In the aftermath of the 2008 credit crisis and subsequent fall of the stock markets by over 60%, many retirees who had their money in mutual funds, 401K's, and IRA's lost most of their wealth as we headed full on into what would become known as the Great Recession. And while the Federal Reserve worked extremely hard at propping the equity markets back up to reach new all-time highs over the past seven years, the fragility of America's retirement system grew even greater as the debt bubble underlying it has now reached crisis proportions.
The Central States Pension Fund is currently paying out $3.46 in pension benefits for every $1 it receives from employers, which has resulted in the fund paying out $2 billion more in benefits than it receives in employer contributions each year.
As a result, Thomas Nyhan, executive director of the Central States Pension Fund said that the fund could become insolvent by 2025 if nothing is done. The fund currently pays out $2.8 billion a year in benefits according to Nyhan, and if the plan becomes insolvent it would overwhelm the Pension Benefit Guaranty Corporation (designed by the government to absorb insolvent plans and continue paying benefits), who at the end of fiscal 2015 only had $1.9 billion in total assets itself. Incidentally as we also pointed out last month, the PBGC projects that they will also be insolvent by 2025 - it appears there is something very foreboding about that particular year.
As the Washington Post writes:
Ava Miller, 64, and her husband, Ed Northrup, 68, could see their combined monthly pension income cut to about $3,000 from the nearly $7,000 they receive now, according to a letter they received from Central States in October.
If the cuts go through, Miller, who worked as a dispatcher in Flint, Mich., said they will need to dip into their savings to help cover their $1,300 mortgage payment, heating bills and trips to visit her 84-year old mother.
Northrup, a retired car hauler, has started applying for truck driving jobs that could supplement their potentially smaller pension payments.
What makes the cuts more painful, Miller said, is that she took pay cuts so that the company could continue making contributions to the pension. "I did everything I was supposed to," Miller said, adding that she and her husband made extra payments on their car loan to cut down on their monthly bills after they received letters in October informing them of the potential cuts. - Zerohedge