For anyone relying on company-funded pension plan payments, it sounds like more bad news: Companies have been reporting huge cutbacks on pension payments.
Just this week three companies, Sears Holdings, Alcoa, and AK Steel Holding slashed payments by a total of nearly $1 billion. More companies are expected to follow suit in the earnings period ahead.
Why are they raiding employee pension accounts when according to a recent survey by Credit Suisse nearly all U.S. defined benefit pension funds are already underfunded in an estimated 97 percent of companies? Defined benefit plans owe workers $2 trillion in payouts, and they have only $1.5 trillion in assets set aside to cover them, according to estimates by consulting firm Mercer. Like the federal budget deficit, this private sector deficit just keeps widening.
So why are companies rushing to reduce payments?
The answer is simple: Because they can.
The charges companies are taking are an immediate hit to earnings, because they lose the tax deduction for the year on pension contributions.
Congress last month passed new rules that lowered the amount of pension fund contributions companies are required to contribute, effectively cutting their required contributions in half by allowing them twice the credit for contributions over the next two years. (The change is not permanent.)Page 1 of 4 | Next Page