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Pension funds are filling up

John Dimsdale Jan 23, 2007

KAI RYSSDAL: If you’ve been paying attention the past couple of months, you know Wall Street’s been on a tear. And so you can thank investors for this next bit of news. Pension plans at big companies are a lot healthier these days.

Some analysis out today shows the country’s 100 largest companies have set aside more than enough money to take care of their pension obligations.

That’s quite a switch, as Marketplace’s John Dimsdale reports now from Washington.

JOHN DIMSDALE: In 2002, big companies had funded only 82 percent of their pension liabilities. And there was a whiff of bankruptcy at the government’s pension insurance system.

Today’s 2006 report from the financial management firm

Towers Perrin is the first one this decade to show pension promises fully funded.

Bill Gulliver at Towers Perrin says pension investments earned 12 percent on average in the stock market last year. Plus, he says a new federal law is spurring companies to sock away more money in their pension plans.

BILL GULLIVER: Some companies are starting the process of funding sooner than they would have otherwise been forced to under the law. But many of these companies recognize the advantages of putting money aside in advance.

Under the new federal rules, companies will pay a penalty if they let their pension assets fall below liabilities.

And Ron Gebhardtsbauer at the

American Academy of Actuaries says pension plans have also benefited from the Fed’s higher interest rate policies.

RON GEBHARDTSBAUER: The cost of an annuity, the cost of the pension goes down when interest rates go up. So, the liabilities of the pension plan actually went down last year when the assets went up.

Today’s report finds that some of the improvement comes from companies freezing, or even reducing the pension promises they’ve made to workers.

Since much of the current pension windfall comes from the stock market, actuaries warn these flush coffers won’t last forever. They recommend pension managers transfer more investments to bonds, which provide more consistent returns over time.

In Washington, I’m John Dimsdale for Marketplace.

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