Ten Ways Companies Benefit from Benefits Plans: You’ve heard all
the complaints about soaring costs; now hear the other side
Source: Wall Street Journal, 24 January 2005
EMPLOYERS LOVE to complain about benefits
plans -- ailing pensions, rising health-care costs and
burdensome retirees. But for all the bellyaching,
there's another side to this story: Employers have
been among the biggest beneficiaries of benefits
The plans are a source of income, as well as cash for
various expenses, and they can be used as alimony in
downsizings and bargaining chips with unions. Even
when the plans don't provide big payoffs, they're of-
ten much cheaper than they look, thanks to tax de-
ductions and subsidies.
Of course, some of these options can be risky if com-
panies are too aggressive. In recent years, many em-
ployers have been tempted to manage their benefits
plans for short-term rewards at the expense of long-
term goals, leading to underfunded pensions, investi-
gations by the Securities and Exchange Commission
and even a few lawsuits.
Here's a look at 10 of the biggest ways benefits plans
benefit employers, or cost less than companies let on.
1. Pension Piggy Banks
Although recent headlines make it sound as though
pension plans are an endangered species, roughly
two-thirds of the companies in Standard & Poor's
500-stock index have them. And the assets in those
plans can help employers cover some steep costs.
For one thing, employers can withdraw pension as-
sets to pay the bills of benefit consultants, administra-
tors, lawyers and investment managers involved with
the pension plan. For example, in 2002, the latest
figures available, International Business Machines
Corp. paid consulting firm Watson Wyatt Worldwide
$13.7 million, primarily for administration of its pen-
sion plan; the next highest fee associated with the
plan was $7.9 million to J.P. Morgan Chase & Co.,
the plan's trustee. IBM also paid itself more than $5.9
million for human-resources administration and in-
vestment management related to the pension.
Companies can also tap surplus pension-plan funds to
pay for retiree medical expenses. Lucent Technolo-
gies Inc. withdrew $1.9 billion from its pension plan
for this purpose in recent years. Others that have
made these transfers: Allegheny Technologies Inc.,
DuPont Co., Marathon Oil Corp., Qwest Communi-
cations International Inc. and U.S. Steel Corp.
Now many employers are backing legislation that
will further ease their ability to tap the assets. The
danger: If companies draw too heavily on pension
assets, the plans may end up underfunded. This hap-
pened during the market slide from early 2000 to late
2002: Many employers that had heavily withdrawn
surplus assets didn't have a cushion to fall back on.
At the end of 1999, 264 of the 366 companies with