Rundles wrap-up: Twinkies
I'm turning 60 this month and like a lot of people in my situation I am wondering about my future. I suppose everyone is wondering somewhat about their future, even young people, but the concerns are different.
Young people are wondering about their careers and family plans, while foremost in my mind are retirement and old age. With the perspective of now-looming old age, I can say with some assurance that it is the young people who should change focus.
Truth be told, when we were your age promises were made. "They" told us not to worry, that Social Security and company pensions would sustain us in our Golden Years, and like the naïve guppies we were, we bought that BS hook, line and sinker.
What got me thinking about this in more detail just now was the announcement in January of the bankruptcy filing for Hostess Brands Inc., the makers of Twinkies, Ding Dongs and Wonder Bread. What I Wonder about is how all of us in my generation were - are - such Twinkies and Ding Dongs for believing in corporate America that much. They say you are what you eat, so maybe that's it; when I was a kid Wonder Bread was touted as "Building Strong Bodies 12 Ways," which excited me until they changed it to "Eight Ways" and I Wondered what part of me went lacking. Turns out, it was probably my brain.
Hostess isn't unlike many of the other iconic American companies that have filed or yet may file for bankruptcy - General Motors, American Airlines, Kodak, Sears, et al. What comes through in almost all of these financial unravelings and/or reorganizations are such "legacy" obligations and liabilities as unfunded pensions. And we're not talking about insignificant pension funding problems: Hostess listed more than $950 million in shortfalls on its pension obligations to workers and previous workers through two of its labor unions. Pretty much all of these old-line corporations listed such pension liabilities as their largest unsecured creditors.
Of course, these pension liabilities would be nonexistent or at the very least much less of a problem if the corporations - and for that matter school boards, cities, states, and the federal government through Social Security - had simply funded the pensions (set aside payments) as they went along. Unfortunately, they didn't, or they used the funds for other projects and wrote the pensions an IUO.
I had an interesting conversation with Dr. Maclyn Clouse, a professor of finance at DU's Reiman School of Finance in the Daniels College of Business, about all of this, and he talked about the concepts of "present value" and "future value." Let's just say that many pension administrators use some wildly optimistic projections for fund growth; e.g. the pension fund would be fully funded in 25 years if they hit 8 percent, 9 percent or 10 percent per annum growth projections.
What really ends up happening is that the money present-day workers pay in is used to pay retirees, a system that works well while there are a lot more present-day employees than retirees, but falls flat on its face when the reverse is true. Then administrators use the business-friendly bankruptcy laws to lessen liability.
What this means for young people is that you should be highly skeptical. Make contributions now, keep a wary eye on any administrators - stockbrokers, financial managers, pension managers - that they hold up their end, don't trust and always verify. Be involved, highly involved. We should all also look at changing pension funding laws.
Professor Clouse, asked what the lesson of Hostess, et al, is, said, "When it comes to retirement planning, the responsibility is going to have to be on you."
In other words, don't be a Twinkie or a Ding Dong.