{"id":1513,"date":"2010-08-06T10:17:25","date_gmt":"2010-08-06T14:17:25","guid":{"rendered":"http:\/\/www.credittrends.com\/blog\/?p=1513"},"modified":"2010-08-13T18:11:21","modified_gmt":"2010-08-13T22:11:21","slug":"pensions","status":"publish","type":"post","link":"https:\/\/www.credittrends.com\/blog\/2010\/08\/06\/pensions\/","title":{"rendered":"Pensions"},"content":{"rendered":"<p>Corporate defined benefit plans are no better than 75% fully- funded, when adjusting for more realistic investment assumptions and the more powerful discount rate. This is in contrast to current financial reporting using exaggerated assumptions.<\/p>\n<p><span style=\"color: #ff0000;\"><a href=\"http:\/\/www.credittrends.com\/blog\/2010\/08\/06\/pensions\/2\/\"><span style=\"color: #ff0000;\">READ FULL ARTICLE<\/span><\/a><\/span><\/p>\n<p><!--nextpage--><\/p>\n<p>Depending on the contract a sponsor is able to negotiate with an insurer, and the risk both are willing to assume, given 10-year Treasury bonds of 2.95% and annuity rates not much higher, adds at least 17% to current corporate underfunding. The median discount rate for liabilities is currently 5.9% for the S&amp;P 500. Such a rate is unachievable in today\u2019s marketplace.<\/p>\n<p>The 8% median investment assumption adds another 8%-12%<\/p>\n<p>Some of the difference is made up though higher salary assumptions ( currently 4%) and lower turnover assumptions.<\/p>\n<p>You will be hearing and reading much more on this issue towards the end of the year and should be expected to negatively impact those impacted companies. Pension accounting does not impact the amount of periodic pension cost reported on the income statement, but it does impact the reporting of comprehensive income. As such, we make the appropriate adjustment based on, in my estimation, an actuarial sound policy.<\/p>\n<p>Please see our related articles on pensions and free cash flow implications of underfunding:<\/p>\n<ul>\n<li><a href=\"http:\/\/www.credittrends.com\/blog\/2010\/07\/29\/pension-facts-why-the-hit-to-earnings-and-cash-flow-is-upon-us\/\">Pension Facts: Why The Hit to Earnings and Cash Flow Is Upon Us<\/a><\/li>\n<li><a href=\"http:\/\/www.credittrends.com\/blog\/2010\/07\/15\/pensions-buyer-beware-the-firms-exposed-to-greater-risk\/\">Pensions-Buyer Beware<\/a><\/li>\n<li><a href=\"http:\/\/www.credittrends.com\/blog\/2010\/07\/08\/cnbc-strategy-session-underfunded-pensions-earnings-bombshell\/\">CNBC Strategy Session \u2013 Underfunded Pensions Earnings Bombshell<\/a><\/li>\n<li><a href=\"http:\/\/www.cnbc.com\/id\/38152067\">CNBC&#8217;s Herb Greenberg &#8211; Underfunded Pensions are Red Flag for Investors<\/a><\/li>\n<li><a href=\"http:\/\/www.credittrends.com\/blog\/2010\/06\/10\/the-next-shoe-to-drop\/\">The Next Shoe to Drop?<\/a><\/li>\n<li><a href=\"http:\/\/www.credittrends.com\/blog\/2010\/06\/17\/the-other-shoe-part-ii\/\">The Other Shoe &#8211; Part 2<\/a><\/li>\n<li><a href=\"http:\/\/www.credittrends.com\/blog\/2010\/07\/08\/with-35-an-10-year-stock-returns-negative-why-are-pension-funds-assuming-8-returns\/\">With 3-, 5-, and 10-Year Stock Returns Negative: Why Are Pension Funds Assuming 8% Returns<\/a>?<\/li>\n<\/ul>\n<p>Disclosure: No positions<\/p>\n<p><a href=\"http:\/\/www.credittrends.com\/blog\/about\/\">Kenneth S. Hackel<\/a>, CFA<br \/>\nPresident<br \/>\n<a href=\"http:\/\/www.credittrends.com\/blog\/ct-capital-llc\/\">CT Capital LLC<\/a><\/p>\n<p><a href=\"http:\/\/feedburner.google.com\/fb\/a\/mailverify?uri=CreditTrends&amp;loc=en_US\">Subscribe to CreditTrends.com by Email<\/a><\/p>\n<p><a href=\"http:\/\/tinyurl.com\/credittrends\"><img loading=\"lazy\" decoding=\"async\" title=\"Security Valuation and Risk Analysis: Assessing Value in Investment Decision-Making\" data-src=\"http:\/\/www.credittrends.com\/blog\/wp-content\/uploads\/2010\/07\/Kens-Book4.jpg\" alt=\"\" width=\"96\" height=\"136\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" class=\"lazyload\" style=\"--smush-placeholder-width: 96px; --smush-placeholder-aspect-ratio: 96\/136;\" \/><noscript><img loading=\"lazy\" decoding=\"async\" title=\"Security Valuation and Risk Analysis: Assessing Value in Investment Decision-Making\" src=\"http:\/\/www.credittrends.com\/blog\/wp-content\/uploads\/2010\/07\/Kens-Book4.jpg\" alt=\"\" width=\"96\" height=\"136\" \/><\/noscript> <\/a><\/p>\n<p>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 \u201c<a href=\"http:\/\/tinyurl.com\/credittrends\">Security Valuation and Risk Analysis<\/a>\u201d out this fall from McGraw-Hill.<\/p>\n<p class=\"facebook\"><a href=\"http:\/\/www.facebook.com\/share.php?u=https:\/\/www.credittrends.com\/blog\/2010\/08\/06\/pensions\/\" target=\"_blank\" title=\"Share on Facebook\">Share on Facebook<\/a><\/p><div class=\"tweetthis\" style=\"text-align:left;\"><p> <a class=\"tt\" href=\"http:\/\/twitter.com\/home\/?status=Pensions+https%3A%2F%2Fwww.credittrends.com%2Fblog%2F%3Fp%3D1513\" title=\"Post to Twitter\"><img decoding=\"async\" class=\"nothumb lazyload\" data-src=\"http:\/\/www.credittrends.com\/blog\/wp-content\/plugins\/tweet-this\/icons\/en\/twitter\/tt-twitter.png\" alt=\"Post to Twitter\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" \/><noscript><img decoding=\"async\" class=\"nothumb\" src=\"http:\/\/www.credittrends.com\/blog\/wp-content\/plugins\/tweet-this\/icons\/en\/twitter\/tt-twitter.png\" alt=\"Post to Twitter\" \/><\/noscript><\/a> <a class=\"tt\" href=\"http:\/\/twitter.com\/home\/?status=Pensions+https%3A%2F%2Fwww.credittrends.com%2Fblog%2F%3Fp%3D1513\" title=\"Post to Twitter\">Tweet This Post<\/a><\/p><\/div><!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>Corporate defined benefit plans are no better than 75% fully- funded, when adjusting for more realistic investment assumptions and the more powerful discount rate. This is in contrast to current financial reporting using exaggerated assumptions. READ FULL ARTICLE Share on Facebook Tweet This Post<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n<p class=\"facebook\"><a href=\"http:\/\/www.facebook.com\/share.php?u=https:\/\/www.credittrends.com\/blog\/2010\/08\/06\/pensions\/\" target=\"_blank\" title=\"Share on Facebook\">Share on Facebook<\/a><\/p>","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1513","post","type-post","status-publish","format-standard","hentry","category-general"],"_links":{"self":[{"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/posts\/1513","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/comments?post=1513"}],"version-history":[{"count":6,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/posts\/1513\/revisions"}],"predecessor-version":[{"id":1532,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/posts\/1513\/revisions\/1532"}],"wp:attachment":[{"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/media?parent=1513"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/categories?post=1513"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/tags?post=1513"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}