While the stock market may have had a strong showing in 2003, many companies are still under-funded when it comes to their pension obligations and are likely to remain so through the end of 2004, according to a report recently released by Standard & Poor’s.
The report notes that the overall position of the 263 companies in the S&P 500 index that offer defined-benefit pensions improved last year to a $165 billion under-funded status from $219 billion in under funding as of year-end 2002. “With hopes for moderate market gains and modest increases in interest rates in 2004, funding should improve” by the end of the year, but remain under funded at $112 billion, said David Blitzer, managing director at S&P.
The report cited interest-rate changes and current accounting rules’ increased obligations as the chief factors offsetting the investment gains scored by pensions. The pension plans, despite the under funding, still have plenty of cash to meet current obligations. “Even though pension plans as a group are under funded, there is no immediate danger to monthly pension benefits for the vast majority of employees,” Blitzer said.
“The current situation is an investor concern, as they need to assess what the obligations of a company are, where the required funds will come from, and how any shift in expenditures will affect future growth,” added Howard Silverblatt, equity market analyst at S&P.