Wednesday, October 9, 2019

You may have seen news recently that General Electric ($GE) is freezing pension benefits for 20,000 employees, to help the company close an $8 billion deficit in its pension plan.

We at Calcbench love financial data analytics so much that we plan to keep working until we die. Still, GE’s news is a reminder that corporate pension liabilities are still a big issue — and Calcbench offers numerous ways for financial analysts to understand exactly how big that issue might be for firms you follow.

For example, in our Data Query Tool, we track dozens of footnote disclosures a firm might make about its pension obligations. Scroll to the lower portion of the page and you’ll see a laundry list of “footnote points” we track in corporate filings. Look for “Employee Benefits & Pension” and you’ll see a sub-menu of several dozen more data points we track within that category — everything from defined-benefit plan obligations; to maximum and minimum discount rates; to expected future benefit payments due in coming years. See Figure 1, below.



Mark whatever pension data you want to track, for whatever companies you want to track (don’t forget how to set peer groups you want to research), and then the whole thing is delivered to you via Excel for further analysis.

You can do much the same research on our Multi-Company Page, using the standardized metrics search field on the left side of your screen. Those metrics are the same data points we cited above; on the multi-company page, you can compare them quickly on your screen across numerous companies or other metrics. (Say, defined-benefit obligations compared to total liabilities, among the Dow Jones Industrials — you can get that on your screen in a snap.) See Figure 2, below.



And of course, you can always search our Interactive Disclosure Page for detailed, narrative disclosure of pension items that firms report in the footnotes. Firms do sometimes report pension costs under various headings, so the simplest trick here might be to search “pensions” in the text field and see what comes up.

For real, many firms do still offer pensions and report costs related to those benefits. You won’t just get, “Ha! You’re kidding, right?” when you go looking.

To demonstrate how much pension accounting can matter, we looked at all the discount rates for firms that still offered pension plans in 2018. You can see the scatter plot, below.



Most firms use discount rates somewhere near 4 percent — but many use discount rates below that figure. A few brave filers even use discount rates of zero.

Remember that companies use the discount rate to determine the cost of future benefits, and thus what they must contribute today to cover those benefits in the future. The contributions move in step with the discount rate — so the lower your rate is, the more confident you are that your plan’s current value will endure over time, and the less you need to contribute today.

So if Firm X uses a discount rate of zero, does that seem like a reasonable number, or something you might step in while crossing a cow pasture? That’s for you to decide. Calcbench just serves up plenty of data to help you make your decision.


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