Fisher Investments: The Ol' Pensions Blues
12/2/2009 By Fisher Investments Editorial Staff
http://www.marketminder.com/a/fisher-investments-the-ol-pension-blues/cbe61fa6-7302-4033-9368-1281867c171b.aspx?source=home
The ol’ pension blues are back—but they needn’t rob investors of holiday cheer.
Story Highlights:
> Corporate and public pensions are underfunded, a fallout from the market plunge and from under-contribution.
> The same pension worries surfaced in the late 1980s and in 2002, and it turned out underfunding fears then were greatly overstated, as they likely are now.
> Corporations contributing more funds to pension plans could be a positive for markets if the extra funds find themselves into stocks, as they did in 2003.
> Underfunded pensions are a widely known phenomenon—meaning the negative impact is likely already largely priced into stocks.
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The holidays are coming, and we can only guess what’s on corporate and public pensions’ wish lists: A big wad of cash. Pensions of all stripes are finding themselves underfunded—meaning liabilities (payment obligations to employees) are greater than what’s in the bank—a fallout from the market plunge and from under-contribution. The average public pension plan is 35% underfunded, and 92% of corporate pension plans were underfunded at the end of last year.
Solutions to the underfunding issues aren’t promising. Aside from Santa’s generosity, options include cutting back on benefits, contributing additional funds to retirement plans, or declaring bankruptcy and falling into the safety net provided by federal pension insurers, like the Pension Benefit Guaranty Corp. The recent market surge has helped some, but many pensions are still in the red.
