Human Capital & Careers

Mo’ Pension Plan Blues

IBM, Honeywell take charges to buttress underfunded retirement plans.
Stephen TaubJanuary 3, 2003

The three-year bear market continues to mar the pension plans of some of the oldest, largest companies.

For example, earlier this week IBM. said it contributed $3.95 billion to its U.S. pension plan, enabling it to return to fully funded status, as measured by its accumulated benefit obligation (ABO).

Big Blue contributed $2.09 billion in cash and the rest in IBM common stock.

The company concedes the contribution was greater than the $3 billion it estimated in early December due to the performance of the capital markets, which decreased the value of the pension plan’s assets in the intervening weeks.

“Our free cash flow and our balance sheet are strong enough for us to fully fund the U.S. pension plan,” said IBM chief financial officer John R. Joyce in a statement. “At the same time, we made a number of strategic investments throughout the year to better position our company to meet the changing requirements of our customers in this new ‘ebusiness on demand’ world.”

IBM’s pension fund is hardly the most underfunded of all U.S. companies. In early December management at Ford Motor said it expected the company’s pension fund to be underfunded by about $6.2 billion at the end of 2002.

Meanwhile, earlier this week, Honeywell reported it contributed $700 million in stock to its pension fund, bringing the total to $800 million for 2002. In September the company contributed $100 million in cash to the pension funds.

Honeywell estimates it could take a charge of up to $1.7 billion on shareholders’ equity because the fair value of the pension plan’s assets is less than the obligation.

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