Why Corporate America Is Rooting for Higher Rates: Verizon Communications Inc. (VZ), Ford Motor Company (F) and More

Falling rates have boosted the amount that employers have to set aside now in order to cover those expenses far in the future. But conversely, if interest rates were to rise, then the discounted value of future pension obligations could fall substantially. That would leave companies looking far healthier in terms of pension funding without spending a single penny toward extra benefits.

Lost in the shuffle?
As massive as pension-related charges can be, they often go unnoticed by investors. That’s because typically, you’ll see pension expenses lumped into the “one-time charge” category that doesn’t get included in most analysts’ expectations.

Even as such charges become more common, companies are doing their best to draw attention away from them. The Boeing Company (NYSE:BA) , for instance, reports a core earnings figure that doesn’t include provisions related to pension expenses, which helps investors focus less on pension volatility and more on core operations.

Ready for higher rates
For the most part, corporations have done a fine job of taking advantage of low interest rates. They’ve refinanced much of their higher-rate debt and built up cash reserves they can use for future lean times. Having learned the lessons of the liquidity crisis during the 2008 financial meltdown, companies treasure cash, and they’re willing to borrow at attractive rates to get it.

With the capital they need already at hand, many companies have already gotten all the financing benefits available from low rates. As a result, they’ll applaud higher rates when they come — if it can help them avoid massive pension payments that will hurt their short-term earnings. For the millions of workers and retirees who rely on those pensions, that could be the answer that ensures the stability of pension funds throughout their lifetimes.

The article Why Corporate America Is Rooting for Higher Rates originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.

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