Wednesday, August 17, 2016

More ZIRP Carnage

Link to report on SP500 retirement benefit shortfalls citing the idiot zero rate policy below:

In 2015, pension and OPEB assets set aside for issues in the S&P 500 amounted to USD 1.68 trillion, a 4.1% decrease from the USD 1.75 trillion held at year-end 2014. Obligations, posted a 5.04% decrease to USD 2.22 trillion, after increasing 11.3% in 2014 to a record USD 2.34 trillion. These decreases combined to form an underfunding of USD 539.6 billion, a slight improvement from the 2014 USD 585.0 billion deficit and the record USD 686.6 billion deficit of 2012.   The combined coverage ratio increased to 75.7% from last year’s 75.0% (it was 70.0% in 2012).

The current level of underfunding for 2015 stands 22.0% lower than it was for 2007 (when it was overfunded), in spite of the gains. The reason appears to be a combination of low contributions and declining interest rates.

The bottom line for now and the past few years is that funding is becoming more of a product of liabilities, which are a product of interest rates. While that slightly helped in 2015, the forecast for 2016 shows significantly lower interest rates (year-over-year), with the resulting obligations increasing.

However, interest rates, which were expected to increase in 2014, declined instead, reducing the discount rate used for future pension liabilities to 3.92% from 4.69% in 2013. That decrease pushed liabilities up.

You get the picture.... all this reverses when the morons start to increase the rates which will lead to a financial windfall for the firms and the beneficiaries.  Then they will raise the rates in order to (to them)  moderate the economy which will result in even more windfall for the firms and beneficiaries.

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