20-1 Pension benefits

20-1 Pension benefits - Ten Ways Companies Benefit from...

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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 plans. 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
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20-1 Pension benefits - Ten Ways Companies Benefit from...

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