Regular readers know that central bank monetary policy, including zero interest rates and quantitative easing, has triggered the pension fund-real economy death spiral.
By artificially crushing the returns that pensions funds can earn on their bond investments, central banks have increased the burden on corporations to fund their pension plans. This increased funding comes at the expense of re-investing in the core business and results in a decline in the real economy.
This death spiral continues as the central banks try to lower rates even further to stimulate growth in the real economy with the result of further reducing pension plan returns and increasing the transfer of funds from growing the real economy to funding the pension plans.
Of course, the death spiral could be halted if the central banks changed their monetary policies, but this is unlikely as it would require that the economists running the central banks acknowledge that the only value in their PhD dissertations is burning them for heat.
Corporate pension plans have gotten banged up in the wake of the financial crisis. And the current unfavorable investment environment has made it difficult for the plan managers to invest for the future.
"These challenges include low funded levels due primarily to low market interest rates, increasing contribution requirements and expense recognition for plan sponsors, and declining future return assumptions for plan assets," writes Michael Moran of Goldman Sachs Asset Management.