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Report: 1.3 Million Workers' Pension Plans Expected to Go Insolvent in Next Two Decades

ABI Bankruptcy Brief
ABI Bankruptcy Brief
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August 24, 2017

 
ABI Bankruptcy Brief
 
 
 
 
NEWS AND ANALYSIS

Report: 1.3 Million Workers' Pension Plans Expected to Go Insolvent in Next Two Decades

An estimated 114 multi-employer pension plans covering more than 1.3 million people are underfunded by more than $36 million and are expected to become insolvent in the next two decades, the Washington Examiner reported today. The plans cover just 8 percent of the more than 1,400 such plans in the U.S. However, Cheiron, the Virginia-based actuarial consulting company that released the study, warns that the spillover effect from the failing plans could be bad for the rest of the country. "Traditionally, participants in healthy multi-employer pension plans have been forced to pay for the guaranteed benefits of retirees and their families in failed plans," said Joshua Davis, a principal consulting actuary at Cheiron. "If this happens again, it will push other plans into insolvency with terrible consequences for communities across the country." Cheiron notes that three plans — the Teamsters' Central States, the Bakery and Confectionary Workers Union, and the United Mine Workers — account for $22.8 billion, about 62.5 percent, of the unfunded liability. Those plans cover 603,000 participants.
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Water Crisis Looming in Puerto Rico, Where Cash Has Run Dry

A public health crisis is imminent in Puerto Rico as its main provider of water and sewer services has lost the ability to borrow money, a consequence of the island’s still-unfolding debt problems, according to a Bloomberg BNA report yesterday. Construction on pipes, filtration systems and other water infrastructure projects in Puerto Rico is at a standstill. This may already be impacting the safety of drinking water for its 3.4 million residents: The credit problems have coincided with an increase in water quality violations, according to EPA enforcement data reviewed by Bloomberg BNA. Amid the debt crisis, the Environmental Protection Agency has cut off Puerto Rico from accessing the water infrastructure loans it regularly provides to all 50 states. Peter Grevatt, head of the agency’s drinking water office, said that the island may never be able to fully repay the hundreds of millions of dollars in loans it took out from the EPA to build up its water infrastructure. Read more.

In related news, while nearly 65,000 Puerto Ricans left the bankrupt U.S. commonwealth last year, a group of private bankers are moving the other way, according to Bloomberg Businessweek on Tuesday. They are increasingly opening offshore banks known as International Financial Entities (IFEs), which were created by a Puerto Rican law in 2012. There are 44 IFEs now, with 18 opening in the past year, according to data compiled by the U.S. territory’s financial regulator. Tax experts attribute at least part of the influx to a little-known loophole made possible by the IFE structure. It lets non-U.S. account-holders put money in Puerto Rico anonymously and potentially avoid taxes at home even as they benefit from the stability and safety of the U.S. That’s become increasingly attractive because of a new global financial-disclosure system taking effect in September. Under the Common Reporting Standard, more than 100 countries have agreed to automatically provide to one another annual reports about accounts belonging to people subject to taxes in each member nation. Read more.

For updated news and analysis of Puerto Rico's debt crisis, along with current docket filings in Puerto Rico's case, be sure to visit ABI's "Puerto Rico in Distress" webpage.

Drowning in Debt, Connecticut Faces Budget Crunch

Connecticut is racing against the clock to pass a budget or face further spending cuts to education and municipal aid across the state, Reuters reported yesterday. Nearly two months without a budget, Connecticut is getting crushed by a burdensome debt load that has squeezed spending and amplified legislative discord. State lawmakers must agree on a biennial budget soon or else Governor Dannel Malloy's (D) executive order to slash state aid to municipalities and eliminate school funding for some districts will go into effect in October. The state faces a $3.5 billion deficit over the next two years.
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Analysis: The Long-Lasting Effects of Mortgage Redlining

The Home Owners’ Loan Corp. in the 1930s drew redlines in cities across the country to separate “hazardous” and “declining” from “desirable” and “best,” and in the process ended up codifying patterns of racial segregation and disparities in access to credit. Now economists at the Federal Reserve Bank of Chicago, analyzing data from recently digitized copies of those maps, show that the consequences lasted for decades, according to an analysis by the New York Times today. As recently as 2010, they find, differences in the level of racial segregation, homeownership rates, home values and credit scores were still apparent where these boundaries were drawn. The maps became self-fulfilling prophesies, as “hazardous” neighborhoods — “redlined” ones — were starved of investment and deteriorated further in ways that most likely also fed white flight and rising racial segregation. As of 1930, there were already clear differences along some of the borders in racial demographics and homeownership rates. Blacks were already more likely to be living in “D” neighborhoods than “C” neighborhoods, for example. But differences in the black share of the population and homeownership rates widened after the 1930s, reaching a peak in the 1970s, when federal laws requiring equal access to housing and credit took effect. Those patterns alone don’t prove that the maps caused widening gaps in segregation or homeownership. To do that, the researchers drew their own hypothetical boundaries to compare what might have happened had the Home Owners’ Loan Corporation placed the lines in other locations where similar differences existed at the time. The disparities along those simulated borders didn’t widen; they disappeared.
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CFPB Warns Reverse Mortgage Loans Generally an Expensive Way to Maximize Social Security Benefits for Older Americans

The Consumer Financial Protection Bureau (CFPB) today issued a report warning older consumers about taking out a reverse mortgage loan in order to bridge the gap in income while delaying Social Security benefits until a later age, according to a press release. The CFPB report found, in general, that the costs and risks of taking out a reverse mortgage exceed the cumulative increase in Social Security lifetime benefits that homeowners would receive by delayed claiming. The Bureau also released a consumer guide and video to help prospective borrowers and their families understand how reverse mortgages work so that they can make an informed decision before agreeing to borrow. “A reverse mortgage loan can help some older homeowners meet financial needs, but can also jeopardize their retirement if not used carefully,” said CFPB Director Richard Cordray. Most reverse mortgages today are federally insured through the Federal Housing Administration’s (FHA) Home Equity Conversion Mortgage (HECM) program, which means they must comply with the related regulations. A HECM reverse mortgage is a special type of home loan that allows homeowners age 62 and older to borrow against the equity they have built in their homes and defer payment of the loan until they pass away, sell, or move out. The loan proceeds generally are provided to the borrowers as lump-sum payments, monthly payments, or as lines of credit. A variety of financial professionals are increasingly promoting the use of reverse mortgage loans as a way to delay claiming Social Security benefits, according to the report. With this approach, a homeowner uses a reverse mortgage loan to replace the income they would otherwise receive in Social Security benefits in the years between the minimum benefits age (age 62) and their full benefits age or later. When Social Security benefits are delayed, beneficiaries see a permanent increase in the monthly benefit, which, based on current life expectancies, results in an increased cumulative lifetime benefit.
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Participate in Next Consumer Commission Meeting on Sept. 15 at NABT

The Committee on Chapter 7 of the ABI Commission on Consumer Bankruptcy will hold a public meeting during the National Association of Bankruptcy Trustees (NABT) on September 15 from 12:30 to 2:00 PM in the Marriott New Orleans in New Orleans, Louisiana. Attendees are invited to speak at the public meeting. For more information, including submission guidelines, please click here.

A list of topics under consideration by the Commission is available on the Commission’s website at https://consumercommission.abi.org/. To submit any comments or suggestions for the Commission, please e-mail consumercommission@abiworld.org.

Read available written testimony from the 7/15 open meeting at NACTT’s annual seminar by clicking at the bottom of this page (linked by name).

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BLOG EXCHANGE

New on ABI’s Bankruptcy Blog Exchange: OCC Seeks to Raise Appraisal Thresholds for Commercial Real Estate Loans

A new blog post reported that the Office of the Comptroller of the Currency issued a proposal yesterday that would raise the appraisal threshold for commercial real estate loans to $400,000 from $250,000.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

 
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