Also read the following email I got.
From: ibmretiree@yahoogroups.com [mailto:ibmretiree@yahoogroups.com] > > What IBM and other companies are asking for is a change in the laws > about how quickly they have to make up any underfunding in their > pension plans. > > Under the Pension Protection Act of 2006, the rules were tightened to > force companies to calculate the value of their pension plans so that > they better represented the value of the investments the plan has at > a > given point in time. Previously, the value was average over many > years to smooth out sudden increases and decreases in the market > value. That long term averaging was viewed as bad because it allowed > some companies to hide the fact that their plans were seriously > underfunded and to avoid taking any action until it was too late. > > The new rules attempted to fix that, but now have their own "bad" > aspect, at least from the companies' point of view. In a large, > sudden > down turn like the stock market it is currently experiencing, many > pension plans have become underfunded - at least for the moment. This > will require the companies to contribute some large amounts of money > to the plans. But in a year or two, it is likely the stock market > will recover, making those contributions unnecessary in hindsight. > > The trouble is, there is no way to tell. Maybe the markets will > recover quickly, maybe they won't. If you are an employee/retiree, > you'd like to see the pension plan fully funded so you can be assured > of your pension in the future. If you are the company, you'd rather > not put up any extra money right now when the economy is bad. Having > to do so might make the financial health of the company worse. > > In my opinion, the companies are trying to take advantage of the bad > economy to try and loosen up on the regulations. I don't view that as > a sign that they want to walk away from their obligations completely. > Just that they want some greater latitude in funding their pension > plans. But if a company is not healthy, that may increase the risk of > the retirees getting the short end of the stick. > > Although the Pension Protection Act of 2006 says that plans should be > 100% funded, it also recognizes that plans may become underfunded due > to fluctuations in asset values. > > Companies whose pension plans are underfunded have 7 years to get the > plan back to 100% and must amortize the amount of the underfunding > over that period. That is, they must add a significant portion of the > underfunded amount each year. > > If the underfunding is due to a market downturn, it is likely that > the > market will reverse itself during that time and help close the gap. > However, the company can not assume that will happen and contribute > nothing in the hope that the market will take care of the problem. > > In the case of IBM, IBM's U.S. pension fund had a value of $57,191 > million at the end of 2007 and obligations $46,323 million. Thus, it > was over funded to the tune of $10,868 million, or 23%. > > A report from someone over on the IBMpension group says that the > pension fund has lost 22% so far this year. If that is correct, that > would suggest that the current value of the fund is about $44,609 > million. That means it would now be underfunded by $1,714 million, > or 3.7% > > With 7 years to close this gap, IBM would have to contribute about > $244 million to the fund this year to be in compliance with the > Pension Protection Act. They could easily make that contribution out > of cash on hand (IBM had $9,755 million in cash as of Sept 30, 2008). > Or, IBM might chose to contribute shares of stock to the fund, as > they > have done in the past. > > The ERISA regulations prevent IBM from removing money from the > pension > fund without incurring severe penalties. Also, even if IBM were to > terminate the pension plan, they are still obligated to pay each and > every employee and retiree their vested benefits. > > In addition, IBM can not simply dump the pension plan and turn it > over > to the Pension Benefit Guarantee Corporation. The PBGC would only get > involved if the pension plan was underfunded and IBM went bankrupt. > Then, the rules of the PBGC would come into play and the pensions of > some retirees might be reduced. For 2008, the PBGC guarantees > pensions up to $51,750.00 (this is an age 65 amount). > > Despite the significant downturn in the market, I see no signs that > make me worry about the IBM pension fund and IBM's ability to keep it > fully funded at this point.
