4 Our Recommendations

We agree that getting more cash into the fund is a great idea. We are already close to 6% yearly contributions, and if we can get that or higher, we are all for it. As we noted above, we think MPS and the AFM might have a hard time selling this option to the younger generation of players. We also support the 10% expense reduction at the fund, but we think it’s important to note that any impact from this on the fund’s health will be very minimal.

As far as the three-year moratorium on benefit cuts is concerned, we would like to point out that we are now at least two years away from MPRA status and any benefit cuts. In other words, we are 0.8% and one-year short of the MPS Action Plan. Given that the current state of the fund is so close to the MPS targets, you have to wonder why MPS is making such a fuss. If things continue as they have, we may not be eligible for MPRA next year, which will give us the three-year moratorium MPS wants, albeit an involuntary one.

Having said all this, we view a voluntary moratorium as a terrible idea. Even if negotiations for higher contributions are successful, we are only a lousy labor or stock market away from reduced work, which will lead to decreased contributions no matter what. It would not require a catastrophe such as 2008 to see employer contributions fall well below Mr. Lowman’s 6% to 3% or even less. And it remains far from certain that current amounts are sustainable or that higher contributions can be negotiated. Any financial planner will tell you that making decisions today on an iffy hope that you might get some money tomorrow is a sure way to economic disaster for your family. The same is true of our pension fund. With the perfect (and not unlikely) storm of a voluntary moratorium and reduced contributions, our future benefit cuts could be much higher than 28%.

Since all parties now agree that benefit cuts are necessary to save the fund, the incredible irony of our situation is that as we continue to hover each year just above the levels required for us to be eligible for MPRA, these inevitable cuts only grow larger as our fund continues to hemorrhage cash.