Dow Futures Rise Despite a Ticking US Pension Crisis Time Bomb

Journalist:
Ben Brown
October 9, 2019

Dow Jones Industrial Average (DJIA) futures climbed higher in early trading Wednesday pointing to a strong stock market open.

But investors have seemingly turned a blind eye to the red warning light at General Electric this week. The company froze its pension plan for 20,000 US employees in a bid to reduce its epic $22 billion underfunded pension commitments.

A deeper dive into corporate America’s pension black hole reveals a huge weak spot for the Dow Jones index. Five of the most severely underfunded companies are Dow constituents:

Boeing, Exxon Mobil, Intel, Procter & Gamble, and Pfizer. The time bomb is ticking.

Dow futures leap 200 points

US stock futures roared higher in pre-market trading on reports that China is prepared to discuss a partial deal with the Trump Administration ahead of Thursday’s Washington DC summit. The relief comes after a rocky overnight session.

Dow Jones Industrial Average (DJIA) jumped 200 points in early trading but are investors ignoring the bigger warning signs? Source: Yahoo Finance

Dow Jones futures jumped 200 points as of 6.05 am. S&P 500 futures and Nasdaq Composite futures were up 0.8% and 0.95% respectively.

General Electric follows Boeing into pension freeze

GE announced it would freeze its pension plan for 20,000 employees this week. The US workers will see no further pension benefits. It’s a drastic move by CEO Henry Lawrence Culp Jr to shed $8 billion from the company’s $22 billion underfunded pension deficit.

Thanks to a decade of low interest rates and declining profits, General Electric has little option but to slash employee benefits. It comes five years after Boeing announced a similar pension freeze for 68,000 employees.

As one Twitter user put it:

“The people who spent their lives working on and building your company are the one’s who now have to pay for your failure to manage it.”

The Dow Jones is packed full of underfunded pensions

General Electric isn’t the first to execute pension cutbacks, and they won’t be the last. The big question is who’s next? A quick glance at America’s most underfunded pensions reveals a worrying pattern: two-thirds of them are Dow Jones constituents.

As Welt’s Holger Zschäpitz brought to light, Boeing and Exxon Mobil hold the second and third largest underfunded pension commitments. Both are found in the Dow, while Boeing holds the ominous position as the index’s heaviest weighting.

Elsewhere in the underfunded list is Pfizer, Procter & Gamble, and Intel. Together they are collectively more than $47.5 billion underfunded.

What happens next?

Slashing pension plans does little more than kicking the can down the road. Boeing took drastic steps in 2014 but remains saddled with the second-largest underfunded pension deficit.

“These are American workers who planned for their retirement and now, after working for 30-plus years, they are facing financial uncertainty at a time when they are often unable to return to the workforce” – Rep. Richard Neal (D-Mass.)

With interest rates trending back to zero in the US (and negative in Europe), and the global economy slowing, the time bomb keeps on ticking.

This article was edited by Samburaj Das.

Ben Brown

Ben is a journalist with a decade of experience covering financial markets. Based in London, UK, his writing has appeared in The Huffington Post and he was Chief Editor at Block Explorer, the world's longest-running source of Blockchain data. Reach him at benjamin-brown.uk or on Twitter at _Ben_Brown. Email ben @ benjamin-brown.uk.