Pensions Show Big Asset Loss …and Profit

December 10, 2001 ( - The 50 largest US corporate pension funds lost a collective $38.2 billion in assets in 2000, according to a recent survey.

The survey, by actuarial consultant Milliman USA, cited three reasons for the asset loss, accoring to Dow Jones:

  • anemic investment returns ($13.2 billion, compared to expected returns of $49.3 billion)
  • lower interest rates (increasing plans’ obligations 2% to 5%)
  • an older workforce (leading to higher benefit payments).

The 50 US giant pensions – which include those of Exxon Mobil, General Motors, and Ford – had an average funded ratio of 125% at the close of 2000, down from an average 135% at the close of 1999, the survey found.

Milliman warned, however, that if the economy stays weak, many pensions will become underfunded. That would result in losses on the companies’ balance sheets.

Long-Term Smoothing

Despite the asset loss, these same 50 funds could still point to $8.7 billion in profit for 2000 by using accounting techniques to “smooth” returns and expenses over several years.

Recognizing that pension funds invest for the very long term, accountants regularly use smoothing to spread out a fund’s losses and gains, usually over a five-year period, Milliman said.

If the companies had reported actual returns from 2000, they would have included $27 billion in expenses, the survey said.

Researchers said many US funds will report a 2001 profit despite what Milliman said would be another expected asset loss.