Pension Fund Time Bomb Makes the US Go Grey Australian Financial Review (08/28/03) No. 3846 p.61; Aylmer, Sean
The combination of low interest rates, weak equities, and an aging population has left defined benefit pension plans at U.S. companies severely underfunded. According to the Pension Benefit Guaranty Corp., defined benefit pension plans in the United States are underfunded by more than $300 billion, with those for steel, airline, and automotive industry employees in the worst condition. At the end of 2002 General Motors injected its pension plan with $3 billion in cash and shares due to pressure from workers and regulators, while IBM, in late June, earmarked $10 billion of a $13 billion debt issuance for its pension plan. A study conducted by Towers Perrin of 300 U.S. firms revealed that only 77 percent of pension liabilities were covered, compared to 120 percent coverage three years ago. In addition, 22 percent of companies' operating earnings were used to pay pensions in 2002, compared to 2.3 percent in 2001. Companies are not violating the law by underfunding pensions, and the recent wave of corporate governance laws mainly do not address pension plans. However, the Financial Accounting Standards Board plans to release next month draft rules for improved disclosure by pension plans, including quarterly statements and a greater breakdown of asset classes.