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John Ehrhardt, Milliman principal and consulting actuary, on the record number of pensions being underfunded.
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Companies are in the red is yours what John Earhart building principal and consulting actuary joins me now on a Fox Business exclusive -- she breeds this stuff.
What are the percentages of companies that have underfunded pensions right now how worrisome this this.
-- most companies have underfunded pensions but they're being valued at record low interest rates.
And really pension -- last few years is a little bit about interest rates the accounting rules require you mark the liabilities to market.
And that interest rate is at a record low -- predicting about four point 1%.
So deficits are -- -- year -- all we're here on high from about twelve years we've been element but the.
-- tighten rates we started to see interest rates rise would we see fewer underfunded pensions because they'd be held to a different standard right as interest rates would rise the value of the liabilities would go down reversing a four year trend.
But it's very worrisome because that that the issue of underfunded pensions has panicked a lot of people what's caused all kinds of drama for states who were very concerned and then that unions get upset and everybody's forced to take different cuts in salaries and things like that.
What are you most worried about when it comes to this.
Well the biggest concern is volatility.
Companies are trying to stay invested in equities to help fund their way out of the plan.
I had added these deficit -- so what happens explained that -- hoping that they'll make a great investment and that will then fund it.
That's called gambling and a -- or investment not just want to make sure you're not going to see another 2008 or if another 2008 happens.
You're protected on the -- side by hedging -- -- if it's still worrisome but but.
Equally as worrisome I started studying the pension benefit guarantee corporation which is across our government organization back I don't know 20045.
Because.
Wilbur Ross -- find a lot of companies that had.
Messy pensions and then he would turn to them.
And he'd say help fix this pension of the company on by whether it was a steel company record company.
And they help companies that get into trouble when it comes to underfunded pensions.
-- down for the count everybody needs help.
There is -- found that as many of the pension plans are they take over pensions when a company goes bankrupt and the -- is underfunded.
But they have enough assets like most pension plans to cover the benefit payments for 2030 years easy so it's not an immediate problem.
But -- -- requiring significant increase cash contributions.
And the PBGC is increasing the premiums they charge to help fund their long term deficit okay.
-- what's what we're talking about here on this particular chart.
We have the the assets in the Blue Line and then the yellow want explain to people what they're looking at here.
-- this is comparing the liabilities and assets of the -- 100 largest hundred largest defined benefit plans in the US.
And while you see the lower -- in the assets have performed well over the last four years.
I think -- market stock while the market has gone wild since 2008.
But that has not been enough to hold pension funding from reaching record deficits because interest rates have dropped and the liabilities have outpaced outpace the asset.
Is there any way is there an easy way for people who work at -- company to find out if the pension that there and is under -- It one of the things -- pension protection act well -- -- requires us companies to give an annual funding notice.
Now there's a lot of numbers in -- there's a lot of words.
But to look at the funded percentage -- -- from one year to the Max and to hopefully see an improvement -- funded status and their companies out there we know that are large and have problems.
-- -- While it it's it's not as much how big that the deficit is but how how it fits relative to their balance sheet.
There are companies with you know alive bill unfunded liabilities -- -- -- those fears and AK steel.
Are you worried about General Electric are these some of the names would those little ones that taking advantage of the new pension law that allows them to reduce their contributions from GE is always had one of the best well funded plans.
AK steel was one of the ones that had a very high.
Relative value of pension underfunding.
To that net -- so that was a concern and there.
They took some be risking measures this past year to reduce that impact.
Conversely there are companies that are increasing their contribution such as GM general -- General -- of course and if you look at those and he said okay not that.
From thank you.
For keeping -- Muslims -- all of this.
Job there are relevant principal and consulting actuary find out you're -- find out if your pension is underfunded everybody.
