Retirement tail often bigger than dog

General Motors Corp., the world’s largest industrial corporation, has pension fund assets that are almost twice the company’s market value.

That means GM’s pension fund could buy the company and then some if federal pension law did not limit the amount of sponsoring company stock a pension fund may own.

Detroit-based GM had a market capitalization of approximately $40 billion at the end of September, while its defined benefit plan had assets of $69.5 billion, according to an analysis by InvestmentNews’ sister publication Pensions & Investments.

But GM is not alone. Several others among the nation’s largest 100 corporations — as ranked by Fortune magazine — share its predicament, P&I found.

Lockheed Martin Corp., the Bethesda, Md.-based defense contractor, had a market value of $13.2 billion as of Sept. 30, but its defined benefit fund had assets valued at $23.8 billion.

Pittsburgh-based steelmaker USX-U.S. Steel Corp. had a market capitalization of $2.2 billion at the end of the third quarter of 1999, but $10.9 billion in defined benefit assets — almost five times the value of the whole company.

in the air, too

The outstanding stock of UAL Corp., the Chicago-based parent of United Airlines, had a total value of only $3.5 billion at the end of September, but the company had defined benefit assets of $8.3 billion.

And at least three of the nation’s top 100 companies had pension assets valued at almost their own market value. The Boeing Co. of Seattle had defined benefit assets of $37 billion and a company market value of $39.6 billion; PG&E Corp. of San Francisco had pension assets of $7.4 billion as of Aug. 31 and a market cap of $9.8 billion at the end of September. R.J. Reynolds Tobacco Holdings Inc., the Winston-Salem, N.C., cigarette maker that was cut loose by its parent last year, had a market value of $2.9 billion and pension assets of $2.2 billion at the end of the third quarter.

Still, few observers expressed surprise at the phenomenon. Stock prices of some of the nation’s largest industrial corporations have lagged behind even while dot-com stocks have hit the stratosphere. At the same time, these old-line corporations have large pension funds to support their aging work forces, while new companies tend to reward their employees with stock options, not pension benefits.

LIKe specialized insurers

In fact, some of the smokestack companies where retirees outnumber employees might be considered little more than specialized insurance companies that “are in the business of paying a pension until everyone dies,” says Keith Ambachtsheer, president of K.P.A. Advisory Services, a Toronto pension research and consulting firm.

As for GM, the stock market is placing a greater value on its satellite business than its auto manufacturing business. While GM’s own stock continues to trail the general market, trading recently at only 8.3 times trailing earnings, its ownership of Hughes Electronics Corp. has helped its market value.

GM’s stock jumped nearly four points Jan. 14 on the news that it would realize a pre-tax gain of $2.2 billion from the sale of Hughes’ satellite business to Boeing. GM owns Hughes and holds 68% of its tracking stock, which recently was valued at $32.6 billion.

GM might be “worth more dead than alive,” notes Theodore R. Aronson, managing partner at Philadelphia money manager Aronson + Partners.

At the same time, he says, it is regrettable that while the dot-com stocks continue breaking all stock market records, “In the new economy, you don’t have pension funds, and we expect workers to take care on their own.”

Ultimately, GM’s pension fund might put it at a competitive advantage over its foreign rivals such as Toyota Motor Corp. and Volkswagen AG, says Adam J. Reese, a consulting actuary with Towers Perrin in Arlington, Va. That’s because while Japanese and German automakers also have to deal with aging work forces, they have little put away to pay pensions for their retired workers.

UAL, which owns the world’s largest airline, is another company that has underperformed the market.

Simply put, “The airline sector has been out of favor,” says Brian Harris, a securities analyst at Salomon Smith Barney in New York.

To make matters worse, UAL stock took a pounding Jan. 14 after it announced its earnings would fall short of expectations because of rising fuel prices. Even though a huge chunk of the company is owned by employees through a stock ownership plan, it traded at a mere 6.91 times trailing earnings recently.