Eight companies recorded a total of $3.8 billion in pension income in 1999, according to annual report data.
At the same time, pension assets increased by $27.1 billion for the eight companies, which are among the largest corporate pension plans in the United States.
The impressive statistics are due to the thundering bull market and accounting rules that allow companies to include pension income on their financial statements as part of operating income.
Pension income is generated when companies with overfunded pension plans book a credit instead of a pension expense in their financial statements because gains exceed expenses of the plan.
Information was gathered from the 1999 annual reports of SBC Corp., Lockheed Martin Corp., E.I. du Pont de Nemours & Co., General Electric Co., IBM Corp., AT&T Corp., Philip Morris Inc. and Boeing Co.
Those eight are not alone.
Dick Joss, consulting actuary at Watson Wyatt Investment Consulting, Bethesda, Md., estimated up to one-third of Fortune 1,000 companies are generating pension income rather than pension expenses.
Under accounting rules that became effective for fiscal years starting after December 1997, companies are required to disclose more information regarding the market value of pension assets and to reconcile the funded status of the pension plan and income flows through to the bottom line.
The credit is sometimes referred to as a cost savings on financial statements. At GE, for example, officials noted that "principally because of the funding status of the GE pension plan and other benefit plans, principal post-employment benefit plans contributed cost reductions of $1.062 billion . . . in 1999."
The GE annual report also said the company "has not made contributions (to the pension plan) since 1987," because of the plan's fully funded status.
IBM recorded pension income of $638 million last year, an increase from $454 million in 1998. It could not be learned how much of that increase was attributable to the company's conversion to a cash balance in July 1998.
The market value of the GE plan increased nearly $7 billion, or about 15%, in 1999, according to the annual report, from $43.4 billion at the beginning of the year to $50.2 billion. Similarly, the Lockheed Martin plan grew 10% in 1999; DuPont, 10.6%; IBM, 9.6%; SBC, 9.8%; Boeing, 13.4%; Philip Morris, 10.3%; and AT&T, 13.4%.
According to some experts, asset growth in the past two years could result in some defined benefit plans being overfunded for decades.
Indeed, the funded status of each plan showed year-end assets far in excess of what is needed to cover benefit obligations.
Although comparing assets and liabilities sheds light on absolute numbers, a more graphic picture is painted by the plans' funded ratios, or the ratio between the market value of plan assets and the benefit obligations at the end of the year.
"The funded ratio is a better indicator as to the extent of overfunding than the dollar amount," said Rick Cornwell, principal at Kwasha HR Solutions, a unit of PricewaterhouseCoopers, Fort Lee, N.J.
Funded ratios ranged from 197% at GE to 124% at DuPont at the end of the year. Falling in between were IBM's plan, which was 132% funded; Boeing's, 134%; Lockheed Martin's, 139%; AT&T's, 163%; and SBC's, 178%.
"From a participant's perspective (the funded ratio) indicates a high degree of security, that the plan assets are in excess of the benefit obligation," said Bill Miner, senior actuary at Watson Wyatt in Chicago. "It tells investors that the company, through contributions and investment policy, has been successful in providing for the benefits of the plan attributable to the prior accounting period."
Watson Wyatt's Mr. Joss said the bull market and overfunded status of many large defined benefit plans ensures pension income and full funding will continue for many years, even if the markets take a prolonged downturn: "When you are that well-funded, you will have pension income for a long time."
He said the unusually high level of overfunding and resulting pension income are "not a spike. Some of these are projected to go on for the next 20 years. Even in a bear market, many would still generate pension income since most of them use conservative (actuarial) estimates."