Did all the gloomy talk about the state of traditional defined-benefit pension plans have a psychological effect on sponsors, who then made very real decisions about them when the markets were down?

From a subscription-only story at PlanSponsor.com:

2007 » February
IMHO: “Over” Blown?
Looks like the pension crisis is finally over

Well, the funding part of the crisis, anyway. No fewer than three separate studies were published recently that essentially said that the pension plans of larger employers are either fully or nearly fully funded – again.

For several years now, we’ve been struggling with the impact of the so-called “perfect storm” on pension plans. The catchy nomenclature was borrowed from the 2000 film by the same name (which, in turn, was pulled from the 1997 book on which it was based)—a reference to the 1991 Halloween Nor’easter that resulted from the unusual combination of several forces of nature to create an exceptionally powerful storm across a very large area: a storm—nearly a hurricane—that caught many off-guard.

The so-called perfect storm for pension plans also resulted from an unusual confluence of factors—a slumping investment market, the “vacation” from funding that many plans took during a period when soaring investment returns made such actions unnecessary, and, significantly, an unprecedented decline in the interest rate of the 30-year Treasury bond after the Clinton Administration decided to quit issuing new ones.

Back in the Black

In the intervening years, plan sponsors have benefited from investment returns that exceeded projections—as they frequently do over the long term. Also adding to the value of the assets in these programs, plan sponsors have returned to the process of making regular—and, in some cases, extraordinary—contributions to the programs. Finally—and this has had a significant impact on the calculation of the liabilities owed by these plans—there is the return to something like a “normal” interest rate environment coupled with the use of a blended rate, rather than an artificially distorted 30-year Treasury. It hasn’t been easy, it hasn’t been painless, and it surely hasn’t been “perfect”—but many, perhaps most, large pension plans seem to be back in the “black.”

Not that the funding shortfalls for most were ever as bad as they were portrayed. While there were clearly some villains—and some unsustainable promises dumped on the Pension Benefit Guaranty Corporation—being 85% funded on a pension obligation isn’t all that different from having 85% of your mortgage paid off with 20 years to go (it’s actually better than that).

You’d never have gotten a sense of that from the headlines, or the angst of the legislators…..

It’s worth noting that, since this last storm “broke,” many plan sponsors have chosen to freeze or terminate their traditional pension plans. The reasons are varied, of course. The confluence of factors cited above may have made the program untenable financially; workplace demographics may have cried out for a different retirement plan design; or they simply may have looked ahead to the future and made a different choice.

Still, it’s hard not to wonder how many were set on that path for no reason more substantive than the relentless pillorying of the funding “crisis” in the media.

It was certainly more than a tempest in a teapot—but IMHO, the concerns expressed were always overblown.

This merits a significant “Hmmm.”

So how many employers moved to terminate their plans because of they had inordinate fears of the looming PBGC “crisis”? And how many others did so opportunistically, knowing that things probably weren’t that bad, but using the climate of fear as cover? Media overhype has its consequences.

Though there are still some private plans in significant distress, the big and very legitimate problems that loom with pensions are not in the private sector — They are in government-sponsored retirement and retiree health care at the state and local level. The difficulties these plans have been given more visibility in the past year or so, but not enough, given the seriousness of the problems that loom.

This is the best two-paragraph differentiation between capitalism and socialism I’ve ever seen (”want” in final sentence was changed from a different word in the original):

The do-gooder leftist in all the various ideological incarnations–the antiwar crowd, the environmental crowd, the communists, socialists, and assorted collectivists–offers the rationale that he does what he does for the “common good” and for “social justice”, “peace” and “brotherhood”. His high-minded, self-righteous rhetoric justifies (to him anyway) imposing his will and beliefs on others for their own good; and he will not hesitate to use whatever coercive capablity he has at hand to get others to do what he wants and what he says.

The capitalist, on the other hand, is overtly out to pursue his own selfish profit, and understands he must use persuasion. That is, he must convince people that his ideas and the products of his mind are better than all the rest so that they will be willing to part with their hard-earned money to possess them. His desire for power over others is manifested in an indirect manner because people must want what he has to offer and believe that they will benefit from an interaction with him.

This brilliant dichotomy explains why anti-capitalists dating back to the early 1950s, particularly the late John Kenneth Galbraith’s “Affluent Society,” have argued so stridently that advertising and other supposedly pernicious influences are so persuasive that they in essence take away consumer choice — so they can try to portray the alleged materialist coercion of capitalism as just as morally repugnant as their inevitable and very real coercion.

Here’s George Will on that very topic in May of last year, the time of Galbraith’s passing. Will even offers up a specific example of where the coercive logic has led us:

“The Affluent Society” was the distilled essence of the conventional wisdom on campuses. In the 1960s, that liberalism became a stance of disdain, describing Americans not only as Galbraith had, as vulgar, but also as sick, racist, sexist, imperialist, etc. Again, and not amazingly, voters were not amused when told that their desires — for big cars, neighborhood schools and other things — did not deserve respect.

But for liberals that was precisely the beauty of Galbraith’s theory. If advertising could manufacture demands for whatever corporations wanted to supply, there was no need to respect markets, which bring supply and demand into equilibrium.

“The Affluent Society” was the canonical text of modern liberalism’s disparagement of the competence of the average American. This liberalism — the belief that people are manipulable dolts who need to be protected by their liberal betters from exposure to “too much” advertising — is one rationale for McCain-Feingold. That law regulating campaigns embodies the political class’ belief that it knows just the right amount of permissible political speech.

This came in my e-mail from CNN just after the markets closed on Wednesday:

Historic day on Wall Street. Dow industrial, transportation and utility averages all hit record highs for 1st time since 1998.

I’ve been pretty busy, but I think I would have caught coverage of this news somewhere else had it occurred. If it did, it was quite muted.

Mark Hulbert, in a column time-stamped early Friday morning, details just how significant the news is:

The last time prior to Wednesday that this happened was March 17, 1998, nearly nine years ago. During the previous 70 years prior to 1998 in which all three Dow averages existed, it happened just 18 times.

If the most bullish thing that a bull market can do is go up, Wednesday was evidence of a very powerful bull market, indeed.

Thursday, the Dow went up again, while the transportation and utility averages pulled back a bit. The NASDAQ closed within a few points of 2500. The Greatest Story Never Told continues.

Cross-posted at NewsBusters.org.

From BizJournals.com’s Cincinnati Business Courier online — readers can do without the visual implied:

Procter dumping adult diaper business

From Forbes’ February 26 column in his magazine (requires subscription):

CEO Pay Should Be Based on Performance

That’s the cry these days from Washington. If that principle were actually applied there, who would hire Washington?

_______________________________

Related Post:

- Feb. 7: Congress Isn’t the Group That Should ‘Fix’ Executive Pay. In Fact, in 1993 It Made the Problem Worse.

From MSNBC, which files this under “What Were They Thinking?,” where they put “bonehead business ideas of the week” — but I’m guessing that writing this idea off is premature:

That cup of coffee just not getting it done anymore? How about a Buzz Donut or a Buzzed Bagel? That’s what molecular scientist Robert Bohannon has come up with.

Bohannon says he’s developed a way to add caffeine to baked goods, without the bitter taste associated with the stimulant. Each piece of pastry is the equivalent of about two cups of coffee.

….. Bohannon said recently began seeking patents and shopping the products to companies including Krispy Kreme Doughnuts Inc., Dunkin’ Donuts and Starbucks Corp. There’s no word yet on whether the companies like the idea.

We’re betting at least Starbucks is going to take a pass.

Maybe, but don’t underestimate what the need for an opportune pick-me-up will do.

No, but he’s got some of the issue positions down cold — better than anyone else currently in the field.

From a subscription-only piece at Investment News, covering a speech Stein made last week:

In his speech, Mr. Stein ….. attacked executive pay packages.

“It is a national disgrace,” he said. “A form of fraud and misconduct.”

“If we allow people at the top to loot everyone else,” he said, those frauds will deprive Americans of their shared values.

….. Mr. Stein also expressed his gratitude to the U.S. troops in Iraq to the thunderous applause of the audience.

He expressed his conviction that the U.S. will be victorious in that war to more applause and a standing ovation.

From a letter to the editor in Forbes February 26 issue (requires subscription):

Jonestown Confidential

Your stories about Rupert Murdoch on Forbes.com and in ” Blue Sky” (Feb. 12) remind me of my time working for Rupert when he owned New West. I was the magazine’s executive editor in 1977, the year I assigned and edited the exposé that caused Jim Jones and his Peoples Temple cult to flee to Guyana from San Francisco. A year later he murdered over 900 people, including California Representative Leo Ryan. As we were working on the story, advertisers and politicians called Rupert in New York to ask him to “lay off” Jim Jones, who was then head of the San Francisco Housing Authority. Rupert called me to find out the nature of the story. When I told him what we had discovered and corroborated about Jones, he reacted as a true newsman: “Get the story. I’ll give you the best legal help available.” We did get the story. So whenever my editorial friends speak disparagingly of Rupert, I usually say nothing. But from my experience, I know that he is a newsman first–and perhaps the best publisher I ever worked for.

Rosalie Muller Wright Pakenham
Wellsville, Pa.

Those who aren’t aware of or who are too young to remember the Jonestown horror, the Wiki entry does a pretty good job with it, with one exception, which is that I consider the CIA involvement allegations very shaky and symptomatic of reality-avoidance. But we won’t know until certain classified info is released ….. someday.

I personally think Bob Tyrell’s takes, one written shortly after the massacre (originally in April 1979), and the other written roughly 20 years later with tie-ins to current events, will get you about as close as anyone can get to truly understanding the enormity of Jonestown tragedy. Be warned: Tyrell drips with sarcasm, and is, appropriately, in no mood to spare anyone’s feelings.

From New Zealand:

Tuesday, 6 February, 2007

When a group of young lifesavers saw their friend floating face-down at Waikanae Beach on Friday, they did not panic — they saved his life.

Fourteen-year-old Luke Jarvis was jumping off Butler’s Wall at Waikanae Beach with his brother and three of his friends, near low tide, when he hit the bottom “askew”.

When he floated to the surface face-down and did not move, his friends initially thought he was “just mucking around”. But it did not take long before they realised something was very wrong.

The impact of his jump meant Luke was unable to move his head out of the water to breathe. His arm and leg movements were restricted so much, he could not save himself.

His friends, all members of Waikanae Surf Life Saving Club, quickly put their rescue training to practice as they hauled Luke to nearby rocks.

Luke and friend Matt File have both achieved their “bronzes” — also known as the surf lifesaving award — which qualifies them to patrol and compete as surf lifesavers. The rest of the group of boys aged between 12 and 14, are all active members of Waikanae Surf Club. They have spent most of their summer training for rescue situations such as this.

The group of young lifesavers put Luke in the recovery position, while 12-year-old Max Neustroski ran to the surf club to raise the alarm.

Shelley Kemp, Gisborne’s head regional lifeguard this summer, was training cadets at the club when she was alerted to Luke’s condition.

“Max said that Luke had jumped off the wall and had a pain in his neck and had trouble breathing.

“I got one of the boys to ring Midway for a spinal board and I rang my dad to get the IRB.”

Miss Kemp raced out on her rescue board to assist Luke while her father Murray Kemp, Dennis (Rocky) Hall — who brought the spinal board from Midway — and lifesaving student Peter Ellingham went out in the boat.

“I couldn’t really do much, so I was just talking with him and finding out what was going on until the boat came. He was calm and a bit frightened, as you would be.”

Because the IRB could not access the rocks, he was put into the neck brace, onto the spinal board and onto Miss Kemp’s board. She and the group then floated and lifted Luke to safety on the boat.

Miss Kemp is full of praise for his friends.

“They did really well to just get help and put him into a secure position. Especially considering they’ve only just qualified from the surf club.”

Rocky Hall said the rescue was a distressing time for the group of young lifeguards, for whom he has “huge admiration”.

“Their training held them in good stead, they did exactly what was asked of them in that situation. Luke will recover, but it could have been so different,” he said.