Case Study of Pensions, Promises, Payments and Bankruptcy

Case Study of Pensions, Promises, Payments, and Bankruptcy
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Pensions, Promises, Payments, and Bankruptcy
Problem to be Solved
From the article, the problem that needs to be solved is that of retirees not getting paid their promised pensions in full and in some cases not being paid at all either as a result of undervalued actuarial projections or bankruptcy. This is a problem that cuts across both governmental agencies and the private sector. There are a variety of factors which influence actuaries into coming up with undervalued projections, including employer versus employee forces, corruption, and the law.
Case Analysis Using PESTLE
Political
The government has often been pulled into the center of most of the pension scandals. For example, it is the government that bailed out United Airlines of a section of its promised pensions when the company declared bankruptcy in 2002. The government, however, sought to determine the loopholes which had led to the dire situation of United Airlines through Congressional hearings. To seal these loopholes, Congress proposed the Pension Protection Act of 2006. The hearings In another case, in 2008 the US government had to offset a considerable bill ($5.8 billion) for General Motors to save it from bankruptcy citing the potential job losses as the driving reason. In the deal, the government, however, negotiated for 10% ownership stake besides dictating several changes in the management of the company.
State and local governments that are underfunded as compared to their employee pension schemes have targeted actuaries and pension experts by investigating them for corruption and in some cases through litigation. A good example is the case of the New York State Pension fund which made no sense with regards to economics as the numbers did not add up. Further investigation revealed that the actuary had a relationship with some people affiliated with the pension scheme. Besides, had the actuary said that the fund as it was sufficient to extend to the new proposed levels, it would have triggered political battles on the budget.
Economic
The main economic factors associated with pension promises, payments and bankruptcy are reductions in forces (RIF) and buy-outs to relieve pension tension. There have been significant RIFs since the early 1980s and climaxing in the years of 2008-2010. Since the turn of the millennium, companies planning on downsizing have been preferring to offer their employees buyouts rather than pay pension as promised. These buyouts have come in the form of early retirement incentives, severance packages, voluntary termination packages, etc. In the RIF climax years, 100 national and regional retailer’s closed shop, while other national retailers had to close some of their outlets thereby downsizing. The main reason most companies have taken the approach of buying out employee pensions is they have realized the average employee costs much more than meets the eye once pensions and healthcare costs are factored in.
Social
The major social factors arising from the issue of pension, promises, payouts, and bankruptcy are corruption and a lack of professional etiquette. Some actuaries have been cha...