DLS Consulting


Who would ever think that low interest rates would cause such damage to the funding of many of our nations “defined benefit” pension plans?  For those of you who are not in the financial world, these are the types of pension plans similar to Social Security that carry a specific benefit based on a persons length of service and a percentage of their historic income.  As the government tries to bail out the housing industry by keeping interest rates less than 1% on short term instruments thereby keeping mortgage rates low, it is having a reverse impact on the ability of companies and non-profit entities to fund their pension plans.

The reason for this is more complicated than a short MMM can normally provide.  A shortened explanation is that it involves making an assumption that compares the amount of money needed to fund a pension benefit based on current market conditions.  If the best rate on Treasury bonds is just 2% or 3%, it will require an employer to fund more into the plan than if rates are at 5% or 6%.  If there is no relief from the time period required by law to place funds into the retirement plans to meet these requirements, many more companies and even non-profits could have to file for relief or even bankruptcy.  Since we have already lost 8.5 million jobs during this recession, another event such as this seems avoidable by reasonable changes and adaptations in the law.

As we have observed on more than a few occasions in the past several years, a government that is in such disarray, as ours has been, is ill equipped to deal with even the most obvious problems.  One of the reasons this condition exists is that in past years, corporations have had a history of playing games with this same pension earnings assumption.  When the stock market was going up, companies would claim that their expected rates of return for the plans would be 10% to 12% and therefore would not have to even fund the plans.  Better yet, they could even make it look like they were overfunded and pull money out of the plans and declare the withdrawal to be current earnings and perhaps even earn top management a bonus for performance related incentives. 

If you are wondering why it is imperative that we become involved in influencing corporations and how they are governed, just ask some of your friends and neighbors who used to work at some of them!  Better yet, ask those of you who can influence investors to take seriously the issue we call “corporate governance” as the corporate permission slips for access to the ATM machine will be coming soon.  The more common name for those permission slips is the “proxy card”! 

 Matthew 5:13-15 (RSV) “You are the salt of the earth; but if salt has lost its taste, how shall its saltness be restored? It is no longer good for anything except to be thrown out and trodden under foot by men. You are the light of the world. A city set on a hill cannot be hid. Nor do men light a lamp and put it under a bushel, but on a stand, and it gives light to all in the house.” 

Monday Morning Message Sent 3/29/10


Back to List of Archived Messages

Copyright © 1999-2010, DLS Consulting :: Privacy Policy :: Site Map :: InvestmentHelp.org