There is record pension and OPEB underfunding for S&P 500 companies. Underfunding totals $357 billion in 2011, $100 billion higher than the previous year and $48 billion higher than the record numbers of 2008. OPEB underfunding rose to $223.4 billion. This problem is coupled with high expected funding rates close to 8 percent that will unlikely be realized. There is a money shortage and there is no way returns can be generated to close the gap. In response, pensions have moved more to fixed income allocations which will exacerbate the shortfall since current long rates are closer to 1.5 percent. Hedge funds and alternative asset classes may help but they cannot be the solution. We will have to see the end of defined benefit pensions.
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