U.S. corporate pensions threatened by low interest rates, weak stocks, and nervous employers

Corporate pensions are the latest casualty of a struggling U.S. economy.  Many corporations that have guaranteed security for their long-term, loyal employees now have to contend with falling interest rates and a faltering stock market. To reduce their accountabiities, some of them are underfunding their contributions to the corporate pension account, or freezing them altogether.

Reuters breaks the news with reports of profitable companies that are contributing lesser funds to the corporate pension plans, which is still in accordance with the law.  The average funding status of companies in the S&P 1500, which has pension plans stands at a mere 78.1 percent compared to 95 percent in the last quarter of 2013.  Delta Airlines is at the bottom of the list, covering only 45 percent of its pension obligations.

Penson plans base their capabilities to meet their obligations on the income derived from bonds. However, the interest from these bonds has also been declining consistently, from 6.02 percent in 2008 to the current interest rate of just 4.06 percent. 

Another blow was the pension deficit of $487 billion, caused by a weakening stock market. About $83 billion in plan assets were wiped out in the first months of this year.

Think Advisor also notes that the funded status of U.S. corporate plans have tumbled four times consecutively the past months. It fell by 3.8 percent in January and 1.3 percent in February.

Vipal Monga, a blogger of the Wall Street Journal, says that even Fortune 500 companies are finding it dififcult to meet their pension accountabilities. One strategy to ease off their retirement-related burdens is to freeze their employees' corporate pension accounts. Instead of guaranteeing payment to their retirees by managing their investment portfolios, corporations are now shifting their workforce to assume a more defined contribution plan where the employees take care of their own payments and investments. The number of Fortune 500 companies who have frozen their employee accounts has increased, from 21 percent in 2009 to 39 percent in 2015.

Tags

US corporate pension plans, economic crisis, retirement benefits

© 2023 Lawyer Herald All rights reserved. Do not reproduce without permission.