C&EN: TODAY'S HEADLINES - PENSION HOLIDAY OVER FOR MANY

MARC REISCH

As if the weak economy hasn’t wrought enough damage, analysts are now worried that chemical companies may have to take huge charges to bring pension assets more in line with liabilities.

Late last month, Frank J. Mitsch, an analyst with securities firm Bear Stearns, reported that Dow Chemical “may be required to take a large charge—perhaps $1 billion—to shareholder equity at the end of 2002” to add to its pension assets. The problem, Mitsch pointed out, “is similar to many companies with large retiree and employee pools.”

A Dow spokeswoman says it is “premature to say if we need to make a charge to the balance sheet to adjust for changes in pension fund value.” Dow will analyze the value of pension fund assets at the end of the year, and only then will it register a charge if it is necessary.

Others acknowledge a need to bolster pension fund assets. For example, PPG Industries may take an $800 million charge to add to its pension fund, and Hercules said it could take a $200 million to $375 million charge.

In booming markets, pension fund investment gains more than pay for benefits to retirees, explains an analyst with Mercer Investment Consulting. But when stock prices decline and interest rates are low, the return on pension assets is not sufficient to meet the long-term needs of retirees. The situation is not dire: U.S. accounting rules permit sudden changes in assets to be amortized over time.

However, unless returns improve, “companies may be facing increased cash contributions and pension expenses that could have potential balance sheet implications,” says Leon Potgieter, head of Towers Perrin Global Consulting Group, a human resources consulting firm.