December 13, 2003

WHAT'LL WE DO WITH THE SURPLUSES?:

Pension Gap Is Closing, G.M. Reports (MARY WILLIAMS WALSH, 12/13/03, NY Times)

General Motors said yesterday that it stood a good chance of ending 2003 with its pension plans for American employees fully funded, after beginning the year with the biggest deficit of any company.

While the rising stock market helped G.M.'s pension funds, the company accomplished this feat mostly by taking extraordinary measures to raise cash for the funds. It is contributing much of the $17.5 billion raised in an unusual bond offering earlier in the year. In addition, G.M. is infusing $4.1 billion from the sale of its Hughes Electronics unit to the News Corporation, a deal it expects to complete soon.

Many other large companies continue to cope with pension deficits. Because several years of data are used in pension fund calculations, some companies will probably have to make big cash contributions in the coming year. Even if stock prices continue to rise, they will still be incorporating the effects of adverse market conditions over the last few years.

But John Devine, G.M.'s vice chairman and chief financial officer, said yesterday that he believed that G.M.'s experience showed that most companies could find ways to keep their pension obligations under control, and would do so voluntarily. Congress and the Bush administration should therefore abstain from far-reaching changes in the pension laws, he said.


Changes need not be far-reaching, but you should have to fund your pension plans fully, if you have them.

Posted by Orrin Judd at December 13, 2003 8:07 AM
Comments

You should have to fund them fully, over a period of time. There were vast surpluses several years ago in pension funds across the land; perhaps, the bubble not being taken for what it was, additional contributions would have been prudent. But it would have been foolish to require firms to bring their funds up to 100% funding in 2002, just after a recession when profitability was still low and, more importantly, when the market was in a swoon.

But yes, fully fund them on an actuarial basis, taking short-term swings (say, two years?) of market fluctuations into account...

Posted by: jsmith at December 13, 2003 8:55 AM

Nicely put J.S.

Fully agree except two years might be a tad stringent. I suspect OJ's comment is essentially in agreement with yours.

Posted by: genecis at December 13, 2003 10:26 AM

Uhh, don't defined-contribution plans make the question irrelevant?

Posted by: at December 14, 2003 4:53 AM

The problem was a double whammy of declining interest rates (which inflate the projected amount of future liabilities) and declining stock prices, which decreased the value of reserved assets. The stock market is comming back, and the interst rate target is being tinkered with.

There is no reason to drain cash out of companies to fund the fluctuating will o' the wisp created by market fluctuations.

Posted by: Robert Schwartz at December 14, 2003 5:20 PM
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