Berkshire Hathaway Letters to Shareholders: 1965-2024

by Warren Buffett

Thus, the really devastating possibility regarding private pension plans is sustained double-digit inflation. When salaries move ahead at a substantially higher rate than investment returns and benefits are tied to final salaries (or, even more expensively, cost-of living increases after retirement as in recent rubber and aluminum contracts), it is virtually impossible to pre-fund obligations. Like it or not, you become much like the Social Security Fund, absent the power to tax. Should that occur, future purchasers of the products of the company must be willing to do so at prices that reflect not only the wages of current workers, but the promises to past workers. Some businesses will have economic characteristics allowing them to pass along these costs, but others will have major troubles. On balance, I believe we are in relatively favorable businesses under such circumstances. I do not believe this problem can be solved by the investment process. I mention it for completeness, not because I have answers—and to urge caution in making pension benefit promises subject to dramatic escalation through substantial attrition in the purchasing power of money.