A pension plan is a non-core business with significant costs and risks. Over the last 19 years there have been nearly $800 billion in cash contributions in just the largest 100 U.S. pension plans. Yet, despite significant contributions and favorable equity market returns, funded status has not meaningfully recovered from the low of the financial crisis at the end of 2008. With COVID19 casting uncertainty over global markets and communities, it’s especially important for corporations to consider the often misunderstood characteristics of their pension plan.
This paper explores the substantial hidden costs and risks inherent in a pension plan with a focus on the cost and risk associated with credit defaults and downgrades.