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DETROIT — Some of the USA's largest
corporations are threatened with having to raise money for pension and
health care funds because they're losing money in the faltering stock
market.
Thursday, UBS Warburg downgraded General
Motors' stock from buy to hold, saying its pension fund leaves it
significantly exposed in the securities market.
GM's $67 billion pension fund is down from $80
billion two years ago. And it is underfunded by at least $9 billion.
GM also has a potential $47 billion shortfall in its retiree health
care trust fund.
As assets of pension funds invested in the
market fall, companies can be forced to use profits, drain reserves or
raise new equity.
GM isn't the only company facing pension and
health care shortfalls:
GM rival Ford Motor is expected to run a
pension fund deficit this year of as much as $6.5 billion, according
to Prudential Securities.
All airlines except Southwest have underfunded
pension plans, says Lehman Bros. analyst Gary Chase.
"With each passing day of poor performance
in the market, this becomes a larger issue."
Steel producers want a government bailout of
their retiree costs. The companies, which pay retirees and eligible
dependents $1 billion a year, have three retirees for every active
employee.
Some companies try to put off raising more
money for pension and health care funds by maintaining on their books
an optimistic assumption of their return on assets, say pension fund
analysts. Those assumptions have hardly gone down despite dramatically
lower market returns for two years.
"Too few companies are lowering their
assumptions based on what is happening in the market," says John
Ehrhardt of Milliman USA, which did a recent study on the status of
public pension plans.
SBC Communications, for example, raised its
assumption from 8.5% to 9.5% from 2000 to 2001, according to Ehrhardt.
Financially ailing United Airlines has maintained its 9.75% assumption
despite going from a $1.3 billion surplus in 1999 to a $2.5 billion
deficit in 2001 as the markets worsened.
"Chief financial officers are going to be
asked to defend these overly optimistic assumptions," he says.
GM spokeswoman Toni Simonetti, who called
Thursday's UBS report "a highly gloomy scenario," says the
automaker's return-on-assets assumption remains at 10%, where it has
been the last two years.
GM's stock closed up 11 cents to $47.72
Thursday after falling more than $3 in early trading. It was trading
as high as $68 in early May.
Ford closed at a nine-year low of $13.18, off
81 cents.
Contributing: Chris Woodyard, James Cox
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