Volume 17, No. 5


Benefit Plans 2007: Close To The Edge - And Back?  Pension plans were at the forefront of investor attention a few years ago: the confluence of low interest rates and a multi-year bear market inflated unfunded obligations for defined benefit pension plans. The prospect of federally required contributions to those plans focused investors’ minds on them; they didn’t pay nearly as much attention to other postemployment benefit (OPEB) plans, where there’s no similar governmental push on funding. Nevertheless, the same outside forces - bear market, low interest rates - swelled unfunded OPEB obligations.

Last year, a new accounting standard (Statement 158) plopped the funded status of both kinds of benefit plans onto a sponsoring firm’s balance sheet, without changing any of the other accounting for benefits. Statement 158 couldn’t have arrived at a better time to go unnoticed: pension plans came close to the edge of being fully funded for the first time in years. In the S&P 500, the median funding ratio (assets to plan obligations) was over 94% for pension plans, the ones that can bite investors hardest. OPEB plans weren’t nearly as well-funded, but they also improved markedly. It’s too early to tell what 2008 will bring, but if the early turmoil is any indication, Statement 158’s "on-balance sheet" reporting of benefit plans might draw a lot more attention than last year. Should benefit plan funding take a giant step backwards, at least it will be a retreat from a strong position. This report shows which S&P 500 firms had the strongest and weakest benefit plans at the end of 2007.

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