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January 01, 1999
Emergency Infusions Required for Pension Plans
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rowing number of major American companies are spending large amounts to shore up pension plans that have deteriorated, sometimes drastically, in recent years, The New York Times reports.

Moreover, according to the Times, many companies are looking at ways to reduce their pension obligations to workers.

General Motors has largest pension shortfall, announcing recently that its pension plans in the U.S. ended the year with a deficit of $19.3 billion - even though it pumped in $2.6 billion.

GM also said its pension costs would triple in 2003, severely depressing its profit.

Other examples of corporate infusions:

  • IBM put almost $4 billion into its pension plans last month.

  • Honeywell International said in November that it might have to contribute as much as $900 million more.

  • Johnson & Johnson paid in $750 million last month.

  • 3M made a $789 million contribution last year.

  • Ford said it contributed $500 million this month and would probably add another $500 million soon, depending on tax considerations.

The Times notes that other companies, including Lucent Technologies, Boeing and Delta Air Lines, have been forced to reduce their net worth to reflect the way their growing pension obligations have outstripped their assets. This can put a company in violation of agreements with its lenders.

According to the Times, pension-fund woes like those at GM have little to do with any change in the number of people retiring, or an increase in their benefits. Rather, the problem has been poor return on the pension funds' investments.

As the prices of stocks and other investments have fallen, so has the return on the money set aside for the more than 44 million current and future private-sector retirees who qualify for traditional pensions.

But another factor has been unusually low interest rates. The effect of the bond rates is on the financial calculations used to determine the present value of the pension liabilities, not on the pension funds' return. Falling rates make future pension obligations look bigger on current balance sheets. To meet their obligations to workers, and to stay in compliance with pension laws, companies have been forced to set aside more money.


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