BOSTON - Companies in the S&P 500 index this year could see pension costs rise by a total of $95 billion because of lower interest rates, said David Zion, accounting analyst at Credit Suisse First Boston. Consequently, the funding level of those firms could drop to an average 73%, from Mr. Zion's earlier estimate of 82% made in September 2002.
The pension costs could lower the earnings of the S&P 500 by an aggregate of $11 billion, he said.
Mr. Zion notes that 329 companies in the S&P 500 could be affected by the drop in interest rates. The interest rate on the Moody's Aa corporate bond index fell to 5.73% on May 29, from 6.52% at the end of 2002. Pension accounting rules require corporate plan sponsors to use the interest rate on the Aa Moody's, or other high-yield corporate bonds, to calculate the present value of their future liabilities.