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Administration September 1, 2003
GM Reduces Forecast, Pension Return Rates
January 9, 2003 (PLANSPONSOR.com) - Rising pension
fund cost have attributed to General Motors Corp (GM) issuing
2003 earnings forecast numbers below 2002's mark.
Reported by Eric Hazard
GM said it expect pension expenses to balloon to approximately $3 billion in 2003, from about $1 billion in 2002. Initial indications show GM’s US pension plans underfunded by about $19.3 billion at the end of 2002, up drastically from the $9.1 billion underfunding at the end of 2001. The company attributed the underfunding to sharp losses incurred during the current bear market.
The company said it expects to earn $5.00 a share in 2003, while reiterating its earlier projected earnings of $6.75 a share for 2002. Analysts at Thomson First Call were not so optimistic, forecasting income of $4.82 a share for 2003 and $6.54 a share for 2002, according to the Wall Street Journal.
Rate Cut
Additionally, GM announced that it would reduce the expected rate of return on its pension fund to 9% from 10%, trimming the return rate after nine years at 10%. GM spokesman Gerry Dubrowski said that a one-point cut in the rate of return translates into a nearly $700 million increase in pension expenses. He added that GM would work to offset any increased pension expenses by cutting other costs.