NEW YORK - Pension surpluses are not extinct.
More than 20 large corporations still had surplus pension assets - totaling $10.5 billion - in 2002.
But there are clouds to that silver lining. The total, disclosed by 21 companies in the Standard & Poor's 500 index, is 95% less than the surplus at the end of 1999. Plus, one company - General Electric Co., with $4.5 billion in excess assets - was responsible for nearly half of last year's surplus.
(In 2001, 109 companies reported $82 billion in excess pension assets, according to an analysis by Standard & Poor's for Pensions & Investments.)
Other companies with surpluses include BellSouth Corp., with $1.9 billion in excess pension assets; Verizon Communications Inc., $768 million; and Southern Co., with $506 million.
Prudential Financial Inc., which went public just a few years ago, reported a $344 million surplus, and McGraw-Hill Inc., the parent corporation of S&P, reported a pension surplus of $103 million.
The Washington Post. Co., Washington, which is not in the S&P 500 index, disclosed that its pension fund, with $1.36 billion in assets and liabilities of $499 million at the end of 2002, is 273.3% overfunded, with a surplus of $863 million. In its latest annual financial statement, the company disclosed that 17% of operating income, or $4.15 per share, was attributable to its pension fund.
"Because this credit is non-cash and of lesser value than the rest of our earnings, although it does give Post employees a high degree of security, it's important to us that you understand that our reported earnings include millions of dollars that will never see the cash box," Chief Executive Donald E. Graham told investors in the latest annual report.
Although the Washington Post pension fund lost $92 million, or 2.3% on its assets in 2002, that is unlikely to have an immediate impact on the fund's surplus because accounting rules permit companies to spread gains and losses over several years.
All but four of the 21 S&P 500 companies that reported surplus pension assets in 2002 had excess assets for at least the past decade, according to the Standard & Poor's analysis.
But the amount of the pension surplus reported in 2002 is peanuts compared to the $261 billion surplus reported by 262 companies in the S&P index at the market's peak in 1999.
And, both the number of companies with excess pension assets, and the amount of the surplus, is expected to shrink further in 2003. "Another year like (2002) and the 21 are gone," said Howard Silverblatt, the S&P analyst who performed the analysis.
The analysis, based on 2002 financial statements filed by companies thus far, excludes 109 companies that have not yet reported their results. Of those, 96 had underfunded pension plans in 2001, and were unlikely to be back in the black in 2002.
Disappear in 2003
General Electric, Fairfield, Conn., is running through its surplus so fast - $20.2 billion has evaporated since the market's peak in 1999 - that it could disappear in 2003 if the poor stock market continues. The company's surplus shrank in 2002 largely because its assets dropped by $7.2 billion while liabilities climbed $2.8 billion.
GE's $1.6 billion in pension income also could disappear, thanks to the lower actuarial assumptions on its pension assets and liabilities, according an to actuary who analyzed the financial report and wished to remain anonymous. The one percentage point drop in its assumed return on pension assets in 2003 could cause its expected return to drop by $1 billion. Plus, the 50 basis-point drop in the discount rate, to 6.75%, could cause its liabilities to jump simultaneously. Already, in 2002, the company's liabilities rose $1.65 billion because of the decline in interest rates.
"Next year, it's entirely possible their pension income is gone," the actuary said.
Verizon, New York, already has warned investors that its pension income will dwindle in 2003 to between 3 cents and 5 cents a share from 35 cents per share in 2002. The telecommunications company has lowered its assumed rate of return to 8.5% from 9.5% in 2002, and cut its discount rate to 6.75% from 7.25%. Because pension expenses comprise the service cost and the interest cost offset by expected return on pension assets, the combination of both changes will increase the service cost and interest rate cost elements of pension cost and lower the expected return on pension assets.
At the same time Verizon's surplus is rapidly disappearing. Pension assets fell $16.5 billion, to $38.6 billion at the end of 2002, because of $7.7 billion in investment losses and $9.7 billion in payouts during the year. The payouts reflect layoffs.
Liabilities grew $4.8 billion, to $38 billion at the end of 2002, and would have grown more had it not been for the obligations it offloaded because of the 10,000 employees who were laid off or took early retirement in 2002, in addition to 10,000 the previous year. Verizon, which told investors it doesn't expect to make any contributions to its pension funds this year, anticipates contributing $125 million next year to satisfy funding rules under federal pension law.