Terry’s Columns Speaking of Safety

Speaking of Safety

By Terry Savage on April 26, 2023

In the search for safety of your financial assets, there’s a sudden recognition that the FDIC doesn’t cover deposits above a certain limit– $250,000. You can extend that coverage through the use of joint accounts or trust accounts, but that begs the question of why you want to juggle those accounts when it is easy to get the highest level of financial safety by simply purchasing Treasury bills.

(There’s a link on TerrySavage.com to an article explaining how easy it is to open an account at TreasuryDirect.gov, and buy 13 or 26-week Treasury bills at the regular Monday auction.)

The world acknowledges short-term U.S. debt to be the safest place to store wealth. In times of uncertainty, global money rushes into U.S dollars, buying T-bills. And it will continue to do that, unless the political insanity creates a real threat of default on our debt. At that point, we have truly opened Pandora’s box.

In fact, the recent rise of gold prices to over $2,000 an ounce, and the reports of increased gold-buying by central banks, give credence to some growing global uncertainty over the future of the dollar and our central role in global finance. (Note: Central banks are NOT rushing to buy Bitcoin!)

It’s in everyone’s best interest to keep the dollar in its central role as the medium of exchange for all critical commodities, including oil, natural gas, and agricultural necessities. And that’s why, cooler minds will prevail in the debt ceiling debate—hopefully in time to avoid disruptions.

Pension Safety

But if you want to worry about your financial future security and the government’s ability to bail out the system, just take a look at your “guaranteed” pension. The Fed and Treasury stepped in to save all uninsured depositors at Silicon Valley Bank – and there’s a presumption they would do it again. But that’s not the only implicit guarantee they will have to make good on.

If you’re one of those rare few who have earned a retirement pension, you’ll soon be receiving its annual “funding notice” (Form 5500), required by law. Most corporate pensions are well- funded, since corporations are required to make additional contributions out of profits if they lose money on their investments. (That’s one reason they switched years ago to 40l(k) plans, where the funding depends primarily on employee contributions, with some matching contributions).

But state and municipal pensions can only be funded through higher employee contributions or taxpayer “contributions” — or by investment earnings. And many state and city pensions are severely underfunded.

For example, at year-end 2021, according to their actuarial report, the Chicago Police Pension fund had a funded ratio is only 2r%. And the unfunded liability was approximately $12.5 billion at that point. The funded ratio is not projected to even reach 50% funded for another 23 years until 2043, based on the current level of contributions, according to the actuaries.

Cities and states can’t “print” additional money. But the Federal government has done that recently for troubled labor union pension plans.

Pension Insurance
Multi-employer plans, such as those offered by unions, are covered from default only to the extent they submit an acceptable plan to the government, and both active and retired members vote to agree to payout reductions. Of course, the government could step in — as the current administration did last December, putting $36 billion of new money into the Central States Pension fund, thus saving it from benefit cuts to 350,000 union workers and retirees. It’s a template for future bailouts of other troubled union pension plans.

If you think your eventual corporate pension payout is fully guaranteed by the Pension Benefit Guarantee Corporation (PBGC.gov), think again. Corporate plans are covered, but only up to certain payout limits, which change yearly. And those limits are determined by your age, and whether you’re taking it out over your life, or including a spousal benefit. If you’re age 50 now, the maximum single benefit that is guaranteed is $2362 per month.

The PBGC doesn’t actually have that guarantee money on deposit. It is just backed by the Federal government — a promise to pay if your pension fund defaults. So you can rest easy – unless you’re wondering just where all that Federal guarantee money is coming from.
As we’ve just seen with the banking industry, they’ll get the Fed to create the money by purchasing government IOUs and paying for them with “liquidity” created out of thin air.

Yes, that’s the purest definition of inflation. And that’s The Savage Truth.



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