The Endangered American Pension

Many of us grew up believing pensions were sacrosanct – particularly those of public employees.  We were raised to feel gratified that certain people, on whom we depended, like teachers and mail carriers, would be provided for in their twilight years.  And if you happened to be a teacher or mail carrier, even though you didn’t make much money, you felt reasonably confident you could retire at a certain income level that couldn’t be altered by law or compromised by declining stock and commodity markets.

Welcome to the brave new world of pension reform, where life is much tougher and your nostalgia counts for zilch! Public employees are increasingly discovering, at a very late date, that there are insufficient funds in their pension plans to provide for their needs in retirement.

According to a report issued by the Pennsylvania Public School Employees’ Retirement System (PSERS) on March 13, the fifty-billion-dollar-asset organization lost almost two percent of its worth in the twelve month period ending December 31, 2015.  This is a far cry from the seven to eight percent the fund had anticipated it would earn last year.

PSERS administrators attributed the fund’s losses to plummeting stock and commodity prices. In one instance, the organization logged in a whopping 33% loss for funds invested in “Master Limited Partnerships” (MLP).  Under Section 7704 of the Internal Revenue Code, an MLP combines elements of tax benefits in limited partnerships with the earnings potential of publicly-traded stocks. Typically, these are partnerships tied to oil and gas refining, exploration, mining, or alternative fuels. The PSERS fund also chalked up an eighteen percent loss in commodities.

What PSERS’ 2015 loss makes apparent is pension funds do not offer employees fixed quantities of cash that will automatically be there when they reach retirement age. These funds are susceptible to market losses and mishandling by the funds’ administrators.

But pension benefits have also become vulnerable to reduction through legislation. In 2014, to help protect multi-employer pension funds from insolvency, Congress enacted the Kline-Miller Multiemployer Pension Reform Act. This  new law lays out a process for temporarily or permanently reducing pension benefits if it looks as though a plan is about to run out of money. The legislation applies solely to multi-employer plans – those created by an agreement between employers or unions in related industries.

Consider all this, then, a stark reminder you shouldn’t depend on the government or, for that matter, even an employer to develop your personal wealth. As a mere employee, you don’t get to hire your employer’s pension administrator.  Nor do you have a say in which stocks, bonds or commodities that administrator will invest. And unless you are a public employee, more than likely you don’t have a pension anyway.  But you do have a 401(k) that’s just as tied to sinking markets.

What you do have a say in is how you diversify your personal finances apart from your pension fund.   And what better way to diversify than to invest in physical gold?  The yellow metal is negatively correlated to stocks – particularly those that many pension funds like PSERS invest in. What’s more, once you commit to owning gold, no legislation or bailout scheme can limit how high it can go or how much of it you get to keep.