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Paying big contributions, market volatility concerns
Published on Sunday, Apr 20, 2008
New York Times
America's biggest pension funds lost ground in the first quarter and are likely to require larger contributions from their corporate sponsors this year, joining the ranks of homeowners, lenders and others hurt by the recent turmoil in the financial markets.
At the same time, though, some of America's biggest companies have begun taking steps to shield their pension funds from market volatility by moving out of stocks. Such a step has long been predicted by economists, but was shunned until now by the vast majority of pension investment managers.
''This trend is 11 years in the making,'' said Paul C. Morgan, an investment adviser with Evaluation Associates, a consulting firm owned by the Milliman actuarial firm, which issued the pension study recently.
Pension funds that made major shifts away from equities last year included those at mature manufacturing companies, such as General Motors, Ford, Boeing and Deere. Their plans have been a source of concern to policy makers, because the federal government insures the benefits, and if a plan of that size failed, it could swamp the federal insurance system.
Because of market forces, Milliman estimated the 100 biggest companies might need to make total contributions this year at close to twice their 2007 level, even as their businesses come under pressure because of a slowing economy.
Morgan predicted that more companies would join the shift out of equities in the coming years, aiming to protect their pension funds from interest-rate swings when the baby boomers retire in huge numbers and draw their benefits, pulling billions of dollars out of the funds.
''We believe this shift is permanent and the trend will continue,'' Morgan said.
New York Times
America's biggest pension funds lost ground in the first quarter and are likely to require larger contributions from their corporate sponsors this year, joining the ranks of homeowners, lenders and others hurt by the recent turmoil in the financial markets.
At the same time, though, some of America's biggest companies have begun taking steps to shield their pension funds from market volatility by moving out of stocks. Such a step has long been predicted by economists, but was shunned until now by the vast majority of pension investment managers.
''This trend is 11 years in the making,'' said Paul C. Morgan, an investment adviser with Evaluation Associates, a consulting firm owned by the Milliman actuarial firm, which issued the pension study recently.
Pension funds that made major shifts away from equities last year included those at mature manufacturing companies, such as General Motors, Ford, Boeing and Deere. Their plans have been a source of concern to policy makers, because the federal government insures the benefits, and if a plan of that size failed, it could swamp the federal insurance system.
Because of market forces, Milliman estimated the 100 biggest companies might need to make total contributions this year at close to twice their 2007 level, even as their businesses come under pressure because of a slowing economy.
Morgan predicted that more companies would join the shift out of equities in the coming years, aiming to protect their pension funds from interest-rate swings when the baby boomers retire in huge numbers and draw their benefits, pulling billions of dollars out of the funds.
''We believe this shift is permanent and the trend will continue,'' Morgan said.
