Will Standard and Poor's Downgrade Force Pension Plans To Sell U.S. Bonds?

Expert Discusses Effect of Standard and Poor's Downgrade On Public and Private Pension Plans

PLAINVIEW, NY (MMD Newswire) August 8, 2011 -- The U.S. is no longer rated Triple-A by Standard and Poor's. Many people are speculating that Public and Private Pension Plans will have to sell their U.S. Bonds causing a selloff in the markets. However most pension funds have an Investment Policy Statement which allows for the new AA+ rating on U.S. Bonds.

Public and some private pension plans have an Investment Policy Statement. The Investment Policy Statement defines what types of investments a pension plan can and can't invest in. When it comes to bonds, the Investment Policy Statement gives a minimum credit rating and all bonds must be rated higher than the minimum.

Brett Goldstein, a Plainview, New York-based pension administrator and President of The Pension Department, states, "There is much mis-information out there. Many people are talking about pension funds and how they are now required to sell their U.S. Bonds because they're no longer Triple-A."

Not all pension plans have an Investment Policy Statement. The Employment Retirement Income Security Act of 1974 (ERISA) does not explicitly require an Investment Policy Statement. Some plans don't have an Investment Policy Statement as it might make them an easy target for employees who might be quick to point out when the plan fails to comply with their own written policies.

Goldstein, states, "ERISA does not require that public and private pension plans hold U.S. Bonds or Triple -A rated bonds, although many do. If the stock market continues to respond negatively to the downgrade, public and private pension plans may have to buy U.S. Bonds to avoid losing money and causing underfunding.

Employees who are concerned about the effects the downgrade will have on their pension, should call their human resources department. Public employees can go to their states website and look for the audited financial reports. Employees of large companies can also ask for the audited financial reports. The audited financial reports should have a credit risk section detailing the minimum credit ratings for bonds. Employees in smaller private pension plans should ask for a copy of the Investment Policy Statement.

About Brett Goldstein:
Brett Goldstein is a Pension Administrator and President of The Pension Department, a consultancy based in Plainview, New York. He is a speaker and media personality who specializes in providing businesses and individuals with affordable retirement planning solutions. Goldstein's timely advice and tips have been featured on Fox Business Network, Kiplinger's, Wall Street Journal Radio, MarketWatch.com, New York Daily News, The Chicago Tribune, and many others. Investment services are offered exclusively through: Cadaret, Grant & Co., Inc. Member FINRA/SIPC.