Abstract - Quest for Global Competitiveness - Universidad de Puerto ...

1980198219841986198819901992199419961998200020022004Millions ($)Trends in Pension Plan Status and Long-term DebtIt is important to look at the historical evolution of the DB pension plan elements andLTD accounts to understand the way they are evaluated by the markets. Figure 1reports the time series of the aggregate funding level for all the companies inCompustat with available pension items and for all firms with available LTD information.200015001000500Aggregate Funding StatusAggregate Long-Term Debt0-500YearsFigure 1. Aggregate Pension Plan Status and Long-Term Debt Levels. The graph reports thedifference between aggregate assets (FVPA) and aggregate benefits (PBO) for the companies in thesample. Also, the aggregate level of long-term debt (LTD) for the companies in the sample is presented.As can be observed from Figure 1, an aggregate underfunding appears, for the firsttime in our sample, in 1994. In 1996 the funding status of DB pension plans started toimprove and in 1997, concurring with the bull market of the second half of the 1990s,pension plan assets grew more than benefits, and peaked in 1999 at about $163 billion.On March of 2000 the Internet bubble exploded causing stock prices to decrease and,as a result, the FVPA dropped. In 2001 the gap between the PBO and the FVPA is ofalmost $85 million. Major economic events effects arose from September 11, 2001attacks, with initial impact causing global markets to drop sharply. Then, on 2002, asurplus appears, reaching about $754 million in aggregate overfunding. In 2003,another aggregate underfunding appears. This is in contrast to an aggregateoverfunding of $1.3 billion in 2004, the highest aggregate overfunding for the whole