Even companies that continued to report a shortfall narrowed their deficits.
E.I. du Pont de Nemours & Co. Inc., for example, had a $3.2 billion shortfall on its $17.9 billion pension fund last year, compared with $2.6 billion in 2003.
"It was a good year," said Ken Porter, chief actuary at the Wilmington, Del.-based chemicals manufacturer. The company's pension fund — which was 63% invested in equities in 2003 — earned $3.4 billion on plan assets, compared with the $1.4 billion it had expected to earn, according to the annual report. The company had assumed it would earn 9% on assets, down from 9.5% the previous year.
While most companies heeded the Securities and Exchange Commission's call last year to lower their assumed rate of return to 9% or lower, the impact of that reduction won't show up on their reported financial results until 2004.
For years, Weyerhaeuser had assumed it would earn 11.5 % on its pension assets, the highest assumption of companies in the S&P 500. But in 2002, the company lowered its expected return to 10.5%, and to 9.5% in 2003.
In the 2003 annual report, the company observed that its long-term rate of return on pension assets is based on an expectation that the investments will earn a 3% "alpha" or pure return over the benchmark return of 6.5%. "Over the period of 19 years during which this strategy has been in place, the U.S. fund has achieved a net compound annual return of 17.4%, or 6.4 percentage points in excess of the benchmark return of 11%," Weyerhaeuser noted in its 2003 annual report.
On average, the largest 158 of the companies expected to earn 7.98% on their pension assets in 2003, compared with the average 8.63% for all of the companies in the index with pension plans assumed in 2002, and their 9.15% average in 2001.
Mr. Silverblatt noted that the reduction in the assumed long-term rate of return on pension assets is the "biggest change since 1992."
The 2003 annual reports also show that companies assumed a discount rate, on average, of 6.09%, compared with 6.64% at the end of 2002, and 7.13% at the end of 2001. The discount rate is the interest rate companies use to calculate the present value of the future benefits they expect to pay.
In an earlier warning to companies, the SEC had said it expected them to assume discount rates comparable to the interest rate on high-grade corporate bonds.
The discount rate and actuarial return assumptions show "a great deal of herding," said Jeremy Gold, an independent pension actuary in New York.
"They have got the twin messages the SEC sent out, first in 1993, which put the discount rate in a narrow range just around 6% today, and then the 9% cap" last year, Mr. Gold noted.