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Tuesday, December 20, 2005

PBGC meets It's a Wonderful Life

Also from Contingencies, an interesting look at the problems of failing defined benefit pensions, looked at through the prism of It's a Wonderful Life.

PENSIONVILLE. YOU MAY HAVE HEARD OF IT. It’s an old, established community, and in years past, it was a vibrant place to live. But over the past 20 years, Pensionville has fallen on hard times. It has already seen its population of pension plans fall from 62,000 to about 32,000. These days, all the growth seems to be occurring on the other side of Retirement Valley, in a new town called Defined Contributionville.

You see, operating a retirement plan in Defined Contributionville is a lot easier. It provides a lot more flexibility when it comes to controlling costs. Retirement plan owners who live there contribute only what they want to pay, so they’re never confronted with the sudden financial surprises that often plague residents of Pensionville. It’s not that the Pensionville City Fathers haven’t tried to bolster the town’s declining population, but these efforts haven’t met with much success. In fact, many former residents would argue that their previous attempts have hurt Pensionville.

Simply put, Pensionville isn’t nearly as friendly a place to live as it once was.
Part of living in Pensionville means that you have to buy insurance through a local institution called the Pensionville Bank & Guaranty Co. (or PBGC for short). Its president is a gentleman named Henry F. (Old Man) Potter. He runs the PBGC along with a group of administrators from other governmental agencies.

Lately, the PBGC has suffered a number of costly foreclosures, primarily on Steelmaker Street and Airline Avenue. Old Man Potter and the administrators have become understandably quite concerned about the prospects of additional large foreclosures on Airline Avenue and potentially even moving over to Carmaker Court. Pensionville’s mayor asked Potter and the other administrators to develop a plan to shore up Pensionville’s financial condition and present it to the town council, which they did.

Potter et al. believe they have devised a plan that will save Pensionville and, if nothing else, strengthen the financial integrity of this fragile community. While generally supportive of the PBGC, some members of the town council were quietly skeptical about whether the plan would actually strengthen Pensionville or simply accelerate the existing exodus.

Mr. Potter worked up a 10-point plan to save Pensionville.



Read on to see the plan!

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