Pension bombs going off

Exploding pension fund shortfalls are blowing billion-dollar holes in the balance sheets of some of the Chicago area’s biggest companies, forcing them to make huge contributions to retirement plans at a time when cash flow and credit are already under stress.

Boeing Co.’s shareholder equity is now $1.2 billion in the hole thanks to an $8.4-billion gap between its pension assets and the projected cost of its obligations for 2008. At the end of 2007, Boeing had a $4.7-billion pension surplus. If its investments don’t turn around, the Chicago-based aerospace giant will have to quadruple annual contributions to its plan to about $2 billion by 2011.

Stock market losses also pounded pension funds at Abbott Laboratories Inc., Caterpillar Inc. and Exelon Corp., with others sure to emerge as companies file their annual financial reports with the Securities and Exchange Commission in coming weeks.

The pension gaps underscore a growing conundrum. Unfunded pension liabilities have to be subtracted from shareholder equity, weakening balance sheets at a time when it’s already tough to borrow money. Barring a reprieve from Congress, companies may be forced to make more layoffs or curb capital investments to divert cash to shore up pensions.

“There are companies out there faced with paying their pension plan or staying in business,” says Mark Ugoretz, president and CEO of the ERISA Industry Committee, a Washington, D.C., lobbying group. ERISA refers to the Employee Retirement Income Security Act of 1974, which sets standards to ensure pension plans are sufficiently funded.

The Chicago companies are symptomatic of nationwide woes. Last year, the 100 largest corporate pension funds in the U.S. saw their net assets decline by 21%, while liabilities increased 1.2%. Applying those averages to any of the region’s top funds puts almost all of them into the red by at least $1 billion.

PRESSURE MOUNTS

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Caterpillar, Sprint, Pfizer slash at least 72,500 jobs


Paul King, mine manager, inspects a Caterpillar Inc. haul truck at the Australian Bulk Minerals iron ore mine at Savage River in Tasmania, Australia, on Nov. 6, 2008. Photographer: Carla Gottgens/Bloomberg News

Jan. 26 (Bloomberg) — Caterpillar Inc., Sprint Nextel Corp. and Home Depot Inc. led companies today announcing at least 72,500 job cuts as sales withered and construction slowed amid a global economic recession that may persist through 2009.

The biggest layoffs were at Peoria, Illinois-based Caterpillar. The world’s largest maker of construction equipment said it’s cutting 20,000 jobs after fourth-quarter profit fell by almost a third.

Pfizer Inc., the New York-based drugmaker that’s acquiring competitor Wyeth for $68 billion, said it will close five factories and eliminate 19,000 jobs, or 15 percent, of the combined company’s workforce.

The firings came as American jobless claims hit a 26-year high, reaching 589,000 in the week ended Jan. 17, as shrinking demand for products and services forced companies to lower costs.

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GAO: 83% of big U.S companies, contractors use offshore tax havens

Citigroup – which has received $25 billion from the bailout fund, plus $300 billion in government guarantees – has set up 427 tax haven subsidiaries to do business: 91 in Luxembourg, 90 in the Cayman Islands and 35 in the British Virgin Islands. Other havens include Switzerland, Hong Kong, Panama and Mauritius.”



The Government Accountability Office (GAO) has just issued a report showing that most of the nation’s largest public companies and government contractors rely on offshore subsidiaries to do business and cut their tax bills. Some of these same firms – including big banks and insurers – have already received tens of billions in taxpayer money from the federal bailout fund.

Citigroup, Bank of America, Morgan Stanley, American International Group, American Express have set up hundreds of tax-haven subsidiaries, the report states. All have taken billions from the bailout fund. Pepsi and Caterpillar, both of which have received billions in tax dollars from being major government contractors, also shelter revenue in offshore subsidiaries, The Washington Post says.

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Fed May See Companies, States as Next Crisis Fronts

Oct. 6 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke may find the next fronts of the financial crisis to be just as chilling as last month’s downfall of Wall Street titans: its spread to corporate America and state and local governments.

Companies from Goodyear Tire & Rubber Co. and Duke Energy Corp. to Gannett Co. and Caterpillar Inc. are being forced to tap emergency credit lines or pay more to borrow as investors flee even firms with few links to the subprime-mortgage debacle. California Governor Arnold Schwarzenegger says his and other states may need emergency federal loans as funding dries up.

A cash crunch on Main Street would endanger companies’ basic functions — paying suppliers, making payrolls and rolling over debt. The widening of the crisis suggests that Bernanke and Treasury Secretary Henry Paulson may have further fires to put out even as the Treasury sets up the $700 billion financial- industry rescue plan approved last week.

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