Administration November 3, 2002

"Better" Pension Assumptions Boost SBC Bottom Line

March 11, 2002 (PLANSPONSOR.com) - Last year, SBC boosted its pension assumptions, increasing the expected return on assets to 9.5% from 8.5%, while also making a slight adjustment to its inflation assumption - and is likely to increase its operating earnings by eight cents/share.

Reported by

Nevin E. Adams

That according to the Wall Street Journal, citing a report by Goldman Sachs analyst Frank Governali – who said that SBC made the change during a year when the fund’s investments shed 7%.

In 2001, SBC’s more generous assumptions about pension investments accounted for two-thirds of the growth in its operating earnings per share, according to Governali’s report. Operating earnings rose nine cents, with six cents coming from the changed pension assumptions.

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In Line

However, the change in assumptions is in line with the firm’s actual long-term returns on its pension assets, SBC’s Chief Financial Officer Randall Stephenson said, according to the report. In fact, the pension investments returned 12.5% during the past decade and 9.5% during the past five years.

In 2000, the average assumption among S&P 500 companies with conventional pension funds was 9.2%, according to Bear Stearns. That year, most companies didn’t change pension assumptions.

Of the S&P 500 companies with traditional pension plans, 53 companies cut projected pension earnings, 216 didn’t change them, 83 companies increased them and 11 increased them by a percentage point or more.