News / Events
Armstrong: Pension strong despite '08 hit
Lancaster New Era
Published April 13, 2009, 10:08 EST
By Tim Mekeel, Staff Writer
Market's nosedive triggers 28% drop in assets, but 3,400 retirees here are keeping same benefits.
The tumbling stock market last year took a ravenous bite out of virtually everybody's retirement funds. And generally speaking, the bigger the nest egg, the more that got gobbled. For an immense pension plan such as the one at Armstrong World Industries, the drop in value was a staggering $654 million.
But Armstrong says there's still plenty left for its retirees, including 3,400 in Lancaster County who are receiving benefits. "Our pension asset did take a hit, based on what happened in the equity markets last year. However, the pension is essentially still fully funded," said spokeswoman Beth Riley. "There are no implications for retiree payments, nor are we required to put any cash into the fund," she said. "No issues."
Local pension expert John Markley agreed, saying the Armstrong pension plan "is still a very well-funded plan." Markley, the founding partner of Markley Actuarial Services, predicted the plan will stay that way "unless we have another year in the stock market like we just had."
In 2008, the Dow Jones industrial average skidded 33.8 percent for the year, its worst year since 1931, when the nation was in the midst of the Great Depression. The downturn gouged Armstrong's U.S. defined benefit plan, which had 62 percent of its assets invested in stocks at the start of 2008, the company's 10-K filing with the Securities & Exchange Commission shows. Largely due to the stock market's nosedive, the value of the pension plan's assets plummeted to $1.70 billion at the end of 2008 from $2.36 billion at the start of the year.
The decline of $654 million, or 28 percent, depressed the value of the plan's assets slightly below the plan's benefit obligations of $1.76 billion, the SEC filing shows. Markley questioned why Armstrong at the start of 2008 had so much of its plan assets invested in stocks, which obviously can be volatile, when the fund at that time had a robust surplus. "They had very little to gain," he said. "Why have that level of risk in your plan?"
Armstrong might be asking itself the same question. Its 10-K notes, "In light of current market conditions, we are re-evaluating our target asset allocations." Nonetheless, even with 2008's hit, the pension plan has assets equal to 97 percent of its obligations, an exceptionally healthy status compared to many corporate pension plans. "It shows long-term responsible management," said Markley.
Riley, the Armstrong spokeswoman, said, "We are in rarified air, as far as our pension status. "Underfunded pensions have been a challenge in this country for some time. Through the conservative planning of our predecessors, we fortunately have not been in that position."
The federal Pension Protection Act mandates funding minimums that increase over the years. The minimum at Jan. 1, 2009 is 94 percent; it reaches 100 percent at Jan. 1, 2011. If a fund's assets come up short of those minimums, the company is required to put in money to get those assets up to the required level. (To determine federal compliance, funding percentages are calculated differently than simply comparing assets to obligations. Riley said Armstrong has not yet completed those calculations for the Jan. 1 benchmark.)
Armstrong's U.S. defined benefit pension plans were closed to new salaried employees in 2005. Benefits were frozen for certain salaried, non-production employees in 2006. Lancaster-based Armstrong has one of the largest groups of retirees in the county, so the health of its plan has a significant economic impact here.
Though retirees might worry that the large 2008 loss in asset value could put the plan on the brink of trimming payments, Riley noted that the federal government orders payment reductions or terminations only when a plan becomes "highly distressed." That means it's severely underfunded and the company lacks the resources to pump it up. Markley said the chances of that happening to the Armstrong plan are extremely remote. "The likelihood that an Armstrong retiree will lose any of his benefits," he said, "is close to zero."
Staff writer Tim Mekeel can be reached at tmekeel@LNPnews.com or 481-6030.