S&P 500 Pension Cuts May Ease Competition Risk: Chart of the Day

Efforts by General Motors Co. (GM) and other companies to reduce pension obligations to employees may be essential for them to prosper worldwide, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist.

As the CHART OF THE DAY shows, companies in the Standard & Poor’s 500 Index had a record $354.7 billion deficit in pension funds at the end of last year, according to figures compiled by S&P. The shortfall widened by 45 percent from 2010.

The larger gap reflects lower returns on U.S. stocks, Levkovich wrote two days ago in a report that cited S&P’s data. The S&P 500’s total return, including dividends, fell last year to 2.1 percent from 15 percent in 2010 and 26 percent in 2009.

“Many U.S. corporations have been attempting to address pension costs recently,” the New York-based strategist wrote. “This may be the key for the future health” of their business, he wrote, because many international competitors aren’t saddled with comparable expenses.

GM, the largest U.S. automaker, and Ford Motor Co. (F), the second biggest, have offered buyouts of payments to a total of 140,000 salaried retirees. Their pension plans were underfunded by a combined $40.8 billion at the end of 2011.

To be sure, pension-calculation changes will ease the financial burden on these companies and others that have plans, the report said. President Barack Obama signed legislation this month that lets companies use an average interest rate for the past 25 years, rather than two years, in determining payments.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net