By David Zion, Credit Suisse
Over the years Corporate America’s exposure to multiemployer pension plans has been a bit of a mystery. The problem for investors and analysts was a lack of information. The disclosures were typically limited to the amount that the company contributed to multiemployer pension plans and not much else. In most cases nothing was recognized on the balance sheet. As a result there’s an off-balance-sheet liability of unknown size lurking in the shadows for companies that participate in multiemployer pension plans. (For some background information on multiemployer pension plans, see page 11.)
In a push to try and improve transparency (especially as the plans’ health continued to deteriorate) the FASB is requiring companies to provide more information about their involvement with multiemployer pension plans. The new disclosures (which started showing up for the first time this 10-K season), though far from perfect, can be used to start pulling multiemployer pension plans out of the shadows.
Since companies are not required to provide information about the health of the multiemployer plans that they participate in (other than by color, red is bad, green is good) or their share of a plans underfunding we took a shot at it ourselves. For this report we pulled together data from more than 1,350 multiemployer pension plans (stored it in our multiemployer plan database) and estimated the funded status of each plan through March 16, 2012. In the aggregate we estimate that U.S. multiemployer pension plans are now $369 billion underfunded (using a corporate bond based discount rate) or 52% funded (even after the recent run up in the stock market and rise in yields). Using the plan ID numbers from the new disclosure we were able to allocate $43 billion of the underfunding to the 44 calendar year S&P 500 companies that participate in multiemployer pension plans and are among the first companies to provide the new disclosures.