Companies with defined benefit superannuation plans for their employees could see their balance sheets take an extra hit in the current depressed markets, according to consultancy firm Watson Wyatt.
A combined fall in asset values and interest rates has increased the liabilities of these funds under international financial reporting standards, Watson Wyatt consultant David McNeice said.
"The losses on asset values since July 1, 2008 have been dramatic," McNeice said. "It is not uncommon to see superannuation funds reporting a 13 per cent loss for the five months to November 30, 2008."
In addition, the Government 10 year bond yield, which is used to assess the liability of super funds, has fallen from 6.5 per cent to 4.6 per cent. This has increased liabilities, when measured in Australian dollars, by more than 20 per cent.
Although the individual circumstance of the employer and the exact formulation of the plan determines the extent of the impact on corporate balance sheets, all companies with defined benefit plans are affected.
Australian corporate defined benefit super plans had a combined value of about $40 billion, a Watson Wyatt study found two years ago.
"It is not going to force any bankruptcies, [but] it is another negative element in the current environment that companies have to deal with," McNeice said.
Not much can be done in the short-term to alleviate the stress on the balance sheet, McNeice said.
"[Companies] do need to come up with more money to support the defined benefit plan, but that is going to be drawn out over a number of years," he said. "It cannot be fixed in the short-term."
