Fed Policies Weaken Pension Funds
Posted at 3 p.m. on Feb. 4
The Wall Street Journal looks at the complicated impact of the Federal Reserve’s efforts to lower interest rates, which allows companies to borrow cheaply, but also forces them to make up for slower pension fund growth for their defined benefit plans.
“Companies are required to calculate the present value of the future pension liabilities by using a so-called discount rate, based on corporate bond yields. As those rates fall, the liabilities rise… Overall, pension plan funding fell by $79 billion last year at about 400 large companies with defined benefit plans.”
“Companies, which by law must keep defined benefit pension plans funded within a certain period of time, are taking a variety of paths to address the issue. They are buying out pensioners, unloading pension accounts to third parties and upping their contributions.”