Pension execs connect pension problems to hiring
While many companies can use the huge increase in market returns to mask a looming pension crisis, the problem is still acute. Because of actuarial accounting, pension funding problems are pro-cyclical. Companies look flush with cash during upswings to the point where the pensions can actually goose earnings. During downswings, this process works in reverse.
When the next serious market downturn hits, the underfunded pension liabilities will crush earnings and contribute to a negative feedback loop which takes the market lower. But, a group of pension executives are not waiting until then. These companies have sent a letter to the President outlining the connection between unexpectedly large increases in defined benefit obligations (due in large part to healthcare costs) and a lack of hiring. When pension obligations reduce earnings, this slows employment.
Is this something to worry about now? I believe it is. When the next market downturn hits it will be much too late. The letter is embedded below (hat tip Brett).
Multi Industry Pension Funding President
About Edward Harrison
“Companies look flush with cash during upswings to the point where the pensions can actually goose earnings.”
Am I the only one who see a problem with that kind of accounting?
“These companies have sent a letter to the President outlining the connection between unexpectedly large increases in defined benefit obligations (due in large part to healthcare costs)”
Why bother send a letter to the President about that? Isn’t it crystal clear to everyone by now that the President (and Congress leadership…let’s not forget those, shall we?) chose the special interests in health care over the needs of the people?
The companies do this because they ARE special interests! They want a handout if you read the letter.
The problem is that typical defined benefit plans are more costly for employers than defined contribution plans. The burden of saving for retirement is on them and the healthcare costs are a huge weight (one that weighed heavily in the automaker bankruptcies).
Obviously, bailouts are not the way to go. But, a solution needs to be found because these companies cannot afford these plans.