Three Ps: Problems, pensions and planning


Those who have read this column for some time will recall that I have written frequently about the coming crisis in public pensions – those plans for state and local government employees. We saw that issue first hand in the Detroit bankruptcy a few years ago, and it is becoming a huge issue in many northern cities and states where these liabilities have been underfunded for decades.

Now, the crisis is spreading to the corporate world as well, as seen with the $31 billion shortfall in GE’s pension plan. It wasn’t that many years ago that GE’s pension plan had a multi-billion-dollar surplus, yet it is now in the hole by $31 billion and growing.  What happened?

·       The company started underfunding their required annual contributions some years ago in favor of buying back their stock to strengthen the stock price. That decision has now saddled them with a huge liability that will undoubtedly impact their flexibility in dealing with the current financial challenges they face.

·       Like many companies, GE assumed that plan assets would earn 7-8 percent per year yet invested a substantial portion of those assets (+/- 40 percent) in bonds, which have earned very little over the last decade. So, the underfunding was exacerbated by the plan consistently underperforming against the actuarial assumptions used to calculate required annual contributions.

·       Another actuarial assumption that proved wrong was participant longevity. Pension plans have been hesitant to revise longevity assumptions upward as this will increase required contributions, yet no one can deny that people are, on average, living some years longer than most plans assume.

Years ago, many companies were more willing to increase benefits such as healthcare and pensions than wages as the impact on current financial results was less significant.  However, these benefits have a dramatic liability associated with them that can accumulate in a substantial way over time. That’s what has happened at GE and many other American corporations. How this all works out is anyone’s guess but if these corporations all end up transferring their underfunded plans to the Pension Benefit Guarantee Corporation (PBGC for short) a government agency in the business of managing troubled pension plans from the private sector we may all ultimately be on the hook for these problems.

I believe the lesson here is to not entrust your future security entirely to anyone else – have a sound financial plan and create your own pension plan so you don’t have to rely solely on others for your financial security. Remember, a corporation’s first and foremost obligation is to benefit its stockholders, not its employees or retirees. Don’t depend on someone else who you don’t want to be in control, to care for you in the future. Be your own protector.

Frederic “Ric” Schilling is a Florida native, born in Jacksonville, Fl. Ric is President of Senior Guardians of America, a local North Florida firm specializing in tax reduction, long term illness planning, asset protection, probate avoidance and life income planning. Ric is a National Speaker and Advocate on Senior Issues and has been featured by the Florida Times Union and WJXT, TV-4 in Jacksonville as an authority on Estate Planning and Retirement Issues. Senior Guardians has an A+ rating with the Better Business Bureau and is a member in excellent standing with the National Ethics Association.  Contact Frederic: 904-371-3302 or  888-891-3381   Please visit:

This article is not intended to give tax or legal advice. Securities offered through Center Street Securities, Inc. (CSS), a registered  Broker-Dealer & member FINRA & SIPC. Investment Advisory Services offered through Center Street Advisors, Inc. (CSA), a SEC Registered Investment Advisor. Schilling and Associates (d/b/a Senior Guardians of America) and CSA are independent of CSS.