Survey: Companies Facing Bigger Pension Expenses

ByJohn S. McClenahen Large and midsized companies are facing major increases in pension expenses this year to make up for recent losses in their pension plans, says Deloitte & Touche LLP. The increases could undercut corporate earnings growth and slow U.S. recovery from the 2001 recession, claims the professional services firm. Some 40% of the companies responding to the survey of 80 firms say their pension expenses will rise by more than 50% in 2003. Another 20% forecast increases of 26% to 50%, and 16% of the respondents foresee expenses rising between 11% and 25%. Some 12% of the companies responding have already decided on changes to their plans and 31% are looking at such alternatives as cash-balance or profit-sharing plans. However, "companies that change their pension plans solely because of stock-market volatility and the current higher expenses could be making a serious mistake," warns David Hilko, practice leader of the employee benefits group in Deloitte & Touche's Chicago office. "Changes now won't fix the funding issue," he states. "The companies still must make up these major shortfalls under [Internal Revenue Service] rules," he emphasizes. "What's more, benefit expenses often rise in the short term when companies switch plans, which would simply add to the current expense crisis."