Pension Fund Ultimatum: A Haircut Looks Better Than a Beheading

by Mac Slavo
SHTF Plan

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Millions of Americans believe they’re sitting pretty with their pensions funds, 401(k) retirement plans and medical benefits. But, as we’ve written previously on numerous occasions, pensions are anything but safe.

We’re starting to see the coming pension wipe out creep up in smaller cities, and you can be assured that this will spread like wildfire as local, state and federal governments that have over committed funds and underestimated economic growth and tax revenue struggle to stay in the black.

The latest example comes to us from Central Falls, Rhode Island, where the city government has basically told pensioners that they can either voluntarily agree to pension benefits cuts of 10% to 50%, or face the possibility of a total wipe out of their retirements if the city goes bankrupt:

According to a CNN report, Judge Robert Flanders who appointed by the state to work out a solution to keep the the city from going bankrupt said the choice is limited to the pensioners to either volunteer to a 50% pension cut or risk losing it all in bankruptcy court.

The ultimatum has been given as part of an overall restructuring plan for the city in which broad sweeping sacrifices and deep budget cuts are being made across the board in order to close the gap on the city’s $80 million dollar budget shortfall.

Source: Alexander Higgins

In a Fox News interview (video below) Judge Flanders lays out the reality of the situation:

Fox Host: Correct me if I’m wrong, but I read a quote from you, “A haircut looks better than a beheading.”

Judge Flanders: Correct. What I was trying to convey is that a bankruptcy may even be worse than what we propose, and so I was hoping to do this by voluntary agreement. As terrible as it was, it may be better than what we can offer in a bankruptcy.

The city of Central Falls has a budget shortfall of $80 million. Certainly a large number, but nothing even close to what we’re looking at in larger metropolitan areas, states and the Federal government itself. When we look at all of the combined commitments we’re well outside of the realm of millions and have entered the untenable region of trillions of dollars in debt and deficits.

Three years ago it was difficult for any American to imagine that governments would have to either cut pension funds or draw on those funds to make ends meet. Recently, when Tim Geithner ran out of money, the first thing he did was to raid pension funds to the tune of tens of billions of dollars. For now, those pensioners are safe, but it won’t be long before all governments start coming for those pension funds – giving pensioners the ultimatum of either agreeing to massive benefit cuts or simply going bankrupt.

And you can be assured that, even though today the majority of Americans will vehemently deny the possibility and call you a lunatic for even making the suggestion, when governments go after the pensions of their own employees and retired employees, in the spirit of fairness, they will also come after private retirement accounts.

We all need to do our part, after all.

Hat tip BJ, Steve Quayle

Reprinted from SHTF Plan.

July 27, 2011

Mac Slavo [send him mail] is a small business owner and independent investor.

Copyright © 2011 Mac Slavo

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