Bush to Corporations: ‘Set Aside Money Now’

Headlines (Scroll down for complete stories):
1. Bush to Corporations: ‘Set Aside Money Now'
2. Consumer Sentiment Lowest Since Post Katrina
3. Ford Q4 Output Down 21%
4. China Takes Steps to Cool Economy

1. Bush to Corporations: ‘Set Aside Money Now'

President Bush signed a broad overhaul of pension and savings rules Thursday, giving millions of people a better chance of getting the retirement benefits they have earned.

Story Continues Below

The law, passed with fanfare by Congress two weeks ago, gives companies seven years to shore up funding of their traditional pensions, also known as defined benefit plans. Special rules for seriously underfunded companies require them to catch up faster.

The 30,000 such plans run by employers are estimated to be underfunded by $450 billion.

"Americans who spent a lifetime working hard should be confident that their pensions will be there when they retire," Mr. Bush said.

He added a stern instruction to corporate America.

"You should keep the promises you make to your workers," the president said. "If you offer a private pension plan to your employees, you have a duty to set aside enough money now so your workers will get what they've been promised when they retire."

At the same time, the law recognizes the evolution in workers' benefits -- a gradual disappearance of pensions in favor of savings accounts such as 401(k)s that require workers to amass their own retirement savings.

Those accounts, also known as defined contribution plans, got a boost in the new law. It is this step that many expect will do the most over time to help people working toward retirement.

The law lets employers automatically enroll workers in 401(k) plans. In addition, there is a mechanism to increase gradually the amount saved, and employers are encouraged to match some of the dollars that workers stash away.

A nonprofit research organization, the Retirement Security Project, estimated that the change, when fully in effect, could mean employees will save an additional $10 billion to $15 billion in 401(k) accounts each year.

"Those additional contributions will bolster retirement security for millions of workers," said Peter Orszag, director of the project, which works to improve retirement benefits for low- and middle-income workers.

Some changes were sparked by corporate scandals that saw workers, who had put much of their nest egg in company stock, lose their retirement savings. The new law requires companies to give their workers more investment options.

The law is not without its critics, some of whom say it does nothing to encourage employers to offer pension benefits and the reliable income they give retirees.

Rep. Charles Rangel of New York, the top Democrat on the House Ways and Means Committee, said lawmakers may look back at the law as the "Trojan horse that brought the end of the defined benefit pension system."

"Erosion of the defined benefit pension system represents a dangerous shift from a "we" society to a "me" society, where every worker is on his or her own," he said.

The ERISA Industry Committee, which represents the retirement, health and compensation plans of the nation's largest employers, said the number of defined benefit pension plans fell from 112,000 in 1985 to fewer than 30,000 in 2004.

Of those still in place, the group said, many are closed to new participants or frozen, preventing employees from earning new benefits.

"With each past reform -- often based on government revenue needs -- employers have exited the defined benefit system as a result of the governments changes, which often resulted in burdensome and costly regulations," said Mark Ugoretz, the committee's president.

Leaders hope these revisions will prevent a costly taxpayer bailout of the federal agency that insures the pension system, the Pension Benefit Guaranty Corp. Some fear taxpayers will pay if too many companies dump their plans at once.

"Every American has an interest in seeing this system fixed, whether you're a worker at a company with an underfunded pension or a taxpayer who might get stuck with the bill," Mr. Bush said.

The law also:

Gives airlines that are in bankruptcy proceedings and have frozen their pensions an extra 10 years, or 17 years total, to meet their funding obligations. Others with active plans get 10 years to meet their obligations.
Requires companies to give employees more information about their pensions.
Puts certain "hybrid" plans, which have been challenged as discriminating against older workers, on stronger legal footing.
Says companies with seriously underfunded plans cannot promise their workers bigger benefits.
Makes permanent the higher savings contribution limits that were set to expire in the next decade.

People can now put more money in their IRA and 401(k) accounts in the coming years. That includes a new option made available this year known as Roth 401(k)s. Those accounts let workers pay tax on their earnings before saving, but the money then accumulates and can be spent in retirement tax-free.

The Human Rights Campaign praised the law for changes that the group said will help same-sex couples by expanding benefits once only allowed for spouses or dependents.

Mr. Bush praised the measure for enacting the most sweeping overhaul in more than 30 years. But he said the changes must be coupled with revisions to the two government programs that benefit retirees, Social Security and Medicare.

"As more baby boomers stop contributing payroll taxes and start collecting benefits -- people like me -- it will create an enormous strain on our programs," said Mr. Bush, who turned 60 last month.

Editor's Note:

A massive demographic tidal wave is about to hit the U.S. as 77 million Baby Boomers retire - swamping pension systems and the health care system. Some sectors will suffer massive, long-term losses as others post huge gains. Find out how you can profit from investing in these sectors. Go here now.

2. Consumer Sentiment Lowest Since Post Katrina

Consumer sentiment fell more than expected in early August, according to preliminary results of the University of Michigan's monthly survey. The survey gauges consumer's optimism about the current and future state of the economy.

Overall consumer sentiment fell to 78.7, down from 84.7 in July and the lowest reading since Hurricane Katrina wiped out homes in Louisiana and Mississippi and drove oil prices sky-high. Consumer sentiment reached a thirteen-year low of 74.2 in the wake of Katrina. Wall Street economist polled by Reuters forecast a median reading of 83.6.

The RBC Cash index's consumer confidence survey released last week also showed ebbing confidence, as MoneyNews pointed out. The index fell to a three-month low based on a survey of consumers in early August.

"It's a very stagflationary kind of result," Peter Kretzmer, senior economist at Banc of America Securities LLC in New York, tells Reuters. "This is a larger downward move than what we've seen even though gasoline prices haven't moved that much higher in the month of August."

Consumer's current conditions dropped to 100.8 from 103.5, and their expectations of the future cratered to 64.5 from 72.5. The survey indicates that consumers are pessimistic all around. That's bad news when consumers account for two-thirds of economic activity in the U.S.

When asked about inflation, consumers responded that they believe inflation will rise to 4.2 percent in the next year, up from 3.2 percent in July. Over the next five years, they think inflation will average 3.1 percent, up from 2.9 percent last month.

"Inflation expectations in the Michigan survey jump a full percentage point ... This is potentially alarming for Fed policy," said Brian Dolan, director of research at Forex.com in New Jersey, to Reuters.

But, just the opposite happened. Treasury prices soared on the news because of the severe drop in consumer confidence, a sign that the economy will slow. The 10-year benchmark Treasury note rose 3/32 to 100-4/32 with a yield of 4.863 percent, says MarketWatch.

Editor's Note:

Discover the 3 safest places to stash your cash - all guaranteed by the U.S. Government and outperforming stocks by 500% this year. Go here now.

3. Ford Q4 Output Down 21%

Ford Motors, the second-largest automaker, is set to cut Q4 output by 21% – producing 168,000 fewer units than last year – while slashing about 16% of the white-collar workforce. And the plan, according to a Bloomberg report, is in addition to an initiative to get rid of tens of thousands of jobs in North America by 2012.

"We know this decision will have a dramatic impact on our employees, as well as our suppliers," said CEO Bill Ford. "This is, however, the right call for our customers, our dealers and our long-term future."

"The move is the most recent step in Ford's Way Forward restructuring plan, a massive overhaul targeted to bring profits by 2008 by eventually shedding 30,000 jobs and shutting 14 manufacturing facilities," said a MarketWatch article. "Further efforts at accelerating Ford's turnaround will be announced in September, the company added."

Gas prices have delivered the hardest hit to Ford, as consumers have turned to more fuel-efficient cars from Honda, Toyota and other Asian manufacturers. Ford lost a net $1.44 billion after the first half of 2006.

"The company's automotive profit has been dependent on sport-utility vehicles and pickup trucks, which don't travel as far as cars on a gallon of fuel," Bloomberg reports. "Light-truck sales, including pickups and SUVs, fell 16 percent through July, overwhelming a 3.5 percent gain for cars as gasoline prices hovered near a record."

The carmaker expects to turn out some 3.05 million vehicles this year, but that is 9% below 2005 production.

Editor's Note:

We're on a winning streak! The first three trades recommended by Intelligent Options are up between 21% and 80%. How's that for a kick-off?! Go here now.

4. China Takes Steps to Cool Economy

China's central bank announced a surprise interest-rate hike on Friday. It is the second rate increase in four months. China is trying desperately to curb credit and investment borrowing, which is inflating its rapidly expanding economy.

The People's Bank of China (PBOC) said in a statement that it hiked rates by a 0.27 percentage point for commercial banks' benchmark one-year deposit and lending rates. The deposit rate is no 2.52 percent and the lending rate is 6.12 percent, says Reuters.

"The national economy has maintained rapid growth so far this year, and the overall situation is sound, but the problems of over-rapid investment growth and credit expansion and an excessively large trade surplus are pressing," said a statement on the central bank's website.

China's GDP swelled to 11.3 percent in the second quarter, the fastest pace in a decade.

The PBOC made its announcement just before trading closed for the week, and traders expect the yuan (known domestically as the renminbi) to bounce when the market opens again next week. That could be good news for the U.S.' ballooning trade deficit with China. If the yuan appreciates, goods from China would become more expensive, reducing demand in the U.S.

"We expect this will help the renminbi to strengthen," said a dealer at a foreign bank in Shanghai to Reuters. "We are expecting it to hit a new high."

Last Thursday, MoneyNews reported that China's central bank hinted at widening the band in which the yuan trades against the dollar. Since de-pegging the yuan from the dollar, the yuan has floated just 1.66 percent higher.

Editor's Note:

Hedge Fund Investing's interest rate trades have raked in gains of 124%, 171%, and 185%. Go here now.

Editor's Notes:

A massive demographic tidal wave is about to hit the U.S. as 77 million Baby Boomers retire - swamping pension systems and the health care system. Some sectors will suffer massive, long-term losses as others post huge gains. Find out how you can profit from investing in these sectors. Go here now.
Discover the 3 safest places to stash your cash - all guaranteed by the U.S. Government and outperforming stocks by 500% this year. Go here now.
We're on a winning streak! The first three trades recommended by Intelligent Options are up between 21% and 80%. How's that for a kick-off?! Go here now.
Hedge Fund Investing's interest rate trades have raked in gains of 124%, 171%, and 185%. Go here now.
Is your body a filter for toxins? According to one environmental study group, U.S. Drinking water contains more than 2,100 toxic chemicals that can cause cancer, yet the EPA has established enforceable safety standards for only 87. Protect your health now.