Pension plans come up short

After a three-year bear market, many large American companies are finding that the financial health of their pension funds has deteriorated, sometimes drastically.

While some businesses are spending big to shore up their plans, many are also considering ways to reduce their pension obligations to workers, possibly undermining benefits for millions.

The biggest pension shortfall belongs to General Motors, which said on Thursday that its U.S. pension plans ended the year with a deficit of $19.3 billion, even though the automaker pumped in $2.6 billion. GM also said its pension costs would triple in 2003, severely depressing its profit.

Many similar announcements are expected in the coming months.

These problems have little to do with any change in the number of people retiring or an increase in their benefits. Rather, investments by the pension funds have fared poorly in recent years. As the prices of stocks and other investments have fallen, so has the return on the money set aside for the more than 44 million current and future private-sector retirees.

At the same time, unusually low interest rates on bonds and other credit investments are further undermining pension plans. Because of the way that interest rates figure in financial calculations, falling rates make future pension obligations look bigger on balance sheets now. To meet their obligations to workers, and to stay in compliance with pension laws, companies have been forced to set aside more money.

IBM put almost $4 billion into its pension plans last month. Honeywell International said in November that it might have to contribute as much as $900 million more. Johnson & Johnson paid in $750 million last month, and 3M made a $789 million contribution last year. Ford said that it contributed $500 million this month and would probably add another $500 million soon, depending on tax considerations.

Still other companies, including Lucent Technologies, Boeing and Delta Air Lines, were forced to reduce their net worth to reflect the way their growing pension obligations had outstripped their assets. Along with reducing a business's value, such steps can put companies in violation of their contracts with lenders. Delta, for one, had to renegotiate with its lenders after the action.