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Defined Benefit Pension Funds

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  • Defined Benefit Pension Funds

    In the old days, prior to 1956, company pension funds would never invest in stocks as they were far too risky for something like pension money. It was always sovereign bonds. I remember when in the mid 1950s Uncle Hal & Aunt Gerry (I had 11 aunts and uncles) announced to the family that they had bought stocks. There was shock and horror on everyone's faces. The stock market was consider the equivalent of a casino. Of course the 1950s was a great bull market that lasted to 1965 and they became the family's first millionaire.


    The Not-So-Great Rotation Out Of Stocks?

    The most important stock market players of the last century are arguably the defined benefit pension plans, aka the company pension funds. [These plans are going out of favor and being replaced by 'defined contribution plans' like 401ks. The last time I looked only 350 of the SnP 500 still had 'defined benefit plans'. In the DOW, McDonalds, Wal-Mart, Mircosoft and Cisco do NOT have company pension plans. I am not sure about the new DOW members and will have to check them out, SS]

    In the 1956, the decision by a British tobacco pension fund to invest in stocks arguably led to the rise of the so-called "equity cult."

    Fast-forward to the most recent decade, pension funds got slammed as their asset values sank during the financial crisis.

    However, many of those funds have been recovering those losses thanks to the historic equity bull market. Many are inching ever closer to fully-funded status.

    And Morgan Stanley thinks this could prove to be a catalyst for stock market outflows.

    "According to Morgan Stanley’s Pension and Endowment coverage group, the current average funding status for the largest 100 US corporate pension plans is above 90%," wrote Morgan Stanley's credit strategy team today. "As these plans approach fully funded status, the de-risking flow should driven an asset allocation shift from equities to long duration bonds."

    This would be good for bonds and bad for stocks.

    This pushes back against the more popular "great rotation" story, which argues that investors are dumping bonds and pouring their money into stocks.


    My Lazy B (BA) yearly pension report recently came, but note it's for 2012 as this stuff lags a full year. BA has 9 different pension funds but the data below is for the main or largest one which has 150,000 members. You can see how a $15 billion pension has their money invested, like 10% in US Treasuries and 26% in common stock. I don't think this data supports the above analysis by Morgan Stanley and IMO I don't agree with them. I am in the coming Great Rotation camp. But DYODD.

    Last edited by SeattleSun; 11-06-2013, 04:27 PM.
    "It takes courage to be a Pig!" Barton Biggs (1932 2012)

  • #2
    Boeing Continues to Solve it's Pension Liabiltiy Problem by just Cancelling Them

    I would think the Social Security Administration is envious.

    Boeing to end pension plans for 68,000 non-union employees

    NEW YORK (Reuters) - Boeing Co (BA) said on Thursday it will end pension plans for 68,000 non-union employees, including its chief executive.

    The move takes effect January 1, 2016, and is part of the company's effort to reduce the growing costs of its pension plans.

    Boeing said it expects to take $110 million non-cash charge in the first quarter for the pension change.

    The charge is in addition to charges of $140 million and $80 million for making similar changes to labor agreements with union machinists in the Seattle area and in St. Louis.

    Under the latest plan, non-union workers including managers and executives will keep what they have earned in their pensions through December 31, 2015, and then switch to a new defined-contribution retirement plan, Boeing said.


    The Fed's ZIRP is screwing the Pension Funds and Boeing is just saying screw it we will just cancel them. LOL

    Unintended consequences of Fed Policy is now screwing the american worker big time. You can't make this stuff up. LOL


    "It takes courage to be a Pig!" Barton Biggs (1932 2012)


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