With interest rates being kept artificially low, I am surprised at how little we have heard from pension funds. After all, low interest rates make a perfect storm for pensions. They increase the liabilities calculation and decrease their income. Ouch!
The recent move by U.S. Federal Reserve chief, Ben Bernanke to "twist" interest rates is the latest twist of the screws for pensions, bringing down long term rates as well as short.
What happens when a pension runs a deficit? They either increase contributions from employers and employees or they decrease benefits paid to future and/or current pensioners. Usually it's a combination. Sometimes the increased employer contribution is in the form of a lump sum payment. Sometimes it's spread out over a period of years. Either way, we are borrowing from our future to fund our present.
How long can this go on?
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