Data & Research January 2, 2013

BMO Sees Global Hurdles, Opportunites

 

Europe, China and the U.S. must overcome hurdles to keep the global economic recovery intact.

 

Reported by

BMO’s report “More Silver Linings than Clouds” found while both the stock and bond markets have made significant recoveries domestically, the European economy has inched toward recession. Despite debt in the southern countries, the European Central Bank (ECB) and the European Union (EU) developed plans that have already produced some positive results, including decreased interest rates, establishment of emergency reserves, the avoidance of a recession in Germany and France, a rebound by the STOXX Europe 600 Index and the introduction of the ECB as bank supervisor for the EU. 

China’s slowdown, which was induced by measures taken to moderate inflation and rapid growth, has been exacerbated by Europe’s weakness. As a result, their government has taken reverse actions to jump-start demand. Several encouraging trends include: decreased lending rates, export growth turned positive, steadied gross domestic product (GDP) and increased retail sales.

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The U.S.–fiscal cliff aside–has been benefiting from powerful trends in consumer confidence and an uptick in the housing sector. Some optimistic economic signs include: rising consumer confidence and retail sales, housing upswing, rising employment rates, positive manufacturing activity and solid corporate operating margins.

BMO sees opportunity in equities worldwide due to dividends that equal or exceed Treasury yields. They recommend U.S. investors have U.S. equities as the largest portion of their stock portfolio.

Investors seeking more income have moved to riskier fixed-income sectors, but BMO says investors should be aware of the interest rate and credit risks of this strategy.

The report is available here.

 

Compliance December 31, 2012

Multiemployer Plans Could Use More Help

Pension Benefit Guaranty Corporation (PBGC) Director Joshua Gotbaum says some multiemployer plans could use more help to remain solvent.
Reported by

Testifying before the U.S. House Subcommittee on Health, Employment, Labor, and Pensions (HELP), Gotbaum said generally, plans are using the tools and authorities provided under the Pension Protection Act (PPA) to reduce costs, limit liabilities, and increase contributions steadily over time. They are also using their new flexibility under PPA to respond to market fluctuations and to reduce excessive stress on employers and participants. However, he noted, many critical status plans and some seriously endangered status plans are severely distressed and will need still further provisions to remain viable.     

According to Gotbaum, in the case of some of these ongoing plans, further contribution increases may be needed. He pointed out that because benefits generally cannot be reduced after they are earned, there is a natural limit to how much underfunding can be made up through reductions in benefits.    

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He testified that the PBGC’s multiemployer program has few assets: as of September 30, 2012, the program had total assets of $1.8 billion. As of the end of FY 2012, the multiemployer insurance program has $7 billion in booked liabilities.

(Cont’d...)

Gotbaum said some of the provisions of the PPA will sunset in 2014, which creates both the need and the opportunity to consider what changes are appropriate for the future. He said PBGC’s multiemployer program should also be reviewed as part of that discussion, noting that the basic contours of the program have not been modified in more than 30 years.    

“Some of the tools and authorities the statute provides that might be useful in certain circumstances are not useable in practice because of the agency’s lack of financial resources.  Both the program and PBGC’s finances should be analyzed as part of and in the context of the broader changes for multiemployer plans generally,” Gotbaum concluded.  

A replay of the hearing, as well as text of Gotbaum’s testimony, is available here.

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