Question

Poor investment performance of pension and other postretirement benefit plan assets and other factors impacting benefit plan costs could unfavorably impact the Registrants' liquidity and results of operations. Why is this a risk?

Answer 1

Poor investment performance of pension assets is a risk because it can impact an employer's liquidity and financial results, potentially leading to penalties for underfunding and additional financial strain.

Step-by-step explanation:

The question addresses concerns about the risks associated with the poor investment performance of pension and postretirement benefit plan assets. Pension plans and other defined benefits retirement plans, historically common in offering a guaranteed payout to retirees, are now often replaced by defined contribution plans such as 401(k)s and 403(b)s. In defined contribution plans, the employer and employee make regular fixed contributions to a retirement account, and the employee is responsible for the investment decisions. Tax deferral and portability are key advantages of these plans. However, there's a risk that the invested assets may perform poorly, and if that happens, it could impact an employer's liquidity (ability to meet short-term obligations) and degrade the employer's financial results. Furthermore, if pension plans are underfunded, firms could face penalties and additional funding requirements which can also strain finances.