The move enabled GM to immediately erase 25 percent of its total worldwide pension liability.
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One of the largest issues threatening to push states into the fiscal abyss is unfunded pension liability.
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Two studies estimate California's unfunded pension liability at about half a trillion dollars, almost seven times its official debt.
Delta said it will also continue its debt reduction efforts and disciplined capital investment and will aggressively manage its pension liability.
Meanwhile, low rates are also increasing the present value of pension liability.
Its unfunded pension liability has shrunk by half in the past year, due to cash and stock contributions and GM's "de-risking" of its pension investment portfolio.
The country's unfunded pension liability is roughly 150% of GDP.
For well-heeled firms like Aventis, a pharmaceuticals and agribusiness group, this poses little problem even though in 2001 the company's pension liability was half as much again as its earnings before interest, tax, depreciation and amortisation.
Given the sovereign debt turmoil in the Eurozone and the approaching debt problems for the US (as the US debt-to-GDP figures escalate over 100% by mid-2012 without accounting for state unfunded pension liability), debtor nations will find it difficult to finance large-scale consumption economies any longer.
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If you're a pension fund and your liability structure is 15 years, it should probably be 50%.
If trustees are not permitted to limit their liability to pensions or pension participants, why should any vendor to a pension be so permitted?
The surest sign trouble lies ahead for pensions is the recent effort by some of the largest actuarial and pension consulting firms, including Milliman, Towers Perrin and Watson Wyatt, to coerce their pension clients to agree to limitation of liability (LOL) provisions in their contracts.
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It did so to prevent pension improvements from taking effect and increasing the PBGC liability.
The more pension funds are underfunded, the greater returns that are necessary to close the liability gap, and the greater risk they must take.
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But private pension plans (overseen by the Financial Accounting Standards Board) may not set a liability discount rate based on anticipated asset performance.
The state also uses a liability estimation method (the Projected Unit Credit method) that modestly understates accrued pension benefits, and amortizes its unfunded pension liabilities over a period slightly longer than the 30 years recommended by GASB.
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But the Home Office argued this liability was not a cost of closure as it reflected an existing deficit in the pension scheme.
This case was relatively early in the history of ERISA. You have to wonder whether, in the heat of fending off a takeover attempt, it even crossed the mind of Mr. Bierwirth and the other trustees that using the pension assets for that purpose was even ethically dubious, much less something that opened them to personal liability.
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Because that risk is not passed on to pension beneficiaries (their benefits are guaranteed, whatever the market does) it is improper to use a liability discount rate that includes the risk premium.
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