NEW YORK — Pension costs for companies with the largest pension obligations will increase significantly until 2005, even though unfunded liabilities will decline this year, a Bear Stearns & Co. Inc. report says.
In fact, the top 100 companies in the Standard & Poor's 500 index that were included in New York-based Bear Stearns' report will have an aggregate net pension cost of $12 billion in 2003 and 2004 and $11 billion in 2005, even though the stock market has climbed this year and interest rates have risen.
That's because pension accounting smoothing mechanisms have delayed the full impact of the 2001-2002 stock market and interest rate declines that made unfunded liabilities surge.
The companies reported aggregate net pension income of $13 billion in 2001 and $3.3 billion in 2002, despite the stock market and interest rate declines those years.
"With the smoothing mechanism of FAS 87, losses and gains are smoothed and amortized," said Janet Pegg, one of the authors of the Bear Stearns report. "It takes time for losses to have an effect on pension expense.
"It would be nice in the future if there were excess gains to offset those losses but we weren't that optimistic," Ms. Pegg added, explaining why the report expects pension expense to rise by that large amount.