by Dave Kranzler, Investment Research Dynamics:
Talk to anyone who is involved in the management of a pension fund and they will tell you the unspoken horror is that every pension fund in the country is underfunded – most of them horrifically underfunded.
A large Teamsters pension fund – 407,000 beneficiaries – just received notice that benefit cuts are coming because the fund has to financially reorganize: Teamsters Pension Fund Cuts
For decades corporations have been underfunding their true future benefit obligations as a means of manipulating GAAP net income for the purpose of maximizing upper management net income-based performance compensation.
There will be a wave of this coming. Many large pension funds admit to being underfunded by 30-50%. But these valuation assessments include an unrealistically high long term ROR assumption of 7.5% (some even higher). Plus every pension fund invested in illiquid alternative assets like private equity deals is more than likely marked too high on the value of those investments.
When the Fed finally loses its ability to keep interest rates artificially low and a safety net under the stock market, most pension funds in this country will be wiped out.
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