NORFOLK, Va. — Citing its market outlook, Norfolk Southern Corp. lowered its expected long-term rate-of-return assumption on pension plans assets to 9%, reports Dow Jones Newswires.
This action will result in a noncash increase of about $10 million in pretax compensation and benefits expense in the fourth quarter.
“While we are reducing the rate of return assumption for pension accounting purposes, it should be noted that our retirement plan remains fully funded,” the railway company said in a press release Monday.
Norfolk is hardly the only company whose costs of offering defined-benefit pension plans have increased as the stock market has declined.
According to a recent study by Adrian Redlich, director of global analytic and thematic research at Merrill Lynch & Co. (MER), the pension obligations of the 346 companies in the S&P 500 Index that offer such plans could be underfunded by up to $323 billion by the end of this year.
That’s a marked changed from the past two years, as reported by The Wall Street Journal. These plans were slightly overfunded at the end of 2001, and overfunded by $215.6 billion two years ago.
The Journal reported that, according to the Merrill study, companies in the S& P 500 Index, on average, assume 9.3% annualized investment returns for pension purposes.
The S&P 500 Index was down 22.07% as of the end of last week.
Norfolk Sourthern shares, listed on the New York Stock Exchange, closed Monday at $21.06, down $1.01 or 4.6%, on volume of 1.22 million shares.