Kenneth Hackel, president of credittrends.com estimates that a 1% cut in a retirement plan’s assumed rate of return is roughly equal to a 15% decline in stock prices. In line with Hackel’s rough calculation, Fitch Ratings reckons a 1% cut in the assumed discount rate for companies’ DB plan can result in a 10%-20% increase in the present value of future liabilities.
Please see our related articles on pensions and free cash flow implications of underfunding:
- GM: Who’s Next? Answer: At Least 1,300 More
- You Ain’t Seen Nothin’ Yet!
- Pension Facts: Why The Hit to Earnings and Cash Flow Is Upon Us
- CNBC Strategy Session – Underfunded Pensions Earnings Bombshell
- With 3-, 5-, and 10-Year Stock Returns Negative: Why Are Pension Funds Assuming 8% Returns?
Disclosure: No positions
Kenneth S. Hackel, CFA
President
CT Capital LLC
Subscribe to CreditTrends.com by Email
If you are interested in learning how to analyze the pension plan, including plan accounting, effect on earnings, cash flow, financial structure and valuation, order “Security Valuation and Risk Analysis” out this fall from McGraw-Hill.
