Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. Print
March 22, 2004 12:00 AM

More funds reporting surpluses again

2003 market returns, interest rate boost combine to flood coffers

Vineeta Anand
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    WASHINGTON — Pension surpluses are making a comeback.

    As many as 40 of the nation's largest corporations are expected to have had more assets than needed to pay benefits in 2003, a 20% increase from a year earlier.

    An early analysis of the annual financial reports of companies in the S&P 500 that sponsor defined benefit plans shows that 23 of 158 reported pension surpluses for 2003. Data on 17 of the companies that reported surpluses in 2002 were not available at press time, but it is expected that many, if not all, of those will also be in the black for 2003.

    Nine of the companies that reported surpluses last year were underfunded in 2002, including six in the financial sector — Citigroup Inc., J.P. Morgan Chase & Co., SunTrust Banks Inc., Lehman Brothers Holdings Inc., BB&T Corp. and U.S. Bancorp.

    "The stock market obviously helped," said Howard Silverblatt, an equity analyst at Standard & Poor's, New York, who performed the analysis. The companies analyzed so far had an average 64% exposure to equities.

    "The turnaround in interest rates at the end of the year also helped a lot," he added, noting that interest rates have since dropped and the stock market is flat, so the investment performance of pension funds in the first quarter of 2004 will probably have deteriorated.

    ‘Negative to positive'

    "If you have a 20% return (on pension assets), it can move you from negative to positive funded status quite easily," observed Adam Reese, an actuary and senior consultant with the Hay Group, Arlington, Va.

    Many companies could see the benefits of last year's turnaround in the market for several years. That's because pension funds have nearly two-thirds of their pension assets invested in stocks, and they are required to spread out the gains or losses they incur compared with their assumed rates of return.

    Contributions also helped some of the nation's largest corporate pension plan sponsors get back in the black.

    Mr. Silverblatt estimates that the 356 companies in the S&P index with defined benefit plans will have contributed an estimated $50 billion to their funds in 2003. They contributed $49 billion in 2002, and $15 billion in 2001, said David Zion, an accounting analyst at Credit Suisse First Boston in New York.

    Some won't be making contributions this year after making hefty ones last year. One example is General Motors Corp., New York, which contributed $18.5 billion in 2002.

    Shortfall reported

    GM's $86.1 billion pension fund had a $300 million surplus at the end of the year, under the calculations it made for funding purposes. But it still reported a $1.1 billion shortfall under the accounting rules that govern pension disclosures in annual reports.

    Weyerhaeuser Co., Federal Way, Wash., also returned to the black, reporting a surplus of $200 million last year, after incurring a $400 million shortfall in 2002.

    The company doesn't plan to make any contributions this year, although it reported a pension expense of $48 million in 2003, and it expects to report a $40 million pension expense this year, said Kathryn McAuley, a company spokeswoman.

    "We had been overfunded going into the market downturn, and over the 20-year period were one of the top-performing pension funds, so the reversal of the market was beneficial to us," she said.

    The forest products company had 60.4% of its $4.3 billion pension assets in hedge funds, private equities and other alternative investments last year. A year earlier, it had 75.5% of its assets in alternatives.

    Other companies' surpluses increased. One example: Verizon Communications Inc., whose pension fund had $768 million in excess assets at the end of 2002, widened its surplus to $1.8 billion at the end of 2003.

    New York-based Verizon, with $42.8 billion in pension assets, reported the improved results even though it decreased its equity exposure last year, to 55.9% from 59.6% in 2002, but the company increased its exposure to "other" assets classes by 10 percentage points.

    Deficits narrowed

    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.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    Targeting millennials: Author, niece put his latest book to music
    Targeting millennials: Author, niece put his latest book to music
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    Morningstar Indexes' Annual ESG Risk/Return Analysis
    The Future of Infrastructure: Building a Better Tomorrow
    Outlook 2023: Opportunity in a volatile world
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing