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Management Problem of the U.S. Pension Crisis - Essay Example

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This paper takes a glance at the management problem of the U.S. pension crisis. Underfunding is the prominent challenge facing the United States pension program. The researcher states that the prominent cause of pension crisis is the demographic shift…
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Management Problem of the U.S. Pension Crisis
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"Management Problem of the U.S. Pension Crisis"

Download file to see previous pages This research will begin with the statement that the pension crisis is an ongoing concern among various nations on their economic ability to fund the pending pension benefits especially those of public employees. The problem began with concerns related to the increasing number of retirees and the limited contributions being remitted to the scheme. In the United States, the problem is being experienced in both the private and public benefit plans. The two forms of pension plans being used by the American workers include the defined benefit plans and defined contribution plans. The corporate bodies, with support from political circles, took advantage of the 2007 economic crisis to impose measures that undermined the defined benefit plans in the pretext of saving the pension crisis. Other challenges that the United States pension Scheme faces include providing for the retirement income and old age poverty and funding for the labor market participation and incentives for the old generation. Additionally, contributing to the low saving plans of the United States citizens and preserving the economic soundness of the local and state government as well as corporate pension schemes depletes the scheme. If left unreformed, the Social Security system will be faced with the shortage of financial resources as the life expectancy of the current generation increases. The number of workers paying the contributions is declining compared to the ones receiving the benefits.
Problem Statement
Underfunding is the prominent challenge facing the United States pension program. According to Horowitz (2004), the 2002 Pension Benefit Guaranty Corp (PBGC) balance sheet dropped from 7.7 billion to 3.6 billion dollar deficit with an estimated loss of 11.3 billion dollars. The figure was approximately five times compared to the previous year. In January, the Bloomberg Business Week, (2012) reported that financial estimates suggest that the PBGC could face a deficit of 120 billion dollars over the next decade. The PBGC also confirms that it required approximately 23 billion dollars over the same period. This implies that most pension plans will be lost and the taxpayers will be required to contribute in the bail out. Contributing in the Aletho news in July 3, 2012, Rasmus indicated that the crisis was not related to increases in pension benefits for workers. He attributed the crisis to the mismanagement practices and adoption of inefficient corporate policies. Factors that resulted from the mismanagement practices further aggravated the situation. They include the collapse of the economy, jobs and pension contributions, reduction in pension funding, stagnant jobs, and failure of the economic recovery.
Almost all states have made cuts to the public-employee pension but the 900 billion dollar retirement funding deficit remains. The economic forces are reshaping the past rivalries in pension schemes, making the labor leaders and policy-makers become convinced that the past plans are unsustainable. This has cemented the unity between political leaders with the labor unions. According to the wall street journal research by Corkery, 2012, adoption of the labor laws on job cuts have only trimmed 100 billion out of the 900 billion dollar deficit between the amount the workers remit and the retirement benefits owed by the states.
Additionally, the changes made to the pension scheme cater for the compensation of the most expensive benefits implying that most inexpensive benefits will take decades to be considered. The strategy of reducing the benefits for the current workers and retirees to cater for the pension crisis has failed due to the legal nature of the benefits.
Causes of the Problem
The prominent cause of pension crisis is the demographic shift. This is characterized by a growing number of retirees with proportional reduction in the number of people contributing to the fund. This problem can be minimized through increasing the retirement age ...Download file to see next pagesRead More
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