General Electric (GE), Boeing (BA), Lockheed Martin (LMT) and numerous other companies with large pension liabilities are in a bind: the Fed is keeping interest rates at historically low levels, but new regulations say that companies need to quickly find funding for their pension liabilities, Bloomberg notes today.
The changes could mean that pension liabilities weigh on the results of these large companies for the next few years as long as the Fed holds tight to its pledge to keep rates low into 2014.
A law that went into affect in 2008 made employers fully fund their pension or retirement plans within seven years, and use interest rate projections to account for future payment requirements. Clearly, with the Fed in stimulus mode, the rate calculations will work against companies for the next few years, possibly forcing them to dip into earnings and cash to keep up with liabilities.
Boeing already said earlier this year that its pension costs are expected to rise 63% this year, and GE will contribute $1 billion to its pension plans, the first time it’s had to put money into pensions since 1987.
