Study: YE 2003 Pension Shortfall Could Be Much Higher Than Anticipated

May 8, 2003 ( - Year-end 2003 funding shortfalls at large US companies' defined benefit pension plans could actually be more than double the shortage predicted using official financial assumptions, a new study said.

The HSBC bank study said 2003 final funding levels for companies in the Standard & Poor’s 100 index could actually be as low as 60% instead of 83% based on current assumptions with a $340-billion shortfalll, as opposed to the $117 billion currently calculated, according to a Dow Jones report.

HBSC strategist Patrik Schowitz told Dow Jones that the companies are not using realistic interest rates to calculate their future liabilities. He said companies also have not yet recognized past losses, which he estimated at about $246 billion. Companies are assuming an average long-term return of 8.9% on their pension fund assets, according to the study. This is less than the 9.4% used in 2001, but is still far too high, Schowitz contended.

Pension  plans were only 84% funded for companies in the Standard & Poor’s 100 at the end of fiscal year 2002. This translates into a combined pension shortfall of $93 billion, said the study, which looked at S&P 100 companies that provide defined benefit traditional pension plans. These numbers could wipe out much of these firms’ profits. In 2002, total profits before extraordinary items were about $150 billion, the study said.