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June 20, 2003
Pension Trouble
Whoops! Not all of our accounting troubles are over. Well, potentially. In the good times, when pension plans overperformed, companies skimmed off the top to increase their earnings. Now that plans are underperforming, either earnings have to go down (as assets have to be added to the pension fund) or corporations can switch to "cash based" pensions, thus delivering "actual" returns to employees far below those promised when employees chose to participate in the company plan. Theoretically it evens out in the end, with inflated earnings from years past being cancelled out by deflated earnings today, unless of course you bought your own company's inflated stock in your retirement account, which many companies and individuals do.
What to do? Well, if individually you can afford to take on some of your retirement yourself, have it at. An individual who has a stellar year (like those of the late 90's bull markets) generally doesn't withdraw from his retirement account because he outperformed his target return for that year. For corporations, it seems that the best plan would be to outsource your pension plan. For too many companies, the temptation to steal (yes steal) from their employers to get that extra dollar appears to be too great.
PS: If you want to see an example of the power of computing used for dubious causes, check out this article. It's conclusion that you should dump your stock during the first two years of a presidential term and then load up during the last two is surely just (in this case) partisan wishful thinking. Yet another example of driving forward by looking in the rearview mirror.
Posted by Chris at June 20, 2003 10:19 PM
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