I point to an excellent, and extremely scary, post (as if we needed more) at The Baseline Scenario blog. James Kwak updates us as to what the geniuses at the Pension Benefit Guarantee Corporation have been up to lately. Seems they shifted a significant portion of their investments earlier this year (let me repeat, earlier this year!) to equities. I understand the funding pressures the PBGC has been under for what seems like forever, but even a casual glance at my 401(k) statement would indicate the move’s timing was just about as bad a they could get. A sample:
“While the retirement savings problem predates the current crisis, the decline in the value of financial assets has made it tougher all around. One reader pointed me to a particular aspect of the problem I wasn’t aware of. Earlier this year, the Pension Benefit Guaranty Corporation (PBGC) shifted its asset allocation from 15-25% equities to 55% equities …This, as Zvi Bodie and John Ralfe pointed out back in February, is particularly problematic for the PBGC, because then an economic downturn has a triple impact on the fund: first, as equity values fall, company pension funds face larger funding gaps; second, as companies go bankrupt, their pensions get shifted to the PBGC, increasing its liabilities; third, as equity values fall, the PBGC’s assets fall, increasing its funding shortfall.”
Read the whole thing (if you can stomach it) at http://baselinescenario.com/.