PORTLAND – The downward slide of the stock market is having an impact on more than employees’ 401(k) retirement accounts. It has taken a toll on companies’ pension plans as well.
Pension funds have followed the stock market’s descent, forcing many companies to pump more cash into the funds to meet requirements on account balances.
UnumProvident, for instance, had to take a charge of $145 million during the last three months of 2002 to bring its pension account up to the level required to cover potential liabilities, said company spokeswoman Linnea Olsen. The company, which has about 3,600 employees in the Portland area, expects it will cost even more this year, she said.
Like other pension plans, UnumProvident is facing declining stock values and rock-bottom interest rates on bonds. Companies can switch pension funds from stocks to avoid some of the losses that equities have suffered, but their bond holdings aren’t likely to pay much.
And if interest rates do start to rise again, those bonds paying lower rates aren’t going to be worth as much, either, Olsen said.
It’s a situation that weighs heavily on those who oversee the pension plans, balancing their desire for better investment returns with the knowledge that reacting rashly to temporary conditions could lead to bigger problems down the road.
“We worry about it a lot,” said George Burgoyne, an employee of the state Department of Human Services who serves on the board of the Maine State Retirement Fund. “But the [retirement] system is basically a forever investor, it’s not like an individual with a time horizon.”
The state retirement board has tinkered with its investment formula, gradually raising the percentage invested in stocks and mutual funds to about 80 percent from about 65 percent at the beginning of the 1990s.
Burgoyne said members try to avoid reacting to short-term trends in the market. Results that may look poor now have to be balanced against the potential for long-term growth, he says.
“When the market goes up, we look real smart and when the market goes down three years in a row, we look like a bunch of dummies and that’s where we are now,” he said.
The retirement fund’s value declined $720 million to $6.25 billion from the end of 2001 to the end of 2002, said Kay R.H. Evans, executive director of the Maine State Retirement System. She noted, however, that the system gained $3.24 billion from 1992 through 2002 and that the investment losses or gains don’t affect the benefits paid to current or future retirees.
Federal law protects pension funds and sets the amounts that they have to keep on balance to meet current and projected future responsibilities. When investment returns fall short, those who contribute to the fund – usually companies, but sometimes employees as well – have to make up the difference.
At L.L. Bean, the company has had to increase its payments into the pension plan by a modest amount to cover its investment shortfall, said Mark Cook, the company’s manager of benefits.
Cook said Bean considers itself fortunate that it hasn’t had to contribute more to the fund.
“We talk to different folks and know that other companies are in a significantly more difficult place than we are and know we are very fortunate” not to be paying even more into the fund, he said.
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