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| Adrian Mastracci, president of KCM Wealth Management, says “As a matter of course, I discuss the pension ramifications with each client. I pose the question of what would happen to the retirement plan if the expected pension receipt was reduced, say by 25% to 50%." |
For Immediate Release
Vancouver, BC (May 11, 2005): Adrian Mastracci, investment counsel & president of Vancouver's “fee-only” KCM Wealth Management, comments on the worrisome pension plan shortfalls.
Much has been said recently about potential shortfalls looming for some company pension plans. The most recent is a 9.8 billion underfunding of the United Airlines pension which is being transferred to the Pension Benefit Guarantee Corp. In other words, US taxpayers get to pony up some more tax dollars.
Other concerns in the last couple of years have included IBM and General Motors. Some Canadian companies are also making similar headlines with their pensions.
While nobody has a precise grip on the scope of the shortfalls, it is a worrisome pit. Investors are very aware that someone has to pay for this.
The various reports raise important pension issues that many investors, consumers and retirees have yet to fully appreciate. These problems can affect both private and public pensions.
Unfunded pension liabilities could become a serious concern. The companies, the affected parties, their advisers and the regulators require a workable game plan. Even the public can assist.
Pension issues are dear to many. And, of course, to many of my clients, who frequently seek advice on a variety of pension situations.
Dealing with pensions means making decisions that are not reversible. Notable pension events occur when:
1. A choice is presented to join a pension plan.
2. An early retirement opportunity is offered.
3. A choice is to be made at normal retirement.
4. A pension value is transferred a to a registered account.
5. A pension value is transferred to a new employer.
6. An opportunity exists to buy back past pension service.
Pension income has always been an important part of the retirement puzzle. However, the current debate on pension shortfalls rattles some of the pillars and assumptions of retirement planning.
The ideal scenario is a robust stock market, a reasonable return on bonds and a growing economic climate. However, while we wait for that combination, it is best that the affected companies remain profitable. As long as possible.
There are only so many precious corporate earning dollars. Funding pension shortfalls will require some. Patient shareholders also want some.
Well, how can we help?
One way is for the public to give more thought to spending patterns. This assists when consumer choices exist.
As an example, buying the widget made at home ultimately supports that company's pension plan. Buying the imported widget helps the offshore pension plan. This is becoming a bigger consideration for many companies.
Companies have to ensure that consumers favour their homegrown products and services over other solutions. That message has to reach all companies and consumers.
Those resourceful companies who pay special attention to this dilemma will be more successful. The resulting improvements in corporate profitability will make it easier to deal with their pension commitments.
Pension plans continue to be an integral part of many retirement plans. Some rely on the pension plan to provide a significant portion of the retirement income.
As a matter of course, I discuss the pension ramifications with each client. I pose the question of what would happen to the retirement plan if the expected pension receipt was reduced, say by 25% to 50%. A disturbing thought indeed.
Every member of a pension plan should become more informed on its funding issues. The other question is what can be done to improve the future prospects.
The current pension debate has far reaching implications. Some pension plans could face difficult choices.
A troubling topic for many, especially retirees. The continued health of retirement plans is oftentimes dependent on viable pension prospects.
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