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Strategies & Market Trends : Asia Forum
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To: Paul Berliner who wrote (6291)9/17/1998 3:13:00 PM
From: Robert Douglas  Read Replies (3) of 9980
 
**OT** But possibly very important.

Paul brought up the topic of pension obligations in Japan and how they are a huge unmet financial obligation. Since pension costs are one of the larger costs of doing business anywhere, I think we need to discover what effect they are having on U.S. companies' earnings. Today I ran across this in an Aerospace Industry report from Bear Stearns:

The roaring bull market of the past few years (which has boosted the value of pension fund assets) and, in some cases, the adoption of more liberal actuarial assumptions have led to a steep decline in pension expense, generating a noncash source of income. We estimate that this trend alone accounted for 25% of industry-wide earnings growth in 1997 and could contribute a similar percentage in 1998.

What this means of course is that when the stock market quits rising faster than the required rate of return of the pension plan (heaven forbid an actual decline), the pension expense must rise. Voila lower earnings.

Is the aerospace industry an isolated case or is it representative of U.S. companies as a whole and how they are dealing with pension costs? I don't know the answer to that question. If anyone has seen something more on this please post it. Maybe there is some hungry grad student out there that could take this on as a research project and impress their professors.

-Robert
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