GLOBAL - Continued equity market weakness has wiped out the pension surplus of the S&P500.
For the first time since 1993, S&P 500 company pensions are in aggregate deficit, new research from UBS Warburg has shown.
General Motors, for example, has reported a US$22,225m deficit for the year to the end of August 2002.
UBS Warburg estimates that in 2002 S&P500 companies will report aggregate pension costs rather than income for the first time since 1998 and expects this swing in pensions to adversely affect 2002 EPS by US$0.95 and then an additional US$0.40 in 2003.
Companies may raise return on asset assumptions to help manage these pension charges, but current assumptions are already optimistic.
About 60% of S&P500 companies assume ROAs of 9-10%, and 20% are in excess of 10%. Since the early 1990s, the ROA and discount rate spread has nearly tripled.
In 2001 the aggregate pension surplus for S&P500 companies dropped to US$1.2bn, which was 0.1% of the aggregate pension benefit obligation or 0.01% of the S&P500 market cap.
The median pension plan had a deficit of 9% as of the end of 2001, the lowest median funding level since 1992.
In 1999, the net surplus was US$252bn or 2.3% of market cap, the highest level in over a decade.
UBS Warburg estimates the current net pension funding of S&P500 companies at a deficit of US$126bn or 11% of the current pension benefit obligation or 1.5% of aggregate S&P500 market cap.
If the S&P500 ends the year at 1050 and the MSCI at 1150, UBS Warburg estimates pensions funding will then be a US$72bn deficit or 6% of the estimated pension benefit obligation or 0.8% of S&P500 market cap.
The projected 2002 aggregate pension cost is US$5.4bn compared with net pension income of US$8.2bn in 2001.
Using UBS Warburg’s 2002 year-end pension funding estimate, the 2003 net pension cost will be US$11.2bn.
In Europe UBS Warburg calculates an aggregate pension fund deficit of E81bn (£51bn) among 63 companies within the Eurotop300 Index – more than half of their combined profit of E154bn.
The Pensions Regulator (TPR) and Labour MP Stephen Kinnock and will listen to the experiences of steelworkers when transferring their pensions away from the British Steel Pension Scheme (BSPS) next week in Port Talbot.
Just Group has acquired a 75% stake in the holding company of Corinthian Pension Consulting in a bid to strengthen its professional defined benefit (DB) advisory services.
The Pensions Regulator (TPR) has exercised its production order power under the Proceeds of Crime Act 2002 for the very first time as part of a fraud investigation.
The ITN Limited Pension Scheme has named Trafalgar House as its administrator for an initial term of five years.