Defense contractors expect billions in cash from 'pension holiday'
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- Staff Dayton Business Journal
A whole lot of market factors affect pension liability for companies, from interest rates to legislation from Congress. And for the next few years at least, the latest example of the latter will flush defense contractors' coffers with billions in excess cash, according to the Washington Business Journal.
So what legislation are we talking about? The 2014 Highway and Transportation Funding Act, of all things, which was enacted in August and trims the amount contractors are required to pay into their pensions every year.
HATFA, as it's known, "changes the rates used to determine pension liabilities by averaging [the rates from the] past 25 years, rather than using the historically low level of rates we're experiencing now," said Bruce Tanner, chief financial officer at Lockheed Martin Corp., during a media call Tuesday.
And since the effect interest rates have on pension liability is countercyclical — meaning that when the former goes up, the latter goes down — "the effect is it lowers the near-term pension funding requirement," Tanner continued. "This is creating a pension funding holiday that will enable cash deployment that tops the last few years."
Click here for the full story and more details on this from WBJ.
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