As an unabashed supporter of a shift to 401k-style plans for retirement security, it catches our eye when we see pension plans in trouble—wherever they are.
The U.S. certainly isn’t alone in having an abundance of underfunded pension plans, and this week we saw that even the “world’s best pension system” is in danger of having to make drastic cuts to payouts that were once unthinkable, according to an article published on CNN Thursday.
An extended period of record-low interest rates has put huge pressure on pension funds in the Netherlands, forcing the Dutch government to alert retirees that their retirement incomes could be cut and premiums could be increased for those still working.
Nearly everyone in the Netherlands has access to pensions from both the government and their employer, and the country was ranked first in the Melbourne Mercer’s 2019 annual review of global pensions, earning one of only two “A” grades along with Denmark. While the Netherlands scored 81 out of 100, the U.S. scored 60.6, barely above the index average of 59.3 and received a “C+” grade in the index, which includes 37 retirement income systems covering more than 63% of the world’s population.
The CNN story notes Dutch workers have typically been able to retire on a pension equivalent to roughly 80% of their average pay, but an increase in the number of retiring workers combined with the low interest rates means pension changes are inevitable.
Per the story, the Dutch pension system has two main components: a pay-as-you-go state pension for everyone, and private pensions that employees and employers both pay into, with the level of premiums often negotiated by labor unions.
Most workers have access to both. Assets in pension funds in the Netherlands total $1.5 trillion, making it home to one of the largest pools of pension reserves in the world.
The Dutch government is working on a plan to reform its pension system that’s expected to be finalized in 2020. Per the plan, the country would increase its retirement age to 67 in 2024. After that, for every year life expectancy in the country rises, citizens would need to work for another eight months to reach retirement.
Compared with other countries, the Netherlands has earned that “world’s best pension system” reputation over time by being relatively better at solving the problem of population aging, because it absorbs different pension fund models and implements consistent and risk-sharing policies.
Domestic pension problem
Meanwhile in the U.S., it was reported this week that newspaper publisher McClatchy could file for bankruptcy next year due to pension obligations and debt.
Bloomberg News said the venerable Sacramento, Calif.-based publisher of papers including the Miami Herald, the Charlotte Observer and the Kansas City Star, among others, faces a mandatory $124 million contribution to its pension plan in 2020, and the company has just a fraction of what it needs to cover that obligation.
“If they can’t offload the pensions or get pension plan relief, they’ll have to file for bankruptcy,” media analyst Craig Huber, founder of Huber Research Partners LLC, told Bloomberg News.
In its third-quarter earnings release last week, McClatchy said the pension contribution created “a significant liquidity challenge in 2020.” It also warned in regulatory documents that it may not be able to continue as a going concern.
McClatchy’s pension plan is underfunded by about $535 million, according to the Bloomberg article. The company asked the federal government to waive its required 2020 contribution, but was denied. McClatchy is in talks with Chatham and the Pension Benefit Guaranty Corporation, a federal agency, about the possibility of the PBGC assuming the plan’s assets and obligations, the company said Nov. 13.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
