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Shortfall At Exxon


Scroll through the financial data of the biggest U.S. corporations and a surprising fact appears: Arguably the mightiest of them all, Exxon Mobil (XOM), has left its employee pension plans with the biggest funding deficit. Its assets are $11.2 billion short of projected obligations, according to company figures as of Dec. 31 -- greater even than the gaps at struggling Ford Motor (F)and General Motors (GM).

Exxon could write a check for its underfunding this afternoon. The oil giant has $27 billion in its coffers. It generated free cash of $9 billion last quarter -- almost enough to cover the pension shortfall. And it carries an AAA credit rating.

So why won't it? Exxon says it's in compliance with all labor laws and regulations. "We strenuously object to the use of the word 'underfunded' because we are not, [according to] the terms of the people who set the regulations," says media relations adviser Dave Gardner. "The company has the wherewithal to meet its funding obligations, period."

But whether pensions are funded or underfunded depends on which complex accounting prism you use. Exxon's main U.S. plan looks O.K. under government accounting rules. But it comes up short under generally accepted accounting principles, which are used in financial statements and give more attention to obligations projected to come due in the future. Whether Exxon ultimately will have the wherewithal to pay employees what they're expecting won't be known until it's time to send the checks.

If bankrupt airlines, steelmakers, and auto parts suppliers had contributed extra cash to their pension accounts during their good years, today's pension crisis probably wouldn't be nearly so severe, says John W. Ehrhardt, a principal and actuary at pension consultant Milliman Inc. He says companies don't want to contribute more than what's required because they're effectively barred by law from reclaiming any surpluses. Congress doesn't dare try to modify that part of the law, fearing it will be seen as allowing companies and takeover artists to raid the plans, as happened in the 1980s.

The fact is, Exxon could be topping off its tank for employees but isn't. It's declining to put more money away for a rainy day while the sun is shining on the oil industry. And it isn't apologizing, either. "We basically chose not to," says Gardner. "That's not an investment we want to put more into at this point. Our financial strength provides excellent security for any pension." We'll see.

By David Henry


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