A pension plan report that's worth a closer look

As I've written this winter and spring, there's no doubt Gannett's main pension plan isn't as robust as it could be.

The Gannett Retirement Plan, which benefits about 50,000 current and former employees, is underfunded by as much as $560 $500 million, according to documents filed with U.S. securities regulators.

That means if all things remained the same -- the number of people owed benefits, and the amount set aside to pay them -- the plan would come up short. Under the worst-case scenario, the plan has about $1.8 billion in stocks and other investments, but would need $2.3 billion to pay all claims.

But I don't believe things are as bad as appear in a new published report about newspaper publishers and their pension obligations. In his column today, New York Times media writer David Carr quotes a Fitch ratings analyst, Mike Simonton, saying GCI's plan is underfunded by an amount nearly twice as high: $942 million. Carr's column isn't specific about the source of Simonton's figures.

Corporate has published two reports this year that offered two different figures on the plan's funding: In February, the annual report said it was underfunded by about $560 $500 million. More recently, in April, the figure was a lower $415 million. The reports didn't explain the differing amounts, which may have been due to changes in the value of assets amid swings in the stock market.

A worthy red flag
To be sure, it's common for U.S. pension plans in all industries to be underfunded because companies aren't making big-enough contributions. Employers assume that, over time, pension assets will increase in value with rising stock markets. And GCI's was in better shape than many, according to the February report, which said the plan was 81% funded vs. a 74% national average.

Still, the thrust of Carr's column is worth paying attention: Newspaper publishers have struggled to make sufficient contributions to their plans because advertising revenue has been in a tailspin. At some companies, Carr says, the situation could grow so grave, publishers will seek bankruptcy court approval to walk away from their plans. That would force the Pension Benefit Guaranty Corporation, a government-sponsored agency, to assume responsibility for failed plans -- without promising to pay the full benefits owned.

Bear in mind, employers aren't required to offer pensions; these are voluntary benefits more typical in older industries. Newer businesses, especially in the technology sector where GCI now competes, usually don't sponsor pensions.

GCI's contributions last year weren't enough to close the funding gap. It added just $33 million during 2011 vs. $130 million in 2010. To be sure, the company pumped in more money early this year -- $54 million -- and expects to add up to another $64 million by the end of the year.

Frozen, but not forgotten
But unlike another publisher in Carr's story, McClatchy, GCI has greater financial resources. It has boosted its relatively generous dividend to pay $1.3 billion to shareholders by 2015. That's a financial stream that could be re-directed to pension support -- although Wall Street would then punish GCI's stock. And this assumes that the company's revenue doesn't crumble further; that would endanger the dividend.

The Gannett Retirement Plan was frozen for substantially all employees in 2008 as the company raced to cut costs during the industry-wide plunge in advertising revenue. Nonetheless, it remains the biggest of four company-sponsored plans benefiting more than 30,000 current employees and thousands more who have already retired.

GCI's main retirement vehicle is the 401(k) plan, where the company matches some of the money contributed by employees. Unlike the pension plan, all the 401(k) money is the employees' property once the vesting requirement is met. Companies may walk away from pension obligations, but that's not an option with 401(k)s.