In his most recent letter to shareholders, released Feb. 26, Warren Buffett indicated that Berkshire Hathaway Inc., Omaha, Neb., will need “both good performance from existing businesses and more major acquisitions.” Mr. Buffett, chairman and CEO, noted “our elephant gun had been reloaded, and my trigger finger is itchy.”
But an examination of information provided in Berkshire Hathaway's pension footnotes indicates that the company's acquisitions and consolidations have had a negative impact on the funding ratio of its defined benefit plans.
As of Dec. 31, 2005, the funding ratio of the company's consolidated subsidiaries that individually sponsor defined benefit plans stood at 86.1%.
Since then, defined benefit liabilities have increased $5.9 billion as a direct result of acquisitions and consolidations, while assets have increased $4.7 billion due to this activity.
At year-end 2010, the Berkshire Hathaway subsidiaries had defined benefit plan assets of $8.2 billion and projected DB obligations of $10.6 billion, for a funding ratio of 77%.
The decrease in the funding ratio is not entirely due to the company's acquisition strategy. During the financial crisis, the funding ratio dropped almost 22 percentage points in the year ended Dec. 31, 2008. But projected benefit obligations due to the acquisitions increased only $249 million during that year.