Warren Buffett's Berkshire Hathaway Inc., as well as Wall Street giant Merrill Lynch & Co., booked some of corporate America's lowest expected rates of return on pension assets in 2001.
Berkshire last year cut its assumption by 180 basis points, to 6.5%; Merrill cut its by 110 basis points, to 6.6%.
Mr. Buffett has been vocal about this being the only realistic outlook for pension funds. "Considering how poor returns have been recently and the reprises that probably lie ahead, I think that anyone choosing not to lower assumptions - CEOs, auditors, and actuaries all - is risking litigation for misleading investors," the chairman of Berkshire Hathaway said in a speech delivered at an Allen & Co. conference for senior corporate executives last year.
Merrill Lynch cut its assumption because plan assets are heavily invested in U.S. government and agency securities. Still, the plan is 124% funded and its investments earned $188 million in 2001.
But Berkshire Hathaway and Merrill Lynch weren't included in P&I's report on the "pension balance sheets" for the 100 largest defined benefit plans.
Merrill terminated its defined benefit plan in 1988 and bought a group annuity contract from Metropolitan Life Insurance Co., New York, to guarantee the obligations. Because Merrill may be responsible for, or benefit from, the actual investment performance of the assets, it still reports the pension obligation in its annual report.
Berkshire Hathaway, Omaha, Neb., was not included because, while certain of its insurance and non-insurance subsidiaries sponsor defined benefit plans, the holding company itself has no pension fund for its employees.