The Pension Hole

Issue 08-07-17   |   Reviewer:   Larry Walther, Ph.D., CPA, CMA
Disciplines:


Abstract

A defined benefit pension plan promises employees some level of salary continuation for the period from retirement until death. The largest 200 companies now face a deficit in excess of $375 billion due to unfunded promises. This problem has been brought on by low interest rates that both increase the present value of future cash promises and decrease the earning power of pension assets that have already been set aside. Another "problem" is increasing life expectancy.

It is the perfect storm for these plans, and is causing more and more companies to opt for defined contribution plans. Under these plans, companies set aside a certain amount of behalf of the employees, and their retirement outlook rises and falls with the vagaries of the markets.





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