RadAudit wrote:I always thought that expecting high returns allowed corporations to reduce their contributions to the pension fund and report higher profits.
And, who knows? Higher returns might appear and you're golden. If low returns persist, the government will step in and bail out the pensioners.
But, maybe I'm just a Pollyanna.
You are definitely a Pollyanna. The government is
the worst offender.
The Feds can always print money so they can cover their very generous pensions as long as taxpayers don't attack with pitchforks over the deficits. State and local government entities have been playing a continuous shell game where they, for the most part, haven't worried at all about the size of their underfunding.
Underfunded pensions in the private sector are primarily the result of government regulations. The 80's LBO splurge was driven by a significant over funding of pensions during the boom years of the 1970s. Companies were making good profits then and they were building up pension funds to avoid cash flow issues in the inevitable down years. These assets, however, could be "captured" by an acquiring company when they terminated the existing pension plan. (I know this is true because it happened to me twice.)
Our enlightened law makers then attempted to address the issue by severely limiting the over funding than could occur to a very small amount. Therefore and inevitably, slower economic periods immediately result in serious underfunding of pensions unless the company chooses to implement severe economic limitations in other areas of its operations. Doing that would require eliminating otherwise sound operating units further hurting the company's long term potential.
So as a non-moderator, even I see that this has been a specific comment on government policy and is in violation of forum rules. However, I think this is an import aspect of the problem that people should know.