Pensions, Again

I’ve been writing about the corporate pension fund problem.

Today: Alcoa pension liability to jump $700 mln-$1 bln. Wow! And check this, “Pittsburgh-based Alcoa is also lowering its expected rate of return on its pension assets from 9.5 percent, but did not provide a new figure. Uncertainty over future stock market returns is leading many companies to reduce their fund expectations from recent high levels.” That means that they’ve been reporting an expectation of a 9.5% return. Yeah, right.

“Alcoa’s comments are the latest in a string of corporate warnings over the health of their pension plans, as company after company discloses huge funding shortfalls.

To make up for this funding gap, executives are being forced to divert billions of dollars to pension plans in moves that will lower earnings, limit spending and choke expansion plans.

Pension fund troubles also raise the specter of debt downgrades, which will put additional pressure on profits by raising borrowing costs.

3M Co. (NYSE:MMM – News), the diversified manufacturer whose products range from Post-It notes and Scotch tape to industrial adhesives, said on Monday it would take a $1 billion charge in the fourth quarter against shareholder equity — essentially a measure of its net worth — because of a funding shortfall in its pension plan.

Also on Monday, United States Steel Corp. (NYSE:X – News), the largest domestic steelmaker, said it may have to take a $750 million charge against equity later this year to account for possible shortfalls in its union employee pension plan.

A recent study by Credit Suisse First Boston estimates that of the 360 companies in the Standard & Poor’s 500 index that have pension plans, 325 will have shortfalls by year end. Only 33 will be overfunded. The airline and automobile industries are the hardest hit. “

This is a big one, folks. Pay attention.