Low Rates Pushing Pensions Deeper Into Underfunded Territory; Liability
Sober Look | Jul 16, 2012 01:36AM ET
The corporate pension lobby is increasingly energized to have the US Congress approve the FT : Pressure is growing on the UK government and Pensions Regulator to follow their US and European counterparts and give corporate pension funds more flexibility in how they calculate their level of funding for setting company contributions.
Accounting rules in many countries require pension funds to mark their liabilities to market by discounting them at current bond rates. The low level of interest rates has put pressure on scheme funding by inflating liabilities, and authorities in some countries have decided to help scheme sponsors by moving away from the mark-to-market approach.
Governments in the US and the Netherlands are extending “smoothing," which allows funds to discount their liabilities with an average rate over a set time period. Elsewhere, Sweden has put a lower limit on rates, and Denmark has set a higher rate for long-term liabilities
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