US - Telecommunications companies AT&T and Verizon Communications could face increased pension payments next year as their liabilities soar to a combined $73.2bn, according to an analyst note from Bernstein Research, a unit of AllianceBernstein.
Senior analyst Craig Moffett estimates that if capital markets end the year where they are currently, AT&T's total unfunded post-retirement liabilities will have increased by $11.4bn (37.7%) since the end of 2010, to a staggering $41.6bn. Verizon's will have increased by $5.4bn (20.7%) from year end 2010 to $31.6bn.
This would mean that AT&T's and Verizon's pensions are less than 80% funded come the end of the year, the research finds. Their severe unfunded status could trigger required employer contributions following legislation laid out by the Pension Protection Act (PPA).
This deficit in funding may result in both companies having to contribute significant sums of cash to their pension plans in 2012, per government mandated minimum funding requirements, Moffett said.
In January, both firms announced they were moving to a mark to market valuation for their pension plans and remove smoothing. (Global Pensions; 21 January 2011)
Moffett downgraded his outlook for AT&T to market-perform from outperform.
The firms' other post-retirement benefit obligations (OPEB) liabilities are also largely unfunded. The research estimates AT&T's OPEB obligations are now just 26% funded, down from 35% at year end 2010. Verizon's are just 9% funded, down from 12%. AT&T and Verizon will have year-end unfunded OPEB obligations of $29.1bn and $25.0bn respectively.
At the end of 2010, AT&T and Verizon had the two largest unfunded postretirement liabilities in the S&P 500, with General Electric, ExxonMobil, and Boeing rounding out the top five.
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