Philosophy
Well, it might work but could be embarrassing...Trojan.
by
Dan Kadlec
April 30th, 2013
Time
Eastman Kodak has reached a deal to hand over its film business to retirees in lieu of paying monthly benefits, making it the latest strapped corporation to resort to non-cash pension contributions.
Kodak, restructuring under bankruptcy protection, will turn over its personalized imaging and document imaging businesses to the U.K. Kodak Pension Plan, according to a report in the Wall Street Journal. This will wipe out a $2.8 billion pension obligation. If all goes well, the pension will sell the businesses and use the proceeds to fund retirement benefits. But no one knows what the businesses will fetch.
In the news game, we like to say three makes a trend. So the Kodak deal raises troubling questions about our collective retirement security. The British food company Dairy Crest recently transferred 44 million pounds of cheese to its pension fund to help plug a $128 million deficit. The spirits producer Diageo (Johnny Walker, Smirnoff) gave more than $760 million in “maturing whiskey” to its retirement fund to help quench a more than $1 billion pension thirst.
What other assets might retirees be asked to accept? Can they be properly valued? How do you turn bricks and mortar, or whatever, into a reliable and long-lasting income stream?
Such creative solutions are born of necessity. Two-thirds of the companies in the S&P 500 have traditional pension plans and only 18 of them are fully funded. Unfunded liabilities total $355 billion. This massive shortfall, by the way, is echoed in public pension plans as well. We have a big mess on our hands.
As a matter of fact, this trend stretches way beyond three examples. U.S. Steel transferred 170,000 acres of Alabama timberland to its workers’ pension fund several years ago. The state of Alabama’s pension system owns 11 golf courses, and a string of hotels and spas.
The New York Times reports that the Pension Benefit Guaranty Corporation, which takes over failed pension plans, has a wide variety of alternative assets, including “water rights in the Mojave Desert, diamonds, oil wells, a hog-slaughtering facility, a restaurant, a hyperbaric chamber, a brewery in Philadelphia, a lien on a terminal at Kennedy International Airport and a stake in a nuclear fuel-reconditioning partnership.”
Pension systems are starting to look like private equity firms. This isn’t how it’s supposed to work.
How we got here doesn’t really matter. Let’s just say there’s a long history of gaming the pension system in the U.S., where financial engineers have found ways to loot once-flush pension plans and policymakers have found ways to paper over the shortfalls. Add in a dozen years of abnormally low investment returns and the demographic time bomb of retiring baby boomers and long-lived elders.
You may argue that pension plans are better off accepting alternative assets than getting nothing at all, and that is probably the case. Yet if an employer can hand over an asset that is difficult to value, and assume a high rate of return on that asset, it permits the employer to contribute even less cash going forward—further eroding the plan’s viability in the event the rosy assumptions fall short.
Camera film? Cheese? Whiskey? Sounds more like a cocktail party than a pension guarantee.
- Part Of Eastman Kodak Will Close
I never thought that this would happen, but then I could see the trends: Digital photography and Kodak's film and paper selection greatly diminished over the years. It is a form of classic photography that will be missed by us old timers. "Kodak...
- Walmart's Ethics...what Ethics?
A company will do anything to make a buck. "Walmart's Discounted Ethics" by Rana Foroohar May 7th, 2012 Time Walmart became the world's largest retailer by offering "everyday low prices" around the globe. Apparently,...
- A Giant May Be Dying...eastman Kodak Company
"Eastman Kodak fights for its future" by Matthew Daneman December 11th, 2011 USA TODAY This is not the "Kodak moment" expected of a longtime technology giant. After losing money 12 of the last 15 quarters, Eastman Kodak is struggling to avoid bankruptcy...
- David Henderson Houston...patent Number 248,179...october 11th, 1881
A significant patent was granted to David Houston on this day 129 years ago--photographic roll film. Online Artist Archive of North Dakota by Ben Nemenoff Although not a photographer himself and virtually unknown today, David Houston made some of the...
- Big Bucks For University Vice-chancellors
"Salaries soar for heads of British universities" More than 80 university heads, generally known as vice-chancellors, now earn more than the prime minister by David Leigh and Rob Evans March 14th, 2010 guardian.co.uk The income of thousands of the...
Philosophy
Pensions are becoming novel in payments
Well, it might work but could be embarrassing...Trojan.
"Kodak to Pay Retired Workers in Film (And Other Adventures in Creative Pension Funding)"
by
Dan Kadlec
April 30th, 2013
Time
Eastman Kodak has reached a deal to hand over its film business to retirees in lieu of paying monthly benefits, making it the latest strapped corporation to resort to non-cash pension contributions.
Kodak, restructuring under bankruptcy protection, will turn over its personalized imaging and document imaging businesses to the U.K. Kodak Pension Plan, according to a report in the Wall Street Journal. This will wipe out a $2.8 billion pension obligation. If all goes well, the pension will sell the businesses and use the proceeds to fund retirement benefits. But no one knows what the businesses will fetch.
In the news game, we like to say three makes a trend. So the Kodak deal raises troubling questions about our collective retirement security. The British food company Dairy Crest recently transferred 44 million pounds of cheese to its pension fund to help plug a $128 million deficit. The spirits producer Diageo (Johnny Walker, Smirnoff) gave more than $760 million in “maturing whiskey” to its retirement fund to help quench a more than $1 billion pension thirst.
What other assets might retirees be asked to accept? Can they be properly valued? How do you turn bricks and mortar, or whatever, into a reliable and long-lasting income stream?
Such creative solutions are born of necessity. Two-thirds of the companies in the S&P 500 have traditional pension plans and only 18 of them are fully funded. Unfunded liabilities total $355 billion. This massive shortfall, by the way, is echoed in public pension plans as well. We have a big mess on our hands.
As a matter of fact, this trend stretches way beyond three examples. U.S. Steel transferred 170,000 acres of Alabama timberland to its workers’ pension fund several years ago. The state of Alabama’s pension system owns 11 golf courses, and a string of hotels and spas.
The New York Times reports that the Pension Benefit Guaranty Corporation, which takes over failed pension plans, has a wide variety of alternative assets, including “water rights in the Mojave Desert, diamonds, oil wells, a hog-slaughtering facility, a restaurant, a hyperbaric chamber, a brewery in Philadelphia, a lien on a terminal at Kennedy International Airport and a stake in a nuclear fuel-reconditioning partnership.”
Pension systems are starting to look like private equity firms. This isn’t how it’s supposed to work.
How we got here doesn’t really matter. Let’s just say there’s a long history of gaming the pension system in the U.S., where financial engineers have found ways to loot once-flush pension plans and policymakers have found ways to paper over the shortfalls. Add in a dozen years of abnormally low investment returns and the demographic time bomb of retiring baby boomers and long-lived elders.
You may argue that pension plans are better off accepting alternative assets than getting nothing at all, and that is probably the case. Yet if an employer can hand over an asset that is difficult to value, and assume a high rate of return on that asset, it permits the employer to contribute even less cash going forward—further eroding the plan’s viability in the event the rosy assumptions fall short.
Camera film? Cheese? Whiskey? Sounds more like a cocktail party than a pension guarantee.
- Part Of Eastman Kodak Will Close
I never thought that this would happen, but then I could see the trends: Digital photography and Kodak's film and paper selection greatly diminished over the years. It is a form of classic photography that will be missed by us old timers. "Kodak...
- Walmart's Ethics...what Ethics?
A company will do anything to make a buck. "Walmart's Discounted Ethics" by Rana Foroohar May 7th, 2012 Time Walmart became the world's largest retailer by offering "everyday low prices" around the globe. Apparently,...
- A Giant May Be Dying...eastman Kodak Company
"Eastman Kodak fights for its future" by Matthew Daneman December 11th, 2011 USA TODAY This is not the "Kodak moment" expected of a longtime technology giant. After losing money 12 of the last 15 quarters, Eastman Kodak is struggling to avoid bankruptcy...
- David Henderson Houston...patent Number 248,179...october 11th, 1881
A significant patent was granted to David Houston on this day 129 years ago--photographic roll film. Online Artist Archive of North Dakota by Ben Nemenoff Although not a photographer himself and virtually unknown today, David Houston made some of the...
- Big Bucks For University Vice-chancellors
"Salaries soar for heads of British universities" More than 80 university heads, generally known as vice-chancellors, now earn more than the prime minister by David Leigh and Rob Evans March 14th, 2010 guardian.co.uk The income of thousands of the...