Pension Shortfall Estimates Rise as Markets Fall

November 13, 2002 ( - A growing number of US firms have announced changes to their pension plan estimates alongside their quarterly SEC filings.

According to news reports, ChevronTexaco estimates that it will need to take a half billion dollar after-tax pension charge, though its Securities and Exchange Commission (SEC) filing acknowledged it could vary by year end depending on interest rates and market conditions.

The company SEC filing said the value of its pension assets has been hard hit by the worldwide equity market declines and the payment of lump-sum benefits to workers downsized during mergers, according to the news reports. The plan’s assets are currently valued at $3.5 billion, the company said.

For the nine months ended September 30, pension expense for the company’s main US pension plans was $243 million, compared with $32 million in the same 2001 period, the filing said. Expenditures during 2002 include nearly $100 million for settlement losses associated with employee severances related to Chevron’s $45.8-billion merger with Texaco last year.

ChevronTexaco spokesman Fred Gorell said the plan is fully funded and that the company doesn’t anticipate having to pump in cash any time soon.

According to news reports, also reporting pension woes in their quarterly SEC filings were:

  • Baxter International Inc . expects to record a $509 million reduction in stockholder equity at the end of the year related to poor returns on its pension plans. The company is also reducing investment-return expectations.
  • Engelhard Corp . said it expects its net pension cost to total around $19 million in 2003, compared to $12 million in 2002 and $8 million in 2001.Because of depressed market conditions over the past two years, Engelhard’s pension plans are underfunded, the filing said. With that in mind, the manufacturing company made an accelerated contribution to its pension plans totaling $50 million in the third quarter to reduce this underfunded position.
  • NCR Corp . said it expects to take a substantial noncash charge against retained earnings for alternative minimum liabilities associated with pension plans at year-end 2002. NCR said the actual amount of the charge would depend on the plan’s 2002 returns. The charge won’t affect the company’s debt covenants, liquidity or cash flow, the company said. NCR also said it expects modest increases to cash contributions to its pension plans in 2003 and no 2003 pension income because of the down markets and the company’s actuarial assumptions.
  • Sysco Corp . said it expects its net pension costs for its defined benefit obligations to be about $71 million in the fiscal year ending June 28, 2003 – $20 million more than FY 2002.
  • Citizens Communications Co . said it could take a charge of roughly $100 million to shareholders equity as a result of an adjustment to its minimum pension liability on December 31.
  • Cooper Tire & Rubber Co . said it expects to record an additional minimum pension liability adjustment by December 31.