Thursday, October 30, 2008

Pensions - Yet Another Problem for Corporate Earnings

This is a growing major problem and is going to get much worse because I have heard many pension funds have their private equity investments way over marked and the commercial real estate blow up is rapidly approaching.

US companies will need to inject more than $100bn into their pension funds to cover market losses, putting them in a cash squeeze at a time when it is difficult to raise money.

The cash payment, estimated by several pension industry executives, would be spread over this financial year and next year.

Companies’ pension fund losses – running at an estimated 20 per cent in the year to date – also are expected to alter earnings this year, partly because of accounting changes.

The 700 largest corporate plans were more than 100 per cent funded at the end of last year, but as of last week that had fallen to about 83 per cent, according to estimates by Mercer, a pension consultant.


Erhardt said there were about $300bn in fund losses to the end of this month.

After the introduction of the Pension Protection Act this year, that would go “straight on to the company balance sheet”.

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