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Pensions & Other Post-Employment Benefits 2014

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10-k Annual Reports for Corporate Fiscal Years Ending through 1/31/2015
(with January fiscal years treated as corresponding to preceding calendar year)
– number examined as of 4/1/2015 — 275 –

Charts and Commentary —

(* — pending update, previous data set as of 2/28/2015 being used)

On the last business day of February 2015, I finally collected the 10-k annual report for the last of my “elephants,” the top dozen U.S. corporate sponsors of defined benefit pension plans. Those elephants in the bath are useful to watch for three main reasons —

  1. Setting the Basic Trends — The same aggregate trends that are evident for those elephants are the same trends that will be seen for almost any larger generalized set or universe that includes those elephants, such as the 100 largest, the pension sponsors of the S&P 500, plans covered by the PBGC or even broader groups such as worldwide pension plans. Variations will of course emerge for very specific groups, especially those that do not include our elephants — for instance, airline pensions and public employee retirement systems and multiemployer pension funds have notoriously been underfunded. But even for those special groups, the general trends evident among the elephants tend to come through, since the elephants numbers include a wide range of experience that includes elements such as union pension plans, unfunded deferred compensation, and international pension plans.

    When I first began working with pension and benefits data reported on corporate financial statements back in the mid-1980s, I was able to work with a 10-year database of data for 700 pension plan sponsors. Nice, but when with a new employer I launched a similar project, I found that working with only 25 companies could provide almost as much insight into the underlying trends. Eventually we expanded that study first to 50 companies, then to 100 companies, but I recommended my employer against the impulse to expand its study size to a broader set beyond that unless its study were to delve into distinctions such as different industries or different fiscal year timing. Since my work with yet another new employer does not involve my examination of 10-k financial data, I have felt comfortable moving my interests on pension and benefits financial reporting into a personal hobby; and for that hobby in my free time I now regularly study financial data for over 1,300 corporate sponsors of defined benefit pension plans and other post-employment benefits (plus a mass of additional data, including 401(k) financial data, pensions of non-U.S. employers, et cetera). But of all that data, it is the data for my dozen elephants that always matters most, since those elephants pretty much tell the story.

  2. Setting Limits on Aggregates — Aggregate numbers are not going to diverge very far from what the elephants give us. Too bad some of the main published studies don’t seem aware of that. For instance, one well-publicized study recently made the absurd prediction that aggregate contributions to pension plans would increase five-fold over a single future year. That, despite the fact that many of the elephants had already publicly stated that they would be making zero contributions to their pension funds for that future year, while at most the other elephants were going to give maybe a little bump to the overall trend that could quite easily have been predicted well in advance to be the 33% increase that actually emerged, with or without unnecessary funding relief legislation. And once the elephants had published their financial statements for that year and no 500% increase — not even anything close to a 200% increase — had emerged, it was virtually impossible to find enough from the non-elephants to get that five-fold increase without over-funding the pension plans of those non-elephants to a ridiculous level.

    In a sense, this second point is only the flip side of the first point — that trends evident among the elephants are those evident by any larger group that includes the elephants — but it expresses that in a way that really ought give pause to the “experts” making wild predictions that fail to account for the behavior of the elephants.

  3. Establishing a Characteristic Benchmark — If the characteristics of the group of elephants is taken as a benchmark, then the trends for groups that do not include those elephants can be understood by reference to the elephants as a way of understanding the differences in character that give rise to the different trends. As an extreme example, we might consider the costs for defined benefit pension plan sponsors as merely one alternative for employer-provided retirement benefits and challenge elephant-based trends against trends for employers that do not provide any defined benefit plans, rather sponsor only 401(k) plans or ESOPs. Yes, but the elephants’ pension costs can still provide a benchmark by understanding the difference in retirement plan type and accounting method and such, then still assess the costs for those non-elephant employers on the basis of a comparison against the benchmark. Usually we won’t go to that extreme, but the elephants still provide a useful benchmark nonetheless.

See the numbered links at the bottom of this post or the list of links at the beginning of this post for charts and commentary.

(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

1 March 2015 at 1:31 pm

Posted in άctuary

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