Corporates Swamped By Growing Pension Schemes, Claims Report

A report by Greenwich Associates has identified a shortfall in the relationship between US pension funds and the corporations that contribute to them. The report found that while reduced equity returns have forced many corporations to contribute more to their pension funds than they have in the recent past, the continued reliance on equity investment (which still represents over half of the corporate portfolio) is creating a non-virtuous circle where the diminishment of stock value leads to corporate pension fund losses which leads to more stock diminishment. According to the report, defined benefit plans have, over the last fifty years, grown larger than the companies they serve. ‘The normal volatility of investment materials, applied to two generations of cumulative liability, is much larger than even a healthy corporation can easily pass through an annual income statement,’ said the report. It added: ‘Funding strategies and accounting practices that worked well when the pension plans were proportionately in size to the corporations sponsoring them are not working any longer.’


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