Brazil has highest funded ratio; dips found elsewhere

NEW YORK — Global pension plans had mixed results in the first quarter, with funded ratios declining in the U.S., Canada, Australia and the euro zone but improving or holding steady in the United Kingdom, Brazil and Japan, according to a new report from Towers Perrin HR Services.

Global equity markets were generally higher in the first quarter, although signs emerged that the two-year trend of above-average returns was slowing. At the same time, long bond yields, which are typically used to determine pension plan discount rates, were steady or lower, increasing pension liabilities.

The projected benefit obligation funded ratio of Towers Perrin's benchmark U.S. pension plan slipped two percentage points in the first quarter to 63%, from 65% in the fourth quarter 2004. While Towers Perrin adjusted the benchmark discount rate down only slightly, to 5.79%, negative investment returns — weak stock prices and mixed bond prices — was the main factor driving the funded ratio down.

In the United Kingdom, equity returns helped offset weak bond prices, but overall investment returns still fell below long-term expectations. Towers Perrin revised its benchmark discount rate up 11 basis points to 5.4%, which effectively lowered pension liabilities, but given the modest investment return, the benchmark pension plan funded ratio was unchanged at 60% in the first quarter.

For the second straight quarter, Japanese stocks produced solid gains while slightly lower bond yields helped fixed-income investments post marginally positive returns. The benchmark discount rate was unchanged, which, combined with the investment returns, produced a one-percentage-point gain in the benchmark pension plan funded ratio to 68%.

The funded ratio of the benchmark pension plan in Australia fell one percentage point to 82% in the first quarter as solid investment returns were offset by a 25-basis-point increase in the benchmark discount rate. Australian equities posted strong returns while fixed-income investments were slightly higher in the period.

Brazil continued to have the strongest funded ratio, which remained unchanged at 125% in the first quarter. A central bank short-term interest rate increase during the period helped fixed-income investments post gains while equity investments ended a volatile quarter slightly higher. The majority of pension assets are invested in short-term bonds, which benefited from the rate hike.

WASHINGTON — The chief executives of some of the largest airlines testified June 7 before the Senate Finance Committee in support of the Employee Pension Preservation Act, introduced in April by Sens. Johnny Isakson, D-Ga., and John D. Rockefeller IV, D-W.Va. The bill would let airlines extend required pension payments, giving them more flexibility in funding the plans and possibly averting PBGC takeovers.

Gerald Grinstein, CEO of Delta Air Lines Inc., Atlanta, said the company is not seeking a subsidy, and the Senate bill "decreases the likelihood of adding more liabilities to the PBGC." Mr. Grinstein told the senators that "there's plenty of blame to go around for past mistakes, but my job here is to make sure the company continues to operate."

Douglas M. Steenland, president and CEO of Northwest Airlines Corp., Eagan, Minn., said the company believes that freezing its $6.3 billion pension plan and moving to a defined contribution plan will be the best solution for the company.

LONDON — Bernstein Investment Research and Management, CM-CIC Securities, Dresdner Kleinwort Wasserstein and UBS Investment Bank were named the best among 23 firms for analyzing and incorporating into their securities research non-traditional issues that could affect corporate value, according to a report released June 6 by the Enhanced Analytics Initiative group.

EAI members include the €60 billion ($73.39 billion) Stichting Pensioenfonds PGGM, Zeist, Netherlands; the $36 billion Universities Superannuation Scheme Ltd., Liverpool, England; the £3 billion ($5.44 billion) London Pensions Fund Authority; and the £33 million Trades Union Congress Superannuation Society, London. EAI members pledge at least 5% of their brokerage commissions to research firms that are effective at analyzing such non-traditional areas as corporate governance, environmental, employment and public-health issues and integrating them into their mainstream reports.

The firms were evaluated between Nov. 1, 2004, and April 30 by the consultant onValues Ltd., commissioned by EAI. Criteria include the comprehensiveness and range of non-traditional financial issues; the ability of brokers to make assessments that permit comparison between companies; and how well brokers have succeeded in providing research to match the broad investible universes of EAI members.

NEW YORK — ING Clarion Partners is among a group of institutional investors buying Gables Residential Trust, a residential REIT, for about $2.8 billion in a cash and stock deal, said Frank Sullivan, ING Clarion managing director. The partnership will buy Gables' common stock for $43.50 a share in cash and assume and refinance $1.3 billion of Gables Residential's outstanding debt and about $120 million in outstanding preferred shares. ING Group, parent of ING Clarion Partners, is investing $400 million as an equity partner in the deal, which is expected to close in the third quarter, following approval by Gables Residential shareholders.

WASHINGTON — Teams of SEC examiners will soon begin monitoring the largest mutual fund companies as part of the regulator's risk-based inspections, Lori Richards, director of the agency's office of compliance inspections and examinations, testified June 7 before the House Commercial and Administrative Law Subcommittee. Ms. Richards said examiners will get to know the operation of each company and visit them regularly. Ms. Richards testified about how the SEC has beefed up its inspections program since the mutual fund trading scandals broke in September 2003.

As of May 31, the securities regulator has brought 29 enforcement actions against mutual fund companies and their employees, and another 12 enforcement actions against brokers and their employees.

CHICAGO — United Airlines' agreement in principle with its machinists union would allow the airline's machinists to become part of the multiemployer $6.4 billion IAM National Pension Fund rather than participate in a new defined contribution plan, said Dave Dimmer, United spokesman. The airline would terminate the existing pension plan for the machinists, who are part of the International Association of Machinists and Aerospace Workers.

United and the machinists reached the agreement May 31 just before U.S. Bankruptcy Court Judge Eugene Wedoff was set to rule on terminating the union's existing contract. Mr. Wedoff scheduled a hearing for June 17 to consider the proposed agreement between the machinists and the carrier.

SACRAMENTO, Calif. — CalPERS and Lone Star Steakhouse & Saloon Inc., Wichita, Kan., agreed to settle a class-action and derivative lawsuit calling for a potential$7.7 million to be paid by some current and former directors and an insurance carrier to the company, according to a joint announcement by the $186 billion pension fund and the company.

In its suit, CalPERS — which owns 341,050 Lone Star shares — contended the company paid too much when it purchased Coulter Enterprises Inc., a company owned by Lone Star CEO Jamie B. Coulter, said Brad Pacheco, fund spokesman. The California Public Employees' Retirement System also contended the Lone Star board breached its fiduciary duty when it repriced stock options, Mr. Pacheco added.

"As part of the settlement, certain of the company's current and former directors agreed to reprice certain stock options or personally make payments to the company which, upon the exercise of the stock options, would result in additional proceeds to the company of approximately $4.7 million," the statement said. Also, National Union Fire Insurance Co., a unit of American International Group which provides directors and officers insurance for Lone Star, will pay $3 million to the company.

After CalPERS filed the suit, Lone Star implemented corporate governance reforms that helped pave the way for the settlement, including adding three independent directors to its board, eliminating its poison pill anti-takeover measure, and requiring stockholder approval to reprice employee stock options, the statement said.

The settlement is subject to court approval.

DAYTON, Ohio — Amcast Industrial Corp. received bankruptcy court approval to terminate its pension plan, and the PBGC will become the plan's trustee, according to court documents. Terminating the plan is in the best interest of the company and its creditors, and Amcast would be unable to pay all its debts under a reorganization plan or continue operating outside of Chapter 11 protection "unless the pension plan is terminated," according to the order signed June 2 by U.S. Bankruptcy Court Judge Lawrence S. Walter in Dayton, Ohio.

Jeffrey Speicher, PBGC spokesman, said the agency estimates the plan has about $81 million in assets and roughly $166 million in liabilities. The PBGC estimates it will be responsible for about $79 million of the underfunding.

Amcast filed for Chapter 11 bankruptcy protection in November.

WASHINGTON — Representatives of multiemployer plans proposed changes in pension law June 7 to the Senate Health, Education, Labor and Pensions Committee. At a hearing, Jeffrey Noddle, chairman, president and CEO of SuperValu Inc., told the committee that participating employers need more access to information about the current funding levels of multiemployer plans. "Without this information, it is difficult to engage in collective bargaining in an informed manner and to work with the plan trustees to address the underfunding problem," he said.

Mr. Noddle also asked senators to support a proposal that would require the trustees of multiemployer plans that are only 65% to 80% funded to work with their actuaries in developing a plan to reach fully funded status over a seven-year period. "While many of the multiemployer plans in our industry are well funded, the funding standard account in some of these plans could reach a crisis state in four to six years if some of the laws governing these plans are not changed," he said.

Cash balance and other hybrid pension plans require urgent legislative changes to protect their status, said Bill Sweetnam, a partner in the Groom Law Group and former benefits tax counsel at the Treasury Department. Mr. Sweetnam, who testified on behalf of the American Benefits Council, urged the senators to clarify that such plans are not age discriminatory and protect methods that employers have chosen for protecting the benefits of older workers during cash balance conversions, without mandating protections proposed by some participant groups.

NEW YORK — Stock repurchased by Standard & Poor's 500 constituent companies increased 91% to $82.05 billion in the first quarter, from $42.92 billion a year earlier, said David R. Guarino, spokesman. S&P executives expect buybacks to continue at the same pace for the remainder of the year.

NEW YORK — Fund-raising among 20 U.S. venture capital funds dropped 44% to $3.01 billion in the first quarter from $5.4 billion in the first quarter of 2004, while European fund raising increased 298% to €788.8 million ($968 million) from €197.8 million for the same time period, according to VentureOne. Most of the U.S. funds raised were under $500 million. European fund raising was dominated by two funds: the €385 million Sofinnova Capital V and €300 million Index Ventures III.

CLEVELAND — National City Corp. is renaming its asset management business "to continue to solidify" it as a top-tier business and to "build on a strong foundation," said John G. Abunassar, executive vice president of institutional asset management. He said the decision to "rebrand" isn't an effort to distance it from National City's mortgage business and is not at all related to the mortgage business.

National City Investment Management was renamed Allegiant Asset Management, National City Institutional Services became Allegiant Institutional Services and the mutual funds are now Allegiant Funds, Mr. Abunassar said.

National City's asset management business has about $30 billion in assets under management.

NEW YORK — A $2.9 million settlement between Time Warner Inc., New York, and participants of its $2.2 billion Defined Benefit Master Trust Fund pension plan was approved June 7 by U.S. District Court Judge Denise Cote in New York. The preliminary settlement was reached late last year.

The lawsuit, filed in January 2003 on behalf of about 10,000 pension plan participants, accused the company of miscalculating its pension obligation payments and underpaying them. Time Warner did not admit to any wrongdoing in the settlement.