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Archive for December 2nd, 2008

FYE 9/30/08 – Contributions and Costs

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S&P500 FYE 9/30 - Contributions & Cost 2004-2008For S&P 500 companies with fiscal years ending September 30, aggregate employer contributions and net periodic pension costs for global defined benefit pension plans decreased in 2008, as illustrated on this chart showing amounts for fiscal years 2004 through 2008. Employers’ cash contributions to the pension plans, indicated here by the blue line with diamonds, declined by about 32% for 2008 as contrasted with 2008. Net periodic pension cost, an expense charged against corporations’ net income, indicated here by the red line with squares, declined by about 12%.

I expect to see both of these trends – lower contributions and lower cost for 2008 – reflected in the larger subset of S&P 500 companies with fiscal years ending 12/31/2008 (most of whose annual financial statements for 2008 will be published in February 2009). Contrary to widespread speculation in recent trade press, the investment market turmoil of this year will not yet influence either number to any material degree, if at all. In the case of employer contributions, many employers had deposited significant amounts of advance contributions into domestic pension funds during the early years of the decade, so now can depend on those advance contributions to take care of current contribution requirements, so may be contributing only for foreign pension plans and for non-qualified supplemental executive retirement programs during 2008. Even new funding targets and benefit restrictions that went into effect this year may not yet have as much effect on pension contribution habits as has been widely feared: remember, pension funded status reported on companies’ financial statements covers all pensions, including typically less well-funded foreign pension plans and unfunded non-qualified supplemental executive retirement programs, neither of which are subject to the new funding targets; whereas the qualified pension plans that are subject to the new rules are generally better funded than the global all-plans figure. Moreover, the new contribution requirements for domestic qualified pension plans are based on pension funded status as of the beginning of the 2008 year, well before the emergence of the current market turmoil. (Indeed, for this 9/30 FYE subset, the very worst of the current bear market has been hitting after the most recent fiscal year, in October and November.) Cash-tight employers might not fill in the funding hole with more employer contributions until their advance contribution balances have been depleted, and even then the bulk of any contributions for the 2008 year would not be due until late 2009. All things considered, the drop in employer contributions during 2008 was to be expected, as I had previously observed very early in the year.

Net periodic pension cost is determined under GAAP prescribed by SFAS 87, which defers and smooths pension plan experience. Similar to the calculation timing for contributions, the accounting costs for 2008 were generally predetermined as of the beginning of the fiscal year – as of 9/30/2007 in the case of the set illustrated above – before the emergence of market turmoil. So the costs for 2008, still factoring in the smoothing of gains since the middle of the decade, drop from the 2007 level, thereby providing a bit of a boost to corporate earnings.

(Remember, as I’ve previously disclaimed, posts such as this represent efforts of my favorite pastime. My formal work does not involve any of this, and none of it represents any position or comment that should in any way be attributed to my employer. Likewise, as always, it represents general personal impressions and should not be treated or used as formal professional advice.)

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Written by macheide

2 December 2008 at 4:15 pm

Posted in άctuary

Poor Of

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I’ll be good soon.

Another macheïde list of questionable purpose and even less value: T9 obiter dictum.

I’ve way too many years to do it like a teen: they either know without looking when to hit “next” for the alternative word on a T9 word list, or they know how to interpret T9-speak and interpret on the fly without caring how it come across.

bumper sticker [www.internetbumperstickers.com] - whatev

Written by macheide

2 December 2008 at 3:15 pm

Posted in whatev

APM – November 2008

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APM - PPA through 11-28-2008

November 2008 was the worst month of the year for the funded status of defined benefit pension plans, as measured by the Aftermath Pension Index, shown above for August 2006 through the end of November 2008. Casual appraisals have felt that November eased off from the battering pensions took during October, perhaps because the equity markets did not fall quite as badly: for instance, the S&P 500 stock index fell only 72.51 during November, as contrasted with the 197.61 freefall during October. Unfortunately, whereas pension asset investment losses during October were partially offset by decreases in pension obligations arising from increases in corporate bond interest rates, November was not so kind: falling interest rates increased pension obligations, adding to November’s investment losses. As measured by Moody’s Aaa bonds, interest rates dropped 0.87% during November, more than reversing October’s increase of 0.53%. The net results: whereas the counter-balance of rising interest rates against severe investment losses dropped the APM by 3.77 for October, milder investment losses with falling interest rates combined for a decrease of 9.93 in the APM for November.

Further details on APM methodology are provided in the APM document.

(Remember, as I’ve previously disclaimed, posts such as this represent efforts of my favorite pastime. My formal work does not involve any of this, and none of it represents any position or comment that should in any way be attributed to my employer. Likewise, as always, it represents general personal impressions and should not be treated or used as formal professional advice.)

actuary cat feed subscribe to aftermath’s άctuary category

bumper sticker [www.internetbumperstickers.com] - actuary

Written by macheide

2 December 2008 at 5:27 am

Posted in άctuary