NCPA - National Center for Policy Analysis

Companies' Pension Reports Were Misleading

October 24, 2002

The value of many corporate pension funds has shrunk during the bear market. That means companies soon will have to pay in money to refill pension coffers. Where will that money come from? It will be cash diverted from what otherwise would have been promising new ventures.

Moreover, reports of pension-plan profits made during the market's heydey were misleadingly optimistic, analysts say.

  • At the peak of the stock market, 163 major U.S. corporations -- following generally accepted accounting principles -- recorded earnings from their pension plans.
  • Last year, 50 of the largest U.S. companies recorded total pension income of some $54 billion even though their plans actually lost $36 billion, according to a recent study by the actuarial firm Milliman USA.
  • The typical corporate pension plan went from being 7 percent overfunded in 2000 to being 6 percent underfunded in 2001, according to Standard & Poor's.
  • A report from Credit Suisse First Boston estimates the current pension shortfall at $243 billion for the companies that make up the S&P 500-stock index.

Although there is no danger the companies will be unable to pay out retirement benefits in the near term, the companies will either have to put in more cash now or hope that a market recovery will help erase some of the deficit.

Source: Jonathan Finer, "Pension Reports Returning to Haunt U.S. Companies," Washington Post, October 23, 2002


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