If markets continue to be volatile after Standard & Poor's downgrade of U.S. debt to Double-A+, pension funds will attempt to "minimize their losses and buy bonds," says Brett Goldstein, president of The Pension Department in Plainview, N.Y.
On news of the S&P downgrade, there was a lot of speculation that public and private pension plans would be forced to sell their U.S. bonds because they were no longer Triple-A-rated, sparking a sell-off in the market, Goldstein says. However, this sell-off didn't occur, Goldstein explains, because most pension funds have an investment policy statement (IPS) which allows for the new Double-A+ rating on U.S. bonds.
Goldstein adds that the Employee Retirement Income Security Act (ERISA) "does not require that public and private pension plans hold U.S. bonds or Triple-A rated bonds, although many do." If the stock market continues to respond negatively to the downgrade, he says, "public and private pension plans may have to buy U.S. bonds to avoid losing money and causing underfunding."
Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.
Your access to unlimited BenefitsPRO content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
- Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events
- Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
Already have an account? Sign In
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.