NEW YORK (Reuters) – Pension costs, a streak in corporate financial statements that many investors ignore, are getting again attention as companies grapple with a hangover of losses from the 2008 neckcloth market swoon.
Companies in a wide swath of sectors are shoring up pensions, caution about hits to earnings and even taking drastic measures such taken in the character of an overhaul of their pension accounting.
Behind all the activity is a ballooning corporate pension deficit, worsened by retiring baby boomers and poor returns on pension assets over the past decade.
Liabilities for the 100 largest U.S. in~d pension plans have jumped by 78 percent since 2000 to .44 trillion, space of time assets have grown by just 15 percent to .15 trillion, according to consulting not soft Milliman.
Congress gave companies breathing room to close the gap in a 2006 annuity law, but the day of reckoning is getting closer.
“At the extremity of the day, they have to get these things fully funded transversely the next seven years,” said James Rizzo, an analyst at Fitch Ratings. “No thing how they account for it, from a cash basis they uniformly have gigantic holes to fill.”
Industries hit hard by the recession, including automotive, consumer, shape and building materials sectors, have some of the biggest pension gaps, according to Fitch.
PENSIONS WEIGH ON EARNINGS
Complex accounting rules that concede companies to delay charging pension losses against income have also caused problems to be slow. Because of those rules, many companies are still recognizing losses from the 2008 trunk market meltdown.
High pension costs have been a cloud on ~y otherwise strong earnings season.
Aerospace company Boeing Co last week before-mentioned pension costs are expected to reduce 2011 earnings by 58 cents for share to .80 to .00 per share.
Diversified manufacturer Textron Inc afore~ last week increased pension costs will represent a 4 cent draw on expected 2011 earnings per share of .00 to .15.
Pension expenditure also was one of several factors cited by diversified manufacturer 3M Co on account of a decision to hold back on discretionary spending early this year.
Low part rates have compounded companies’ problems, offsetting the benefits of a pair-year stock market recovery. Interest rates hurt because they are used to configuration future obligations — the lower the interest rate, the more circulating medium a company has to set aside now for future pension payments.
“By hostile and away, the level of interest rates has the most occult effect on the pension funding status,” said Kenneth Hackel, president of CT Capital LLC, some Alpine, New Jersey, investment advisory firm.
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