S&P 500 Companies Struggling with Nearly $300B OPEB Deficits

December 19, 2005 (PLANSPONSOR.com) - Companies in the S&P 500 have a $292-billion underfunded liability for other post employment benefits (OPEB) - a whopping 95% higher than the companies' pension underfunding of $150 billion.

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 .