Reinvestment

Thinking Ahead – Pension Plans

 

David Gross takes a look ahead at the looming concern about pension plans. 

 

Author’s note: This article focuses on defined benefit pension plans in the private sector. To learn more about the pension challenges facing municipalities and states, check out this article by Mary Williams Walsh at The New York Times and the Federal Reserve’s analysis from December 2019. 

Stock markets plummet by 20 to 30 percent. Long-term interest rates drop. Future economic growth and asset returns are in doubt. Each of these scenarios can threaten the solvency of defined benefit pension plans and pose challenges for the employers sponsoring and managing these plans. Like the Great Recession of 2007 to 2009, COVID-19 has delivered all three scenarios overnight. For companies that elected not to de-risk their plans over the past decade, or lacked the financial means to do so,  the next decade will bring higher contributions and less discretionary cash for reinvestment, mergers and acquisitions, dividends, and buybacks. For some companies, the next decade will also make them less attractive, or unattractive, to potential acquirers or bring a reorganization or liquidation. 

 

Read the full article, The Next Crisis? Pension Plans, on the Strategic Value Partners’ website.