http://www.bloomberg.com/apps/news?pid=20601109&sid=aBAw1CQXcZMg&refer=home
Dec. 8 (Bloomberg) -- Pension funds at Pfizer Inc., International Business Machines Corp., United Parcel Service Inc. and dozens of other companies have joined the parade of businesses seeking relief from Congress amid this year’s economic meltdown. Instead of money, they want legislation to suspend a federal law that would make them pump billions of dollars into retirement plans to offset stock-market losses as many struggle to find enough cash just to stay in business. They’re pressing Congress to consider the issue this week before this year’s session adjourns. “The companies are not out there with their hand out for a bailout,” says Mark Ugoretz, head of the ERISA Industry Committee, a Washington advocacy group representing big businesses on benefit issues under the Employee Retirement Income Security Act. “This is not about money; this is about time.” About 800 companies in the Standard & Poor’s 1500 Index have pension funds, and they were collectively $280 billion short of the sums needed to pay projected benefits as of Nov. 30, according to a study by New York-based benefits consulting firm Mercer LLC. Those 800 funds started the year with a $60 billion surplus, Mercer estimated. To gain help from Congress, the companies will have to overcome skeptics who say they are using the market plunge to undermine retirement-funding provisions in a 2006 law they didn’t like in the first place. “They’re trying to stampede Congress,” says Jeremy Gold, founder of Jeremy Gold Pensions, a New York-based actuarial consulting firm. Funds with prudent investment strategies were able to moderate market losses, he says. ‘Losers’ Cry ‘Help!’ “This is a failure of risk management by America’s pension plans,” Gold says. “They failed to reduce their exposure to the equities markets, they continued to gamble, and they lost the gamble. So like all the other losers, they’re standing on the Capitol Hill steps, saying ‘Help!’” While employers increasingly offer 401(k) and similar retirement- savings plans, about 44 million private-sector U.S. workers, retirees and spouses still are covered by traditional defined-benefit pensions. Starting this year, the Pension Protection Act of 2006 requires companies to increase pension-fund assets gradually to put them on firmer financial footing, reducing the chances the government will have to take them over for failing. Full Funding Previously, plans generally had to have about 90 percent of what they needed to meet future obligations. At the end of this year, the new threshold will be 92 percent. By the end of 2011, the law requires 100 percent funding. Companies that don’t reach a given year’s threshold can be required to immediately jump to full funding. Plans falling below 80 percent funding may face added limits on actions that would further drain assets, such as some lump-sum payments. About half of the 800 companies in Mercer’s study are in danger of missing this year’s target, Mercer analyst Adrian Hartshorn says. World markets have been so volatile, though, that the outlook may change significantly -- for better or worse -- before year’s end, Hartshorn says. The 800 companies’ pension plans, as of Nov. 30, had aggregate assets covering about 80 percent of projected liabilities, down from 97 percent in September, Mercer reported. Those estimates, based on financial statements prepared under U.S. accounting rules, give a rough idea of where companies stand in relation to this year’s target. The federal law, however, has its own standards for measuring pension funding. Desperate for Cash Pfizer, IBM and UPS and almost 300 companies, trade groups and unions petitioned Congress last month to suspend the funding mandate. The law requires “huge, countercyclical contributions” at a time “when companies desperately need cash to keep their businesses afloat,” the group says in a letter to lawmakers. Spending to pump up pensions may cost jobs by diverting scarce capital from business operations, Ugoretz says. “If a company has to dump $150 million into their pension fund, they’ve got to make it up some place,” he says. Atlanta-based UPS, the world’s largest package-delivery company, supports pension-law changes because “given where we are economically today as a country, we think that some reform that allowed those funds to be used in other ways would be beneficial to the economy,” spokesman Malcolm Berkley says. Calls seeking comment from Pfizer and IBM weren’t returned. Investment losses by pension funds have hit companies in a range of industries as the S&P 500 plunged more than 40 percent so far in 2008. Houston-based Lyondell Chemical Co.’s pension fund lost $154 million in the first nine months of the year, a 17 percent drop, according to a Securities and Exchange Commission filing. Record Losses Assets fell a combined $130 billion during November in the S&P 1500’s 800 or so pension plans, Mercer estimated. That topped total losses in the first nine months of 2008, and broke October’s record $110 billion decline. “Without relief, plan sponsors must shoulder the immediate burden of sudden, unexpected, large increases in plan contributions at a time when cash may be difficult to generate internally or to obtain in the credit markets,” Mercer’s Hartshorn says. Plans with more conservative investment strategies have at least softened the blow. General Motors Corp., the biggest corporate pension sponsor with $84 billion in projected benefit obligations at the end of 2007, is among companies that shifted assets from stocks before the worst of the market rout. The biggest U.S. automaker decided in 2006 to cut its target allocation for equities to 29 percent, from 49 percent. GM made a “determination that, for the best interests of maintaining the funded status as well as we could, we needed to make that shift into the fixed-income market,” says Nancy Everett, chief executive officer of GM Asset Management Corp. Notably Absent GM was notably absent from the five-page list of companies and organizations asking Congress for relief from the asset thresholds. GM said its pension plans had a $1.8 billion deficit as of Oct. 31, down from a $20 billion surplus 10 months earlier. At that level, GM’s plans would top the pension law’s 2008 asset threshold. David Zion, head of accounting research for Credit Suisse Securities USA, says investment managers should have been able to control volatility. “I just find it interesting: You take some risk in the plan; if it works in your favor, then great,” Zion says. “If it works against you, then go ask Congress for help.” On average, the 800 pension plans in the S&P 1500 had 61 percent of their assets in stocks at the end of 2007, Mercer’s Hartshorn says. Bigger Stock Bets Some made much bigger bets on stocks. Investment strategies at more than 20 S&P 500 pension funds allocated at least 75 percent of their assets to equities at the end of 2007, according to an October report by Goldman Sachs Group Inc.’s Global Markets Institute. Fannie Mae, the mortgage-finance company taken over by the U.S. government, ranked fourth with 84 percent of pension assets in stocks. Because of the market plunge, Fannie Mae made an unplanned $80 million payment to its pension fund last month “to offset some of the recent investment losses,” according to an SEC filing. Bradley Belt, former executive director of the federal Pension Benefit Guaranty Corp., says lawmakers should endorse a case-by-case approach that lets the government pension agency negotiate funding requirements with individual companies and reserve assistance for those in danger of bankruptcy. Compromise Measure The top Democrats and Republicans on both the Senate Finance and the Health, Education, Labor and Pensions committees -- Democrats Max Baucus of Montana and Ted Kennedy of Massachusetts, and Republicans Charles Grassley of Iowa and Mike Enzi of Wyoming -- are backing a compromise. It would maintain the funding targets but ease the consequences of missing them, scrapping the threat of an immediate 100 percent-funding requirement. That proposal was stymied last month when supporters couldn’t get unanimous consent in the Senate to consider it. The bill “strikes an appropriate balance between helping plan sponsors cope with the recent economic downturn while also protecting the worker safeguards established two years ago,” Grassley says. The ERISA Industry Committee’s Ugoretz says the proposal doesn’t go far enough. “We’re going to have to go back to them to explain again what needs to be done,” he says. “We’re not blowing smoke here.” --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "World-thread" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/world-thread?hl=en -~----------~----~----~----~------~----~------~--~---
