Quote:
Originally Posted by MoneyGuy
If I were you folks, I'd start to care a wee bit less about this market and more about your DB pension plan, if you have one. If you don't, this will still impact you. I suspect that in a year from now those might be the bailouts that hit the news.
Actual facts about one DBPP:
Last year's valuation showed a 5% surplus. They were paying out just over 5% of assets in pension benefits to retirees. Deposits amounted to roughly 3.5%. The shortfall was made up of the investment return from cap gains, dividends and interest. Target investment mix was 60% equity (overweight Canada, underweight U.S.), 40% bond (75% Canadas and Prov, 25% AA+ Corp).
Year-to-date return is negative 37.5%.
Thus, the payout is now almost 8%. Since DB pension payouts can't be adjusted, employee contributions must go up by nearly 40% (you get nothing in return for the extra money).
Next shoe to drop??? This has the potential to be far more severe for those of you are young than this current market. Markets? Pfft. Worry about this.
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As far as I am aware, companies that offer DB plans face very strict rules in regards to how much they can increase employee contributions, and no matter how much it goes up, it will cost the company more than the employee no matter what.
What will most likely happen is companies offering DBs will switch over to a DC benefit, in which the employees are still effed by the market.
Actuaries are going to be VERY busy in the coming months...