Mr. Silverblatt is not alone in fearing that companies might not contribute that money to their pension plans.
"That's what I'm worried about. In the very year when they have all this cash, they may not put it in their pension funds because the administration might take away the credit balance (provision) in the law," said Ron Gebhardtsbauer, a senior pension fellow with the American Academy of Actuaries, Washington.
Current law permits companies to take into account credit balances built up in preceding years by contributing more to their pension plans than required. It also gives them the flexibility to count those as contributions during tough times when they don't have money to contribute. But a provision in the Bush administration's proposal to overhaul pension funding rules and shore up the Pension Benefit Guaranty Corp. would eliminate the ability of companies to count on credit balances.
The credit balance provision was included in pension funding rules to encourage companies to put in more than just the minimum required. Rather than eliminate the provision, the Academy of Actuaries has suggested the Bush administration tighten the minimum funding rules so companies will need to put in far greater amounts to build up a credit balance, Mr. Gebhardtsbauer explained.
"Employers don't want to put in anything but the very minimum," so they can use up all the credit balances they've already got on their books, he said. Worse still, they may use all their surplus cash and not have any left to top off their pension funds, he added.
John W. Ehrhardt, a principal and consulting actuary with Milliman USA in New York, agreed. "What's driving companies with defined benefit plans these days is uncertainty" over the Bush proposal, he said.
FedEx Corp., Lucent Technologies Inc., FPL Ltd. and JP Morgan Chase & Co. are among the companies whose funded status improved in 2004. Both FedEx and Lucent assumed higher than the average rates of return on pension funds.
Loren E. Jensen, assistant treasurer and staff director of retirement investments at Memphis, Tenn.-based FedEx, declined to comment. "We report the numbers as we are required to, but that's all," he said.
Bill Price, a spokesman for Murray Hill, N.J.-based Lucent, said the company does not discuss specifics about its pension fund.
But an actuarial analysis of the pension fund information FedEx disclosed in its 2004 annual report for the fiscal year ended May 31, 2004, done by a consultant who did not wish to be identified, tells an interesting story.
The company had $7.8 billion in defined benefit assets at the end of its 2004 fiscal year, and liabilities of $8.7 billion, resulting in a funded status of 89.6%, compared with 81.8% in 2003. FedEx uses the end of February as the measurement date for valuing its pension fund assets and liabilities.
The company dropped its assumed rate of return on pension assets to 9.1% in 2004, from 10.1% in 2003 — higher than the 9% ceiling the SEC expected companies to assume since 2003 unless their officials could justify a higher return.
An analysis of the interest rate FedEx used to discount its future pension liabilities shows its 6.78% rate is also higher than the prevailing interest rates at the time, as compared with the Citibank pension liability index most companies use as the basis for calculating pension liabilities for accounting purposes.
For 2004, the average assumed rate of return among S&P 500 companies was 8.31%, while the average discount rate was 5.8%.
Because interest rates are inversely related to the value of liabilities, a high interest rate translates into low liabilities.
While FedEx has a relatively young work force and uses an average of 14 years for the duration of liability, the comparable interest rate on the Citibank index for the longest duration — about 23 years — was only 6.18% as of Feb. 29, 2004.
"I don't know how (FedEx) can justify" the high discount rate, observed the person who analyzed the company's information.
At the same time, the company earned a whopping $11.9 billion on its pension assets, more than triple the $3.4 billion it had expected to earn. Despite the drop in the assumed rate of return and the discount rate, the company's funded status improved in part because it contributed $1.1 billion in 2003 and another $335 million in 2004. Last year, FedEx had 76% of its pension assets in equities and 24% in bonds.
It still had a pension expense of $343 million in 2004, compared with $228 million in 2003, because of the lower assumptions.
FedEx gave employees the choice of moving to a cash balance pension plan in 2004 or sticking with the existing plan, while all new employees hired will automatically be covered by the cash balance plan. The company noted that the change to a cash balance plan will have very little impact on the financial status of its pension plan for many years to come.