2004
PBO 2000~2002 3 10 1990 PBO Funded Ratio - 12/31/93 to Present 140% 130% 120% 110% 100% 90% 82.6% as of 7/31/2004 80% 70% 81.6% as of YE 1993 60% 199312 199412 199512 199612 199712 199812 199912 200012 200112 200212 200312 60% 40% 1
PBO 2000~2002 3 2 1990 2 60% 40%
20038 Pension Plan Financial Results Come Under the Corporate Microscope During much of the 1990s, company pension plans attracted only moderate interest from many corporate chief executives and board members. Today, by contrast, pension plan financial results are receiving close scrutiny from senior leadership in most companies, a new survey suggests. In fact, pension plan financial performance is now a board-level issue in almost 90% of major U.S. companies, according to a recent Towers Perrin survey of chief financial officers of Fortune 1000 companies that sponsor defined benefit pension plans. This heightened concern about pension financing in the executive suite and boardroom reflects the toll that depressed stock values and declining interest rates have taken on corporate pension plans over the last few years. About three-quarter of the CFO s participating in our recent survey reported that their companies pension plans are now underfunded. 3 2003 Fortune 1000
BENEFIT 4
5
PBO 6
(DB) (401(k)) (DC) 7
EBIC 500 8
EBIC 9
DB PBO X PBO X-1 CB PBO X PBO X-1 10
35 35 35 1 1 1 1 1 1 1 11
12
X X+1 X+2 X X+1 X+2 13
Plan Year 1 (PY1) Plan Year 2 (PY2) PY1 PY1 4/1 5/31 1/15 3/31 12/15 PY1 PBGC PBGC PY1 PY1 Form 5500 PY1 14
15 ALM ALM
ALM 16
ALM 10 Asset Efficient Frontier 9 8 7 6 5 Nominal Return 4 1 2 3 4 5 6 Current 7 8 3 2 Asset Efficient Frontier 1 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 Standard Deviation of Return 17
ALM 18
ALM 3.0% 2.5% 19
ALM PBO 125 120 115 PBO Asset M ix 1 110 105 100 95 90 85 80 75 70 65 60 55 125 120 PBO Asset M ix 2 115 110 105 125 100 120 PBO Asset M ix 3 95 115 90 110 62.05 85 105 80 100 2003 2004 2005 75 2006 2007 2008 95 2009 2010 2011 2012 70 90 65 62.05 85 60 80 55 75 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 70 80 70 60 50 40 30 20 10 0 (10) Asset Mix 1 80 70 60 50 40 30 Asset Mix 2 60 20 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 50 10 0 65 60 55 80 70 40 Asset Mix 3 30 (10) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20 10 0 62.05 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20 (10) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
21
PBO 120 115 110 105 100 95 90 85 80 75 0 Oct-91 May-92 Dec-92 Jul-93 Feb-94 Sep-94 Apr-95 Nov-95 Jun-96 Jan-97 Aug-97 Mar-98 Oct-98 May-99 Dec-99 Jul-00 Feb-01 Sep-01 70 Oct-91 May-92 Dec-92 Jul-93 Feb-94 Sep-94 Apr-95 Nov-95 Jun-96 Jan-97 Aug-97 Mar-98 Oct-98 May-99 Dec-99 Jul-00 Feb-01 Sep-01 PBO 120 115 110 105 100 95 90 85 80 75 0 Oct-91 May-92 Dec-92 Jul-93 Feb-94 Sep-94 Apr-95 Nov-95 Jun-96 Jan-97 Aug-97 Mar-98 Oct-98 May-99 Dec-99 Jul-00 Feb-01 Sep-01 70 Oct-91 May-92 Dec-92 Jul-93 Feb-94 Sep-94 Apr-95 Nov-95 Jun-96 Jan-97 Aug-97 Mar-98 Oct-98 May-99 Dec-99 Jul-00 Feb-01 Sep-01 1020 22
FAS FAS 1990 1990 23
ALM PBO 24
25 GDP GDP ALM
ALM 26
ALM 27
ALM +0.5% +0.5% 28
ALM PBO Funded Ratio 140 135 130 125 120 115 110 105 100 95 90 85 80 PBO Funded Ratio Efficient Frontier 1 2 3 4 75 70 10 15 20 25 30 35 40 45 50 55 60 65 70 Standard Deviation of PBO Funded Ratio 5 Current 6 PBO Funded Ratio Efficient Frontier 7 8 Asset Mix %: 1 2 3 4 5 6 7 8 Current Cash-JP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.0 Equity-JP 23.2 24.5 25.6 25.8 22.4 19.1 15.3 0.0 35.0 Bond-JP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 21.0 Emerging 4.1 5.0 5.0 5.0 5.0 5.0 5.0 5.0 0.0 Gen_Acct 35.9 20.5 7.2 0.0 0.0 0.0 0.0 0.0 21.0 H_Bond xjp 3.6 5.4 6.2 0.0 0.0 0.0 0.0 0.0 0.0 Equity x Jp 6.5 13.0 20.5 30.8 46.6 61.3 78.2 95.0 15.0 Bond x Jp 26.6 31.6 35.6 38.4 26.1 14.7 1.5 0.0 5.0 Reward 90.1 96.7 102.8 110.1 115.5 120.7 126.9 131.7 88.6 Risk 19.3 23.7 28.6 35.1 40.8 46.8 54.8 62.1 20.5 Reward: PBO Funded Ratio Risk: Standard Deviation of PBO Funded Ratio 29
ALM PBO 125 120 115 PBO Asset M ix 1 110 105 100 95 90 85 80 75 70 65 60 55 125 120 PBO Asset M ix 2 115 110 105 125 100 120 PBO Asset M ix 3 95 115 90 110 62.05 85 105 80 100 2003 2004 2005 75 2006 2007 2008 95 2009 2010 2011 2012 70 90 65 62.05 85 60 80 55 75 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 70 80 70 60 50 40 30 20 10 0 (10) Asset Mix 1 80 70 60 50 40 30 Asset Mix 2 60 20 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 50 10 0 65 60 55 80 70 40 Asset Mix 3 30 (10) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20 10 0 62.05 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 30 (10) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
ALM ALM ALM PBO PBO 31
Fortune 1000 CFO 2003 2000 2002 2003 Fortune 1000 32
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2000 30 34
2000 30 35