Here's an interesting bit about general motors and the pension liabilities problem they, and most other US companies have, that we in Australia don't have.
From the KGB dossier and Alan Kohler,....
http://www.businessspectator.com.au:80/bs.nsf/Article/Fade-to-grey-$pd20081208-M4RA5?OpenDocument&src=kgb
The link doesn't seem to be working, Maybe you need to sign up to see it? Dunno.?
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So here it is then,.....
Alan Kohler
Fade to grey
This bear market is a shocking disaster for the nation’s retirees – those who have retired, or are just about to.
However we are seeing in the collapse of General Motors, caused in part by its ruinously generous pension plan, that it’s an ill wind that blows nobody any good.
This is the first big downturn since market risk in Australia was shifted from institutions to individuals by the creation of industry funds and the closure by companies of their defined benefit pension plans during and after the last recession.
The Australian economy then expanded for 18 years and, apart from a gentle bear market between five and six years ago, the sharemarket has done the same. What’s more, interest rates in this country have been high and rising, unlike in the United States.
So the replacement of defined benefit super with accumulation funds, in which the workers reap the benefit of rising markets, combined with the Australian invention of mandatory super contributions, seemed a wonderful idea – until the nightmare of 2008.
Australia became a nation of investors during a succession of asset bubbles, when everything an investor touched turned to gold. We even got the added benefit of high interest rates, because it was the super-low rates in the US, not here, that caused the asset bubbles from which we benefited.
Now the bubbles have burst and interest rates are collapsing. The sharemarket is back to where it was in early 2004, which is also where it was in 2001. All the wonderful capital gains have been lost and six years of interest rates increases have been reversed in three months.
And to make matters worse, many savers and retirees borrowed to top up their super, especially just before the change in the super rules from July 1st last year.
For them, the global financial crisis is a complete disaster. Many people have been ruined and will have to go on the old age pension. Those who didn’t borrow and simply relied on industry super or, worse, a retail fund, will have to tighten their belt and contribute to the decline in spending.
Meanwhile, in Detroit, we are seeing what would be happening now if Australia’s super revolution had not occurred.
General Motors is not just a carmaker; it is a vast pension pool, relieving the US government of the burden of looking after 453,000 retirees. Many other American companies do the same. For example, one of the things inside Rio Tinto that scared off BHP Billiton was the ballooning pension liabilities of Alcan’s US packaging division.
GM was the leader in the provision of generous defined benefit pension plans.
The deal was negotiated in 1950 between the then CEO of GM, Charlie Wilson, and the Walter Reuther, the president of the United Auto Workers union.
But that pension plan, combined with the reduction in the company’s workforce, contained the seeds of the company’s destruction. In 1962 GM had 464,000 employees and was paying benefits to 40,000 retirees, a dependency ratio of one retiree to 11.6 employees.
Last year it had 141,000 workers and 453,000 retirees, which is 3.2 retirees for every worker.
Without that, GM might be able to survive a period of no one buying cars due to the unavailability of finance. But the combination of that and the pension burden means the company is doomed, along with millions of jobs throughout the car parts industry.
In general the widespread use of defined benefit pension plans throughout corporate America will lead to many more company failures in the US than Australia.
In Australia, companies shifted market risk to their hapless retiring employees during the 1990s by replacing all their defined benefit super schemes with defined contribution (or accumulation) plans, so they now have one less thing to worry about.
So as you open another can of baked beans in an attempt to make ends meet on your now much-reduced private allocated pension, there may be the faintest glimmer of consolation in the fact that you are, at the same time, helping to keep Australia’s unemployment down.
