It’s all about the interest rates

MSNBC picks up on a story we’ve been monitoring for the last 18 months:

Thanks to stock market gyrations and the lowest interest rates in 60 years, millions of Americans are struggling to keep their retirement savings intact and secure their future.

And it’s not any easier for managers of their pension funds.

Both groups share a mounting problem. The plunge in interest rates engineered to save the U.S. economy and banking system has left them with a giant money hole to fill. Much like a retiree trying to live off the income from Treasury bonds, when interest rates fall, you need a lot more bonds to generate the same level of income.

The same principal has left the nation’s public and private pension funds badly underfunded.

“We are actually more underfunded than we were at the end of 2008 because of the drop in interest rates since then,” said John Ehrhardt, who tracks fund performance for benefits consultant Milliman.

That’s a sharp reversal from just a few years ago, when pension funds managed by the nation’s largest corporations were fully funded, holding roughly $1 in assets for every $1 of future obligations to pay benefits.

To get a more detailed view of how interest rates are affecting the projected benefit obligation for the largest corporate pensions, view our latest Pension Funding Index.

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