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Draghi’s Rescue Plan Has Caused a Massive Side-Effect

There’s a corner of the pension world that needs to brace itself for Mario Draghi.  His European Central Bank’s 1.1 trillion euro ($1.2 trillion) bond-buying plan might have already blown a 92 billion-euro hole in defined-benefit pension plans by depressing bond yields, Standard & Poor’s said Feb. 26. And if the actual start of QE pushes yields further, for longer, companies may have to take drastic measures to make ends meet, and could face a hit to their credit ratings.

The ECB is expected to announce further details of its asset-purchase program after it meets in Cyprus Thursday.

S&P estimates that the anticipation of quantitative easing in Europe squashed bond yields so much that the liabilities of defined-benefit pension plans rose by up to 18 percent last year. Its analysis looked at the top 50 European companies it rates that have defined-benefit pension plans and are “materially underfunded,” meaning, the plans have deficits of more than 10 percent of adjusted debt, and that debt is more than 1 billion euros. In 2013, liabilities outstripped obligations for that group by more than 30 percent on average.

Bloomberg [1]

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