Problems With Pensions

Here’s an interesting little article from Bloomberg. It seems that a number of companies are just figuring out that their defined benefit plans suck from a funding standpoint right now. The solution, go to Congress and ask for a waiver from a 2006 bill that requires them to make progress towards full funding.

The bill passed in 2006 requires companies to have a 90% funding level which increases to 92% at the end of this year and 100% by 2011. Not meeting the thresholds can trigger a requirement for full funding and falling below 80% can limit other actions like lump-sum payments.

Naturally, given the state of the equity markets, those companies that rolled the dice and bet on stocks are suffering. The argument they are advancing with Congress is that to require them to meet current funding requirements would result in diverting cash that could be used to maintain their businesses and create more jobs. These aren’t the usual suspects lining up for aid. Among the petitioners are Pfizer, IBM and UPS. Noticeably absent is believe it or not GM which took a conservative approach and shifted to fixed income securities at the end of 2006.

In essence, we have a group of companies that gambled on equities in an effort to limit their cash contributions to promised benefits. Now that the gamble has proved to be improvident they turn to Congress and ask for permission to place their employees at risk in order to conserve cash. Whether or not that is a pressing problem for any or all of them is problematic at best. It actually smells of crass opportunism.

Calculated Risk’s gifted blogger, Tanta, once coined the phrase that “…we are all subprime now.” It appears as if we might amend that to we are all bailout petitioners now.


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