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S&P 500 Companies Struggling with Nearly $300B OPEB Deficits
An S&P news release said that Ford and General Motors account for 32% of the unfunded OPEB amount in the S&P 500 compared to 13% of the pension deficit. Together, the two auto giants are a combined $20 billion underfunded in pensions, and $94 billion under funded for OPEB, according to the announcement.
“The state of OPEB is extremely unsettling, as many
companies have not created trust accounts to fund their
OPEB obligation,” said Howard Silverblatt, Equity Market
Analyst at Standard & Poor’s in the announcement.
“Those that have created trust accounts fund them to
significantly lower levels than are required under
current pension funding rules.” Standard &
Poor’s data shows that pensions, while underfunded, have
88% of the their obligations set aside in pension trusts,
compared to only 22% for OPEB obligations.
Telecommunications is the only sector within the S&P
500 that reports pension overfunding; as a group, however,
their OPEB is significantly underfunded. The sector
has a better current position on its costs with respect to
their market value and net income than the automotive
industry, however, pensions and OPEB have become the major
issue within the sector.
“Keeping a lid on the pension and OPEB obligations for
their largely unionized workforces has become a major focus
for the telecom providers,” said Todd Rosenbluth, Telecom
Services Equity Analyst at Standard & Poor’s Equity
Research Services. “As the carriers face increased
competition from wireless and broadband competitors that
are not unionized, we anticipate that they will try to
limit the subsidized medical benefit obligations to keep
costs under control.”
OPEB consists mostly of medical costs paid for the benefit of retired workers. Specific tax treatments and credits, set up to encourage pension funding, do not exist for OPEB funds.
Standard & Poor’s full report is here .