WASHINGTON - Several perennial offenders have been knocked off the Pension Benefit Guaranty Corp.'s annual list of 50 worst funded pension plans, thanks to higher interest rates last year and sizable contributions by companies.
Company contributions through September 1995 are reflected in the PBGC's list of worst funded plans for 1994.
But a spate of corporate downsizings and mergers has resulted in an equal number of newcomers to the PBGC's list.
Overall, 16 companies, including General Motors Corp., Goodyear Tire & Rubber Co., Inland Steel Industries Inc. and Loews Corp. dropped from the list. Newcomers to the list included Sears Roebuck & Co., Scott Paper Co., American Home Products Co. and Del Monte Foods. Among the 34 companies that were on both the 1993 and 1994 lists, several could be on financially shaky ground.
Ravenswood Aluminum Corp. continued to top the PBGC list, with less than one-third of the assets it needs to pay for pensions promised workers and pensioners. A company spokesman did not return several calls seeking comment.
Ravenswood was followed by Bridgestone-Firestone Inc. in the second spot, moving up from ninth on the previous year's list. New Valley Corp., second on the list of the 50 worst funded pension plans in 1993, did not appear on the list this year. New Valley dropped from the list because it got rid of its obligations for Western Union Financial Services' unfunded pension plan when it sold the business to First Financial Management Corp. last year. First Financial showed up on PBGC's list instead. LTV Corp. once again was third.
The 1.5 percentage point increase in long-term interest rates last year used by the PBGC and an approximately $10 billion contribution by General Motors Corp. accounted for the bulk of the $21.4 billion decrease in the PBGC's exposure for unfunded pension plans between 1993 and 1994, according to Gary Ford, partner at Groom and Nordberg, Washington.
And while lower interest rates this year might otherwise have wiped out the gains made by companies in funding their pension plans, the booming stock market and jump in asset values should more than make up for any setbacks, actuarial experts say.
When interest rates rise companies can assume correspondingly loftier returns on their pension assets, reducing the amount of money they need to set aside to pay future promised benefits. As a rule of thumb, a one percentage point increase or decrease in interest rates can result in a 10% to 20% change in pension liabilities.
The PBGC list, a report card on the health of the nation's private pension plans, shows that even the worst funded pension plans in 1994 had less of a shortfall, compared with the preceding year, between pension benefits they had promised their employees and the assets they had in their plans to pay for those benefits.
"Companies are coming forward to work with the PBGC to protect pensions," said PBGC Executive Director Martin Slate.
Bethlehem Steel Corp., for example, which had nearly three-fourths of the pension assets it needs to cover benefits guaranteed by the PBGC, contributed $470 million in 1994 and $220 million through September 1995, and will make an undisclosed contribution to its pension fund in the fourth quarter, said Gary Graham, a company spokesman.
And, LTV, which emerged from bankruptcy in 1993, has poured more than $2 billion into its pension funds since then. In just the past two months, the company has contributed $60 million, and "we are seriously considering making more contributions" before year-end, said Mark Tomash, a company spokesman.
Westinghouse Electric Co., which moved up to the ninth spot on the 1994 list, also has accelerated its pace of funding in recent years, said Roy Morrow, a company spokesman. The company anticipates fully funding its plan, which had approximately a $1.2 billion shortfall at the end of 1994, within the next five years. The company contributed about $300 million last year and will have contributed about the same this year, he said.
Some companies, such as Scott Paper Co., have shown up on the list because they have been laying off thousands of workers, triggering retirement benefits earlier than otherwise anticipated. The company's downsizing has added $125 million in additional pension liabilities in the past five years, said Andrew Yost, pension director. The company contributed $75 million this year toward taking care of its additional liabilities, "so even though it may appear we are not doing our job, we're on track," he said.
The company, which is expected to be acquired by Kimberly-Clark Co. following a shareholder vote on the deal Dec. 12, plans on amortizing those additional liabilities over five years, Mr. Yost said.
Meanwhile, at least two companies, American Home Products and Sears Roebuck, dispute the PBGC's ranking.
American Home Products, which ranked 50th on the list, said its funding dropped to 97% last year when its plans were combined with those of American Cyanamid Co., which it acquired in late 1994. "In today's environment, we would not be underfunded and would not expect the plans to be underfunded at the end of this year," said Lowell Weiner, a company spokesman.
Sears Roebuck showed up on the list because the PBGC uses unrealistically low interest rate assumptions, according to James A. Blanda, executive vice president and controller.
The pension insurance agency assumed the Sears pension plan would earn 7.15% over the long term, whereas Sears' pension fund assets have earned 12.5% on average in the past decade, he noted.
"Therefore both we, and our independent actuaries, believe the Sears pension plan is not underfunded," Mr. Blanda said.