The PBGC approved on March 28 a new defined contribution plan for US Airways Group Inc. pilots, clearing the way for the airline to shut down its $1.3 billion pilots' defined benefit plan and emerge from bankruptcy. US Air agreed not to set up a new defined benefit plan or increase benefits and contributions under the new DC plan.
63% corp. plans underfunded
Nearly two out of three corporate pension plans surveyed by Watson Wyatt were underfunded in 2002, and the consulting firm predicts more will become underfunded this year. The survey showed 37% of the 419 employers had fully funded plans, down from 84% in 1998.
Even more companies would have been underfunded in 2002 had it not been for last year's change in the law permitting companies to temporarily use a higher interest rate around the 30-year Treasury bond to calculate the present value of their liabilities. Watson Wyatt warned the change expires at the end of this year.
"Waiting until late this year to find a permanent replacement rate could have a dramatic and damaging impact on pension plans and plan participants," said Kevin Wagner, retirement practice director.
GE alters targets
General Electric reduced its policy target for equities to 65% of total assets from 71%, and raised fixed income to 24% from 15%, said Tim Benedict, spokesman. The changes were made to reflect the actual asset allocation of the $37.7 billion pension plan. The new targets followed an asset-liability study conducted by Watson Wyatt. The remaining 11% of assets, down from policy target of 14%, is in alternative investments and a minimal level in cash.
CalPERS slams Xerox
CalPERS officials put Xerox on its 2003 corporate governance focus list, blasting officials for their "slow and insular" response to the company's accounting scandal and failure to bring in "new blood" on the board. Officials at the $134 billion pension fund called on Xerox to add three independent directors and split the roles of chairman and CEO, now both held by Anne Mulcahy.
Christa Carone, Xerox spokeswoman, said Xerox had made major strides in the corporate governance area, noting that six of the firm's eight board members were independent. She also said the board selects its chairman, and there is "no intention of separating the roles" of chairman and CEO.
CalPERS officials also put Gemstar-TV Guide International Inc., JDS Uniphase Corp., Manugistics Group Inc., Midway Games Inc. and Parametric Technology on the focus list.
High-yield managers added
The $12.9 billion New York City Police Department Pension Fund hired four enhanced high-yield bond managers, said Nicole Lise, spokeswoman. MacKay-Shields will manage $140 million; Seix, $120 million; and Shenkman and T. Rowe Price, $100 million each. Partial funding came from Credit Suisse, which managed $228 million, and W.R. Huff, which managed $175 million; their contracts expired and were not renewed.
Enhanced high-yield bond managers retained were Loomis Sayles, whose $185 million portfolio was reduced to $110 million, and Alliance Capital, which ran $121 million and was reduced to $70 million.
The New York City Fire Department Pension Fund also hired three new enhanced high-yield managers, Ms. Lise said. MacKay-Shields will run $80 million; and Seix and T. Rowe Price will handle $70 million each. Funding came from Huff, which ran $125 million, and Loomis, which handled $116 million; their contracts expired.
MassPRIM sticks with Mellon
The $25 billion Massachusetts Pension Reserves Investment Management Board retained Mellon Global Securities Services, which has been global custodian for the system for four years. Mellon was kept on because of good service and competitive fees, said Tim Cahill, state treasurer and PRIM board chairman.
Separately, the board hired KPMG as the system's auditor, effective July 1. KPMG replaces PricewaterhouseCoopers, which was the plan's auditor for the past three years. KPMG was selected for its depth of resources and lower fees, said Robert Brousseau, PRIM board member. Deloitte & Touche was the other finalist.
College picks Prime Buchholz
Hebrew Union College-Jewish Institute of Religion hired Prime Buchholz as investment consultant for its $60 million endowment and $20 million pension plan, said Robert J. Goldsmith, vice president for finance. He wouldn't say whether another firm was replaced; Money Market Directory lists Fund Evaluation Group as the endowment's consultant.
Austin picks Driehaus
The $1.2 billion Austin (Texas) City Employees' Retirement System hired Driehaus Capital Management to run $40 million in active domestic small-cap growth equities, said Rhonda Plentl, interim pension director. Incumbent Pilgrim Baxter rebid; SEB and Cordillera Asset were the other finalists. Summit Strategies assisted.
Cleveland Bakers select Baird
The $250 million Cleveland Bakers & Teamsters Pension Fund hired Robert W. Baird to manage $15 million in active domestic large-cap growth core equities, said Carl Pecoraro, chairman. Funding came from reducing the plan's fixed-income portfolios. Further details were not available. Independent Fiduciary Services assisted.
Roseville slates study
The $116 million Roseville (Mich.) City Employees' Retirement System is conducting an asset allocation study that should be finished in May, said Gerald Alsip, chairman. Manager changes are unlikely even if plan officials change the asset allocation model, he said. Merrill Lynch is assisting.
Plans raise contributions
Two more companies announced pension plan contributions.
Anheuser-Busch contributed $201 million last year to its domestic defined benefit plans, which have a total of $1.7 billion in assets, to strengthen their funded status. However, the company finished the year with $592 million in unfunded liabilities, according to its 2002 annual report, up from $219 million in 2001.
The company lowered its discount rate to 7.25% in 2002 from 7.5% in 2001, and dropped its long-term rate of return assumption to 9.25% from 10%.
Foster Wheeler plans to contribute $41.9 million to its U.S. and U.K. pension plans in 2003, the same as last year but up from the $12.3 million the firm contributed in 2001. The company also lowered the plan's discount rate to 6.1% from 6.4%, and the long-term rate of return assumption to 8.1% from 9.3%. Total U.S. and U.K. pension assets fell to $487 million as of Dec. 31 from $521 million a year earlier, while pension liabilities rose to $820 million from $641 million. A spokeswoman said investment market and interest rates declines caused the changes in values.
Pa. Schools commits to funds
Pennsylvania Public School Employees' Retirement System, Harrisburg, will invest $75 million in New York Life Investment Management Mezzanine Partners. The $38.3 billion system also committed an additional $100 million to Avenue Asia Special Situations Fund II, for a total commitment of $320 million.