From the October 2010 issue of Treasury & Risk magazine

Plans Wallow in Low Rates

The Federal Reserve's strategy of keeping interest rates low to coax the economy back on track has proved costly for corporate defined-benefit pension plans, whose funding is deteriorating as a result of the low rates. Actuarial consulting company Milliman calculates that the total combined deficit of the 100 biggest corporate pension plans grew by $106 billion in August, with $91 billion, or 84% of that increase, reflecting the expansion in the plans' liabilities caused by lower rates.

The double-A corporate bond rate used to estimate corporate plans' liabilities "is very low right now, and that's probably the number one driver of a low funded status," says Gordon Young, integrated retirement financial management leader at HR consultancy Mercer.

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