued underperformance.

 In short, Walgreens was well aware that the funds to which they had entrusted their pension program had been losing money for years. Yet Walgreens did nothing to mitigate the situation. It appears as if profits took precedence over pensions–a “revenues-first” approach that relegated retirees’ concerns to a distant second or third.

But if Walgreens was thrust into the public spotlight for mismanaging employee pension plans, the fact remains that they were actually “caught.” In other words, how many other companies who haven’t yet been exposed have also been managing their pension plans poorly?

Similarly, US Bank is also facing legal action, this time for exposing their pension funds to excessive risk-taking. As Star Tribune reports

The bank had a risky investment strategy of putting money solely into stocks, causing the plan to drop more than $1 billion in 2008, according to the complaints filed in the lawsuit.

Upon being hit by the suit filed by current and former employees, US Bank overcompensated by putting several hundred millions of dollars back into the plan. But it makes you wonder–what kind of accountability would prevent such a thing from taking place again?

More importantly, did it really take a lawsuit for US Bank to act more responsibly, going as far as “overfunding” the pension?

The lawsuit, dismissed as “moot” by US District Judge Joan Erickson upon the overfunding, was then taken to the US Supreme Court, whose Solicitor General Noel Francisco announced that the issue was decided “incorrectly” by the District Courts. The case will be heard in Fall 2019.

Don’t Put All Your Eggs in a Pension Basket

Betting your entire financial future on a promised pension is not that different from a gambler betting an entire stake on one hand.

Sadly, the difference is striking: the gambler’s potential payoff may be much greater than an employee’s pension payoff. And if a gambler loses, then s/he loses an entire stake. But when a retiree loses, s/he loses money generated through years of hard work. A gambler can replenish his or her stake–but a retiree can never get those working years back.

It’s a high-risk scenario, one that would devastate any retiree on the losing end, and one that will likely underwhelm any retiree on the winning end–in other words, you can lose much more than you gain.

It’s better and much smarter to diversify.

How can you be so certain that your employer’s pension plan isn’t being mismanaged? Even if it isn’t being mismanaged, how can you be sure that your pension plan is being managed just “well enough,” so that its value doesn’t come crashing down by the time you need your pension to provide retirement income?

Nobody can ever be that certain…with anything. And that’s why diversification is so crucial.

The best time to begin protecting your financial future is now. By the time you retire, you will need two things: capital appreciation–enough to provide you with an adequate stream of cash flow–and capital preservation–enough to protect your assets from market volatility and inflation.

You can take control and ownership over your money and financial future by managing it yourself. You can achieve “growth” and “preservation” by adding safe-haven assets such as physical gold and silver to your portfolio. Whether you are invested in stocks or bonds, growth or income assets, adding “sound money” to your money can help shelter your portfolio from economic uncertainties while participating in a diverse range of bull markets regardless of sector or asset class.

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