Just as its sponsor reported record-breaking fourth quarter profits, the Chrysler Corp. pension plan enjoyed stronger-than-expected investment returns in 1993.
"We started the year at $5.9 billion in U.S. pension assets, and ended it at $9.5 billion," said Russ Flynn, manager-pension fund investments.
The high returns, averaging 16% to 19% for the year ended Dec. 31, coupled with a $3.5 billion pension fund contribution in 1993, are expected to more than offset 1994 increases in projected benefit obligations, according to company officials. These increases will result from a reduction in the plan's discount rate and new 1993 labor contracts that increased pension costs.
Chrysler's high-flying performance stemmed from its 63% commitment to equities - more than that of most large funds. Bonds total 31%, real estate totals 2% and the balance is cash.
In addition, the fund had "exceptional returns" on its international equities, which account for 10% of total fund assets, Mr. Flynn said. He declined to reveal specific returns for the asset classes.
In fact, Chrysler plans to increase its international exposure in 1994 to as much as 15% through additional active equity investments. But it will steer clear of emerging markets because "we think it's still too early," Mr. Flynn said.
The fund currently has three active international managers.
Real estate is another sector Chrysler plans to expand in 1994. The fund currently has 2% committed to the area but might increase exposure to as much as 5% through additional direct investments. The fund has one active manager investing in direct deals, as well as two commingled funds.
"We think there are some very good deals out there. We have done some apartment deals. (In 1994) we might be looking for industrial properties," Mr. Flynn said.
The strong investment returns coupled with an enormous pension contribution helped Chrysler's unfunded pension liability drop to $2.2 billion in 1993 from $3.9 billion a year earlier.
The $3.5 billion pension contribution was offset by a $642 million increase in projected benefit obligations because of scheduled benefit increases under a new contract with the United Auto Workers union. In addition, the plan's discount rate was reduced to 7.38% in 1993 from 8.38% the prior year, further increasing Chrysler's PBO by $1 billion as of Dec. 31, according to Karen Stewart, manager of media relations.
In 1994, the discount rate drop is expected to increase 1994's PBO by $89 million, while scheduled increases in benefits under the 1993 collective bargaining agreements are expected to result in a $112 million increase in the 1994 expense.
The discount rate drop is expected to result in a $53 million increase in non-pension post-retirement benefit expense in 1994.
"These increases in 1994 expense are expected to be more than offset by reductions in 1994 expense resulting from the increased fair value of U.S. plan assets at Dec. 31, 1993, which is largely the result of Chrysler's contributions to the pension fund and higher-than-expected returns on plan assets in 1993," said the company's fourth-quarter earnings report.
Chrysler's 1993 pension fund contribution, using proceeds from a stock offering, far exceeded its contributions in prior years. In 1992, the contribution was $816 million while in 1991 it was $327 million.
Despite the company's rosy fourth quarter, with net earnings nearly doubling to $777 million, Chrysler reported a loss for the full year, in part because of the company's previously announced charge for retiree health care.
Chrysler took a charge of $4.68 billion to account for the health care of future retirees, which contributed to a loss for the full year of $2.55 billion, or $7.62 a share.
In addition, Chrysler's fourth-quarter adoption of Financial Accounting Standard 112 Employers' Accounting for Post-employment Benefits resulted in an after tax-charge of $283 million in 1993. The charge was taken in the first quarter of 1993.
1993 revenue totaled $43.6 billion, compared with a record of $36.9 billion in 1992 revenue.
Chrysler Financial Corp.'s net earnings totaled $129 million for the year, compared with $231 million in 1992. Like the parent, it took a one-time accounting principle-related charge to net earnings of $30 million for retiree health care and post-retirement benefits in 1993.
