Saturday, February 28, 2009

ExxonMobil's defined benefit pension deficit explodes: undercutting equity value? A trend among most companies?

Apparently defined benefit pension deficits are affecting blue chip and other stock prices.

ExxonMobil, on Friday Feb. 27, reported that its defined benefit pension deficit more than doubled, from $6.7 billion to $15 billion. At the same time, the non-US portion of this deficit increased from $5.3 billion to $8.7 billion. That means that the US portion in creased $1.4 billion to $7.3 billion.

The company reported record 2008 profit of $45.2 billion on Jan. 30. After 2 PM Friday, the stock suddenly fell about 4%. Does this mean that the “profit” was overstated? The price did recover slightly in after-hours.

The Reuters story is here.

The information appears on pp 79-92 of the SEC Form 10K, “Annual report which provides a comprehensive overview of the company for the past year”, link here.

Pension fund values even for “stable” companies like Exxon are affected by the plunge in financial stocks, even though the “stable” companies themselves are not so directly affected in their operations by the banks; but their equity now is definitely affected, which helps further explain the deterioration of equities everywhere.

Defined benefit pension obligations normally increase as life spans increase (less so as spousal lifespans increase with the “period certain” arrangements). Yet companies, for a number of years, pushed employees into early retirement, improving their bottom line in the short run but jeopardizing equity values over the longer term.

Is this demographic shift (longer life spans without sufficiently long work histories at full salary to match) another time bomb that will blow up the equity markets even further? It’s scary.

Friday, February 27, 2009

Social Security recipients get a "mere" $250 "bonus"

Walter Updegrave has an article on CNN’s “Ask the Expert: Stimulus: What’s In It for Retirees?” The article was reproduce don Yahoo! Finance Feb. 26. The Social Security Administration's own website does not appear to mention this payment yet.

Well, not too much. People living largely off of social security will get $250 bonus (instead of the $400 “work-pay credit” for most people) because this time around the government wants to focus on the working middle class. The stimulus could rise for retirees who also work, but this is complicated by early retirees by the Social Security Annual Earnings Test, which has always seemed unnecessary to me (because the payment, if you retire early, is automatically less anyway by an actuarially determined amount).

The $250 social security recipient “bonus” applies even if you owe no income tax – which is good because of many of us sold securities at a loss in December in order to wipe out any income tax liability for this year and try to recover some of the stock market losses indirectly. (That makes things even worse for the federal deficit and for the economy as a whole, if you think about it.)

Updegrave says that the stimulus payments should start to arrive within about four months of President Obama’s signing on Feb. 17, 2009.

President Obama does not seem to have made any specific proposals yet about reforming social security or trimming benefits or upping retirement ages.

Monday, February 23, 2009

Fiscal responsibility need not encroach on "earned entitlements"

So, did all of us retirees holler before we were hurt? Ezra Klein, of the American Prospect, thinks so. Today, Feb. 23, 2009, a “White House Fiscal Summit” is supposed to accompany a luncheon, and Klein points out the “entitlement reform” is not on the agenda, in marked contrast to Washington Post and other media stories right before the inauguration (around Jan. 16) saying that the president would stop “kicking the can down the road” and would sacrifice Social Security and Medicare to help profligate homeowners and Wall Street. (The White House didn't invite any amateur bloggers to the lunchoen.) You can check Klein’s parody of Dr. Strangelove here with the article “How Entitlement Reform Became Health Reform: “Why progressives should stop worrying and learn to love today's White House Fiscal Summit” with link here.

The another editor of the Prospect weighs in with an op-ed on p A19 of today’s Washington Post, “The Deficit Hawks’ Attack on Our Entitlements”, link here. Kuttner points out that Social Security is almost self-financed and in balance, and he believes that Medicare can be brought in line by automated records and compensating physicians according to results. He also suggest integrating Medicare reform to universal health insurance so that the entire system is fairer and more efficient (presumably like Canada’s).

He attacks the idea that spending on the elderly is hurting the working middle class. He says that the middle class hurts because we don’t invest enough in their own health care and education and, particularly, child care. The last item is important because some families make the deliberate decision not to have children because doing so is so expensive (sort of the “reverse baby boon problem”). But it seems as though there has been a real demographic change. We are much better at keeping people alive (through the way we practice geriatric medicine, almost by accident) than at keeping them independent and working and able to contribute, and at the same time we haven’t looked at family responsibility and structure “in reverse” enough to realize the downstream effects of the way we practice and pay for medicine for the elderly. We could, in my perspective, be building another bubble, leading to divisive social confrontation about generational responsibility outside of having children.

Sunday, February 22, 2009

Target-date retirement funds are getting into trouble

Target-date retirement funds are performing poorly, and the Senate’s Special Committee on Aging is due to take them up Monday Feb. 23. These funds are supposed to move funds around automatically as workers approach retirement. But many bonds have done poorly because of the collapse of banks, so such a strategy seems to no longer work. The possibility of bank nationalizations and various bankruptcies affects bond holders, too, including whether they own senior or junior debt.

The story by Ylan Q. Mui is “Senate Weighing New Rules for Retirement Funds” on page F1, Business, of the Washington Post, Feb. 22, 2009, link here.

Tuesday, February 17, 2009

Women outlive men, partly because culture urges them to seek medical attention

Women still outlive men on the average by several years, and today (Feb. 17), Manoj Jain has a “Being a Patient” column in the Health Section, p F01, of The Washington Post, titled “Want to Live a Bit Longer? Speak Up.” The link is here. This was one of the most frequently accessed Post stories on Feb. 17.

85% of people age 100 or more in this country are women. Genetically, men tend to be programmed for competition, and women for stability and longevity. No, it’s not “fair” as an individualist thinks.

But women are more likely to ask for medical services and perform all the necessary screenings. Men may be more likely to feel “shame” in expecting public medical services beyond a certain age and degree of incapacity, because of cultural values from earlier in life. After all, we used to have a culture of “women and children first.”

The article is sobering when one ponders the idea that government might seek cuts in “earned entitlements” (most of all Medicare) to help control the federal deficits. But such of measure is bound to have gender-sensitive implications. The issue becomes more sensitive because, as life spans increase with people not always maintaining vitality and needing care, we now in many cases have two whole generations “dependent” on those who are still working, causing us to rethink what generates family responsibility.

The Issues Page of the National Center for Men offers some interesting observations. The first point concerns longevity.

Monday, February 16, 2009

PBGC likely to have to pay off many more terminated pension plans; annuities or bonds?

This blog has covered how the Pension Benefit Guaranty Corporation works before, but today (Presidents’ Day, Monday Feb. 16) the AP has a story by Deb Reichmann, to the effect that the PBGC has to “brace for recession.” The link is here and it appeared as on item on Yahoo! Finance on a day that the markets are closed.

The PBGC operates in a building hear the White House. It has $63 billion in assets and $74 billion to pay out now. But it’s inevitable that the PBGC will have to take over more plans, especially if a lot of companies fall specifically because of the auto industry crisis, which, to all appearances, shows no sign of improvement yet. We still don’t know what happens to them March 31. However, in the near term (as during Obama’s first term), there does not seem to be a likelihood of a bailout for the PBGC. This is one rusty can that is still getting kicked down the road. Pension funds are among the most conspicuous entities damaged by the economic collapse, and it seems that major labor interests are cutting their own throats on this one, sometimes.

Today, Yahoo! also reprints a Bankrate article by Dr. Don Taylor, “Annuities or Bonds”, discussing the “classic question” for many people nearing retirement, link here. Taylor says it is an apples v. oranges question, partly because state insurance regulation protects annuity holders in ways that it does not for bond holders, and also because annuities are complicated products with a variety of payout options. Bond funds could be hurt badly by the rapid increase in corporate bankruptcy, and particularly by bank nationalization proposals that could not only wipe our shareholders but seriously affect obligation repayment to "investors" many of whom, of course, are retirees.

I haven’t heard any news in the past couple of weeks about the supposed panel that Obama is supposed to convene to look at earned entitlements. It would sound likely that he could take this up in his Feb. 24 address (is that “state of the union”?)

Friday, February 13, 2009

Financial advisers, brokers, the elderly, and impairment

SmartMoney has an interesting, if short, article by Roya Wolverson, dating back to Nov. 2008 on who is responsible for a senior’s finances when the senior has Alzheimer’s or some dementia. “The law isn’t always clear” it says.

Financial advisers (and I presume licensed financial planners) are supposed to have fiduciary responsibility for the senior’s accounts that they manage. My large financial companies and insurance companies (even now, during the crisis) hire and train such professionals. There can be some questions about conflict of interest in how they are paid. But they are supposed to be responsible for end results. They must put their clients’ interest ahead of their own.

Brokers, however, are not necessarily responsible for results. They must present all the products are available. It’s not clear if they are accountable for suspecting that a client is impaired.

There are rules governing people working as financial advisers and brokers at the same time. Sometimes they cannot, but the compliance issues are complicated and sometimes unclear.

The link is here.

Tuesday, February 10, 2009

Guardianship, conservatorship, and related concepts: who can handle and even be told about a senior's debts; a tricky area in the FDCPA

In 2003, I was working as a debt collector, and ran into a situation where someone who answered a call said that they were taking care of the debtor. I won’t go into details or specifics here (confidentiality, etc), but my boss, who was monitoring the call, got after me for not specifically asking the person who answered if she were the adult’s legal guardian.

A bit more background here: according to the Fair Debt Collection Practices Act (FDCPA), it’s illegal for a collector to tell a third party about the debt. However, in the law, a legal spouse is considered part of the same “person”, and so is a parent of a legal minor, and so is a legal guardian of an adult. (A few states, notably Massachusetts, have laws that override this concept. Also, in any state that recognizes same-sex marriage, it’s a good question as to whether the legal same-sex spouse would be part of the same “person” for federal FDPCA purposes – maybe someone knows.) An administrator or executor of an estate, or the person’s attorney, can also be part of the “same person” but the collector must “ask” first before informing the party about the debt.

For seniors, there is an implication here. If the senior has an unpaid debt and an adult child or other caregiver lives with him or her, that caregiver might take the call. The collector cannot identify the debt to the caregiver, even an adult family member, unless the family member has been appointed a legal guardian by a court.

The FTC reference for the FDPCA is here. Look particularly at section 805. Debt collection companies should train their new employees on this specific point before they start work (they generally don’t). You can paste this URL into your browser for another interpretation (""); for some reason, if the URL is directly hyperlinked I get Apache errors.

In the “guardianship” area there are several terms and concepts, such as guardian (limited or full, and standy), conservator, guardian ad litem, incapacity, and incompetence. Virginia’s laws are fairly typical and are laid out here. Or, for example, you can look at Illinois, here.

Guardianship is a major responsibility, comparable to custody, and established by a court, and it can have implications for the guardian, including financial responsibility and other areas of behavior and reputation (even the nettlesome “online reputation”). Typically, a state social services department (or court) checks on the guardian. Often conservatorship also requires court supervision but may be less demanding. Guardianship can also give the guardian some “authority” that he or she may need in practice. In states that have filial responsibility laws, adult children might have a reason to believe that they should seek guardianship or conservatorship status to cover their potential financial exposure (particularly if states start enforcing these laws due to the current financial crisis or because of future public policy changes in areas like “earned” entitlements) Guardianship could be a daunting prospect for adults who did not have their own children or never had custody of or family authority over anyone (like a younger sibling) in the past for some other reason. It would force them to live through a family unit (that they must take responsibility for) that they did not create by choice, and without their past sense of individuality. This seems to be a troubling area in our social fabric that is growing with both demographics and the economic crisis. But courts usually only approve arrangements that they believe are necessary and appropriate for the individual people involved.

The Department of Social Services Regulations for the Commonwealth of Virginia are here. Pay particular attention to Virgini code 18.2 369 with link here. Admittendly, there is some room for interpretation which might require a lawyer; how "responsible" legally is someone who is not formally appointed as a guardian?

Tuesday, February 03, 2009

"What's Next in Your Life" site offers pointers for would-be retirees, as young as 50; average retirement age is younger than we think

A story (“When planning retirement, money is not the whole story”) reprinted on p F4 (Health) in The Washington Post today, Feb. 3, 2009, by Jane Glenn Haas from the Orange County Register, discusses a site called “What’s Next in your Life”, link here.

The site requires free registration and takes you on “quick trips” through some choices, including “work after 50”. The trips take survey questions and then present various other resources and links. The questions on self-employment tend to be the usual ones about business plans, investors, and exit strategies. The quick trip does present ownership of a franchise as a possibility.

The site suggests that seniors should try to do what they will be passionate about, but there is a tendency for most “second career” options to require heavy networking and social connections. Learning to use social networking (and professional networking) sites properly can be a plus.

The news story about the site made some interesting points. It says that the average retirement age in the United States in now 63, which is two or three years before what Social Security defines as full retirement age. It says that continuation of full time work at the same income will add an eventual 6% a year of retirement income for every year so worked.

It says that less than 25% of workers 55 and older have accumulated $250000 in net worth, and most do not have $100000.

Changes in earned entitlement programs will almost certainly necessitate raising the typical retirement age, and considerably.

The article discusses the practical problem of the “sandwich generation”: upper middle aged people or sometimes people even in their 60s with grown “boomerang” children who may still need lifts with college and graduate school, and with aging parents at the same time.

Ms Haas has an older “OC” column from June 11, 2007, “New concept for boomer retirement: freedom to work,” link here. The more current story (today) was not yet online.

Abigail Trafford has a story in the The Washington Post Health Section, Feb. 3, p HE06, “My Time: Now You're Talking: Fear Plus Rage Can Lead to Action”, link here. Trafford had written that there needed to be a call to invite the “Grand Generation” to help rebuild the nation’s “social infrastructure” – although (I think) older people who did not have their own children may want to go their own way with less socialized ventures. We have a perfect storm, of people living longer and losing their first careers earlier. She has a book “My Time: Making the Most of the Rest of Your Life” from 2003 (Basic Books). Social connections for single retirees could become a major economic stumbling block.