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678 Partners Corporate Db Plans And Endowments Blog


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Continuing on the economic reporting this week, the network sommelier takes a look at the underfunding of pension plans at large corporations. Big differences between 1999 and 2009 funding levels where over 90% of large corporate defined benefit plans are underfunded. If you are receiving your pension from one of these companies right now, that\'s great. We also know they are sitting on a lot cash right now. The 1 million dollar question is what will they do with all this cash/ pay their underfunded defined benefit plans?

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678 Partners Corporate Db Plans And Endowments Blog

  1. 1. Corporate DB Plans & Endowments Amir Homayoun Rafizadeh the “Network Sommelier” How to reduce income tax's How to reduce estate tax liability Items not covered by Your current advisor
  2. 2. Asset Allocation Differences <ul><ul><li>Huge difference between the way a corporation invests vs. an endowment </li></ul></ul><ul><ul><li>Endowments use more alternative asset classes such as private equity, hedge funds, real estate and other </li></ul></ul><ul><ul><li>Corporations use more traditional equity and fixed income asset classes </li></ul></ul>
  3. 3. Funding for Defined Benefit Plans <ul><ul><li>Huge difference what 10 years can do between 1999 and 2009 </li></ul></ul><ul><ul><li>Currently 92% of S&P companies have under-funded their defined benefit plans </li></ul></ul><ul><ul><li>From most large corporate balance sheets, we know they are sitting on a lot of cash. Should that cash be used for funding these DB plans? </li></ul></ul>
  4. 4. Pension Return Assumptions <ul><ul><li>Pension average returns reduced significantly for S&P companies since recession </li></ul></ul><ul><ul><li>1999 average was around 9.2% vs. 2008 average being 7.8% (these figures do not incorporate fees & expenses) </li></ul></ul><ul><ul><li>During Q4 2009 16% of the S&P companies felt they could achieve 8.5%-9% return vs. Q1 2010 at only 10% of those respondents </li></ul></ul>
  5. 5. Uncertain Future <ul><ul><li>The growing national debt will reduce US GDP(reduced GDP impacts profitability of large US companies and hence their ability to fund their under funded pension plans!) </li></ul></ul><ul><ul><li>Social Security will face shortage of funds post 2020 (Baby boomers have already started to retire! </li></ul></ul><ul><ul><li>Your retirement is in your own hand! </li></ul></ul>