"Better" Pension Assumptions Boost SBC Bottom Line

March 11, 2002 (PLANSPONSOR.com) - Last year, SBC boosted its pension assumptions, increasing the expected return on assets to 9.5% from 8.5%, while also making a slight adjustment to its inflation assumption - and is likely to increase its operating earnings by eight cents/share.

That according to the Wall Street Journal, citing a report by Goldman Sachs analyst Frank Governali – who said that SBC made the change during a year when the fund’s investments shed 7%. 

In 2001, SBC’s more generous assumptions about pension investments accounted for two-thirds of the growth in its operating earnings per share, according to Governali’s report. Operating earnings rose nine cents, with six cents coming from the changed pension assumptions.

Get more!  Sign up for PLANSPONSOR newsletters.

In Line

However, the change in assumptions is in line with the firm’s actual long-term returns on its pension assets, SBC’s Chief Financial Officer Randall Stephenson said, according to the report.  In fact, the pension investments returned 12.5% during the past decade and 9.5% during the past five years.

In 2000, the average assumption among S&P 500 companies with conventional pension funds was 9.2%, according to Bear Stearns.  That year, most companies didn’t change pension assumptions.

Of the S&P 500 companies with traditional pension plans, 53 companies cut projected pension earnings, 216 didn’t change them, 83 companies increased them and 11 increased them by a percentage point or more.