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To: yard_man who wrote (185049)	7/31/2002 5:36:39 PM
From: mishedlo	Read Replies (2) \| Respond to of 436258

This is the section I like. Think MMM is any better off now than when it was written? During the bull's run, companies were able to book huge gains on their income statements from their pension plans. Some, with plans swollen by bumper returns on stocks and bonds, haven't had to set aside money for future obligations for many years. Because of the way accounting rules allow firms to book gains and losses over many years, some pension plans that lost money last year were still able to record a profit that then flowed to the companies' overall bottom line. Phone giant Verizon's pension lost more than $3 billion last year but, thanks to accounting rules, the company was able to post a pension gain of $1.85 billion. And the company is sticking with its projected 9.25 percent return for this year–a "valid assumption," says Verizon spokesman Bob Varettoni, given the plan's 10 percent-plus annual returns over the past decade. But now the bountiful times are reversing themselves as the bear market claws a hole in most pension plans. As investment portfolios have followed the markets downward, many firms will have to acknowledge their losses while in some cases also having to cough up cash to replenish their dwindling plans. "They had the cushion from the '90s, and now that is gone," says John Ehrhardt, an actuarial consultant at Milliman USA. "I think it is something that is going to have a big impact [on earnings] over the next year or two." It is not just the current losses that are a problem. Companies still have expectations for future gains that are far too rosy, experts say. Indeed, the top 50 pension plans project average returns this year of 9.39 percent–a bold assumption given recent market mayhem. And when the market moves in the direction opposite of expectations, the effect on pension plans can be dramatic: Last year, the top plans expected to earn a combined $54 billion but instead lost $36 billion. Those losses will be spread over several years, forestalling a massive hit to earnings but ensuring the drag will continue over time. Already, several large plans have swung from being overfunded to underfunded status. 3M, for example, saw its surplus evaporate from $657 million in 1999 to a negative $1.7 billion last year, while TRW's surplus of $2.1 billion in 1999 is now a shortfall of $853 million. "The performance of most of these plans is largely tied to the stock market,'' Lehman Brothers analyst Donald Zwyer wrote recently, "as most plans have a large portion of assets invested in stocks." The downturn hasn't affected the ability of workers to collect on their pensions. The largest companies still have huge plan balances, while the government makes good on insolvent plans through payments from the Pension Benefit Guaranty Corp. But even the PBGC is feeling the pain: Its surplus has shrunk nearly in half, to less than $5 billion, since September 2000. – Tim Smart