Posted on 05/28/2013 5:36:34 AM PDT by Kaslin
Things are getting rather interesting in the Netherlands as low interest rates have increased pension deficit liabilities. Unlike the US and other parts of Europe where deficits are ignored, Dutch law requires 105% funding and the plans fell from 152% funded in 2007 to 102% funded today.
This has forced pension plans to cut benefits by as much as 7% for some trades. As might be expected, this has given rise to a 50 Plus Party, which won election to the Dutch parliament for the first time last year on promises to defend the interests of pensioners.
Please consider Yawning deficits force Dutch pension funds to cut payouts.
A combination of record low rates, sluggish economic growth and lives that last far longer than anyone imagined even a decade ago have resulted in yawning deficits. At the end of 2012, the funds were €30bn short of what is needed to cover promised benefits.
For the Dutch, the cutbacks are the first ever in a nation which has the second largest “defined benefit” system in Europe. But defined benefit provision, under which pensioners are guaranteed a portion of their salary for as long as they live, is unraveling under the pressure of the financial crisis and ensuing recession.
In April, under orders from the Dutch central bank, 66 of the country’s 415 pension funds started cutting their payouts. The average cut is around 2 per cent of the monthly benefit, but that figure conceals a wide range.
Last September the parliament, under pressure from older voters, approved new rules that allow pension schemes to use a higher rate to gauge the pace at which inflation will erode liabilities.
This has lowered liabilities, and funding targets. The sector as a whole now has a coverage ratio of 105 per cent under the new rules, but just 101 per cent under the old rules, according to an analysis by Aon Hewitt.
As at 2007, a quarter of Dutch retirees were below the age of 60. Early retirement has proved extremely expensive for defined benefit schemes, especially as longevity has risen sharply. On average, Dutch men aged 65 can expect to live for another 18 years as of 2011, up from just 15.5 years a decade earlier.
Head in the Sand Solution
Burying your head in the sand is not a solution to the problem but that is exactly what the Dutch parliament did by assuming higher rates of inflation (and interest on bonds) in a low-yield world.
This is yet another consequence of central bank policy to drive down interest rates. When the US stock market heads south again (and it will), US pension plans, already trillions of dollars underfunded, will become even more underfunded.
The problem here in the US is that defined benefit plans have no safety valve that allows the payors to cut benefits in the face of reduced income. Looks like the Dutch don’t really have defined benefit plans if they can cut benefits like they are doing. Unions in this country would $h!t bricks if any pension plan told them that their benefits were being cut for any reason and the liberal judges would simply tell the pensions “to get the money somewhere.” Unfortunately, the judges pronouncements not withstanding, if there isn’t any money, the benefits will be have to be cut because the taxpayers will eventually run off any legislator that decides to continue to raise taxes to pay these people. The time has come for the unions, especially the PE unions, to get the message that their lives are not going to go along as if nothing has happened, because it has.
Yep. In Illinois we have no safety valve. Ironically, all our pols and govs retire to tax free Florida. Wire me the money.
Illinois needs to institute an out of state pension tax to corral the money at home.
“Illinois needs to institute an out of state pension tax to corral the money at home.”
Here in California. public employees (at least from what I know from retired PE’s that I know) cannot take their “Cadillac” healthcare plans with them and move out of state. So they stay here to retire. But not to worry, because the do very well. Our town’s first Chief of Police (who used to be a friend) is now retired on a defined benefit plan that is indexed for inflation and currently pays him about $150k per year. Our last two Fire Chiefs retired at 51 and 50 respectively and are now drawing $280k per year plus lifetime healthcare for them and their spouses. California also tried to force residents who left the state to retire, to pay the state income taxes on their 401k’s but they lost that battle in court. It’s sad what’s happened here, the state that gave the country Ronald Reagan, it was truly an amazing place when I was young, but the RATs have succeeded in ruining it.
They’ve not taught the true purpose of government for generations of government schoolchildren.
We’ve got a guy, Neil Codell, who rakes it in for running a school district.
http://www.suntimes.com/news/education/1408625,CST-NWS-supt02.article
Neil C. Codell of the Niles High School District (a suburb of Chicago) gets a salary of $885,327 and his pension is valued at $26,661,604.
http://www.americanthinker.com/2011/08/do_republicans_ideas_lead_to_job_growth.html
On February 2, 2009 the Chicago Sun-Times reported that Niles Township school superintendent Neil Codell was paid $411,500 in 2008, a record for the state of Illinois. Codell took a lesser job in the school district on June 30, 2008, but did not receive a pay decrease. In fact, Codell’s contract, signed in January 2005, set his base salary at $182,500 with the option of two 20 percent raises before he retired. Also covered are 100 percent of hospitalization and major medical premiums for his entire family for 10 years after retirement, as well as $500-a-month auto allowance and a term life insurance policy for twice his salary for as long as he was employed at the school district. The Sun-Times filed an Illinois Freedom of Information Act request to inquire how Codell’s salary moved from $182,500 to $411,500, but did not receive a response
http://sunshinereview.org/index.php/Niles_Township_Community_High_School_District_219,_Illinois
His pension is worth just under $27 million.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.