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U.S. companies seen earmarking $70 billion for pensions: UBS

The logo of Swiss bank UBS is seen on a building in Zurich, February 13, 2013. REUTERS/Michael Buholzer
The logo of Swiss bank UBS is seen on a building in Zurich, February 13, 2013. REUTERS/Michael Buholzer

NEW YORK (Reuters) - U.S. companies are expected to contribute $70 billion to their pensions in 2013 with about 40 percent of the money going into bonds, a UBS analyst said in a research note released on Friday.

The amount is below the estimated $80 billion in pension contribution made last year.

Although stocks and other risky investments have fared well since mid-2012, many corporate pensions remain underfunded and cannot depend on strong future returns on equities and higher-yielding vehicles to meet their obligations, according to UBS analyst Boris Rjavinski.

A U.S. corporate pension on average is underfunded by 15 to 25 percent.

"Consequently, what happens to the liabilities has a magnified effect on the funded ratio," Rjavinski wrote in the February 28 note. "However, the shifts probably occur slowly, so we doubt they will cause a major market move."

The estimated amount of pension contribution going into bonds should keep a lid on the yields on 10-to-30-year U.S. Treasuries and investment-grade corporate bonds, he said.

Boeing Co. has the largest underfunded U.S. private pension with a deficit of $19.72 billion, followed by Ford Motor Co. with $18.72 billion and AT&T with $13.85 billion, Rjavinski said.

These three companies said they will contribute more to their pensions this year. Boeing planned to put in $1.5 billion, while Ford looked to contribute $5.0 billion. AT&T was prepared to add $9.5 billion, which includes stocks, he wrote.

Rjavinski said some companies will use cash on hand to contribute to their pensions, while most will likely tap the bond market to raise funds since interest rates remain very low.

(Reporting by Richard Leong; Editing by Andrea Ricci)

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