Thursday, October 06, 2011

Interest Rate Pressure Creating "Perfect Storm" of Corporate Pension Deficits

This is a big story that you're not hearing much about. Bloomberg reports:

Company pensions in the U.S. fell behind future payouts to retirees by the most ever in September, as stocks fell and the slowing economy and Federal Reserve policy drove down bond yields, according to actuarial and consulting firm Milliman Inc.

The deficit between the assets of the 100 largest company pensions and projected liabilities widened by a record $124 billion in September to $439 billion, Seattle-based Milliman said today in a statement, based on data going back to 2000. Investment assets fell $31 billion to $1.175 trillion, while obligations to retirees rose $93 billion to $1.614 trillion.

“We’ve been talking about how interest rates are driving pension funded status for several years now,” John Ehrhardt, a principal and consulting actuary in New York with Milliman, wrote Oct. 5 in an e-mail. “The perfect storm has been brewing all summer. In September the storm arrived with a vengeance.”

This is nearly a half-trillion dollars that the Federal government is on the hook for, which might not be showing up in deficit numbers. Another "perfect storm."


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