The Big Pension Plan Hole and What It Means to Investors
by Edwin D. Everett
Three successive years of stock market declines and lower interest rates have taken their toll on pensions and are presenting defined-benefit plan sponsors—including most major U.S. corporations—with tough decisions about how to face significant shortfalls in funding their obligations to retirees.
The amounts are not trivial—the Pension Benefit Guaranty Corporation (PBGC) estimates pensions are $300 billion in the hole. (This federal agency guarantees benefit payments for some 38,000 U.S. plans.)
What corporate sponsors do about the shortfalls could have wide-ranging effects on the stock market. The immediate potential impacts for plan sponsors are a hit to corporate earnings, cash flow pressures as firms have to pony up more cash, and potential write-downs of shareholders equity.
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