Byline: Allan Sloan
You've got a lot on your mind these days. You're probably still picking away at Thanksgiving leftovers and thinking about the winter holidays. Meanwhile, corporate pension bean counters are engaged in their own December rituals, which are considerably less fun. They're calculating how sound their companies' pension funds are. Or aren't. It's a sophisticated version of the exercise you do when you plug numbers into Web-site calculators to see when you can afford to retire. (You know the drill. Earning 40 percent a year, you can retire young and rich; if today's market continues, you can't retire until 12 years after you've died.)
For the first time in years, lots of companies have to actually do something about their pension funds, most of which got fat and happy during the great bull-market '80s and '90s. Pension funds have lost money for three straight years because stock prices have fallen so sharply. Now the bill is coming due. Trevor Harris, chief accounting analyst at Morgan Stanley, estimates that the 360 of the Standard & Poor's 500 companies that still have "defined benefit" pension plans will have aggregate pension deficits of $240 billion at the end of this year. That's compared with a slight surplus at the end of last year, and a $263 billion surplus at the end of 2000. Think of it: a half-trillion-dollar swing in just two years. Even by federal government budget standards, that's serious money.
The reason the problem has taken so long to surface is that accounting rules for pensions smooth out gains and losses over several years to keep companies' profit-and-loss statements and balance sheets from fluctuating wildly. This let many companies show pension profits the past few years even though their pension funds' assets were shrinking.
I'm not trying to scare you by invoking all those big numbers and make you think the world is ending. It's not. In the early 1980s many companies had pension problems far worse than those facing most corporations today. But what today's shortfalls mean is that lots of companies feel compelled to do something about their plans. In earlier, more benevolent periods, "something" would consist of putting more money or company stock into pension plans. And some companies are, in fact, doing that. But I suspect many companies that have pension shortfalls--and that don't have to deal with unions before changing benefit packages--will try to shift pension risk away from themselves to their employees. …