By Sarah Mortimer
LONDON, Aug 15 (Reuters) - Six of Europe's top 10 companiesby revenue are sitting on pension liabilities bigger than aquarter of their stock market value, a Reuters survey has found,highlighting the precarious state of schemes funding theretirements of thousands.
The elite group of companies owed their pension plans acumulative $245 billion in 2012, up 16 percent from a yearearlier, largely due to weak returns from staple investmentslike stocks and bonds.
But the assets of these pension plans grew by just 11percent over that same period, extending funding gaps ordeficits that run into billions of euros in some cases.
If these funding shortfalls continue to grow at a fasterrate than assets, investors and bondholders could loseconfidence in the firm's financial security, making it moredifficult for companies to raise affordable capital.
And in the worst case scenario, pensioners could also beforced to accept smaller pensions than expected if a companycannot afford to meet its obligations.
The deficits range from $93 million at minerGlencore-Xstrata to 9.7 billion euros at Germanautomaker Daimler but shortfalls of any size candeter investors, raise borrowing costs and weaken balance sheetsthat look healthy in all other respects.
"The companies that have large pension deficits relative totheir market capitalization continue to be in denial about theimpact that deficit can have on future debt," said one pensionadvisor on the basis of anonymity.
Out of the 10 listed companies, eight are sitting on cashpiles that could wipe out their pension shortfalls but only twoof the companies contacted by Reuters were prepared to discusstheir pension scheme deficits or how they might tackle them.
A Daimler spokeswoman told Reuters that filling its 9.7billion euro deficit was not a "major priority", while aspokesman for one of the 10 companies, who declined to beidentified for this report, said it was satisfied with itsfunding plan.
"There has never been a debate about how we can protect thefuture of the company by massively reducing our pensiondeficit," the spokesman said, insisting that the company couldeasily tap other sources of capital to address any future spikein its pension debt.
The other companies all declined to comment.
At least three of the firms surveyed have dipped intocompany coffers to trim their pension deficits in recent yearsbut experts say the tactic offers no guarantee of a long-termfix.
Royal Dutch Shell pumped $2.3 billion into itspension plan in 2012, while BP has contributed $4 billionto its funded pension plans in the past three years.
Volkswagen injected more than 3 billion euros ofcash into its pension plan in 2012, when the first of thepost-war Baby Boomers in its workforce took retirement.
"Companies can't look to fix their pension deficits in onego," National Association of Pension Funds policy advisor JamesWalsh told Reuters.
"Trustees want to see the pension scheme well-funded butthey don't want a company to increase contributions so much thatit goes bust."
BLACK HOLE
Pension regulators in Britain and the Netherlands forcecompanies to demonstrate how they can make up shortfalls in thefuture. But in other European countries like Germany, companiesdo not have to show how they plan to meet their obligations.
Most European companies have closed pension schemes thatoffer payments to members based on their final salary in a bidto cap rising pension bills. Most now offer schemes that paypensions based on employee contributions to a retirement potover the years.
The median liabilities of all 10 firms expressed as apercentage of market value is nearly 30 percent.
Britain's 350 largest firms paid more than 35 billion poundsinto their pension schemes over the last three years but haveonly reduced total deficits by 4.1 billion pounds to 64.9billion pounds, a study by consultant Barnett Waddingham shows.
"Once a company has put money into a pension fund, theycan't get it out again, so why would they want to put money intotheir pension pot if the market isn't penalising them for thesize of their pension deficit?," said David Blake, director ofthe Pensions Institute at Cass Business School.
Companies must calculate their future pension obligationsusing a so-called discount rate based on corporate bond yields.
Four consecutive years of declining interest rates andrepeated rounds of central bank money printing have driven downthe yields of many higher quality bonds to record lows and asthose yields fall, the company liabilities rise.
Some long term bond yields are increasing - but not quicklyenough to wipe out deficits while rising life expectancy ratesare forcing companies to support workers for longer thanexpected, compounding the problem for scheme sponsors.
"Some companies have been putting millions into theirpension plan in the last five years with little impact on theirdeficits - effectively throwing money into a black hole," saidone pension advisor, who asked not to be named.
