AT&T To Take $7.9 Billion Pension Hit in Part Because of Longer Life Expectancy -- Update

By Josh Beckerman And Vipal Monga 

AT&T Inc. on Friday said it would take a $7.9 billion charge for pension-related costs at least partially because people are living longer.

The telecommunications giant said the losses were in part due to "updated mortality assumptions" in addition to a decrease in the rate it uses to measure its pension obligations.

The nonprofit Society of Actuaries recently updated its mortality tables for the first time since 2000 to reflect the longer lifespans, estimating today's retirees will live about two years longer than in 2000. That means companies will have to sock away more money to pay benefits for those added years.

Mercer LLC estimates that corporate pension liabilities totaled about $2 trillion at the end of 2013. The increased life expectancy will add about 7% to the pension obligations on balance sheets, according to consulting firm Aon Hewitt. The increased costs may be enumerated in the coming weeks as companies report earnings.

AT&T, along with about 30 other companies, in the past few years has switched to mark-to-market pension accounting to make it easier for investors to gauge plan performance.

With the switch, pension gains and losses flow into earnings sooner than under the old rules, which are still in effect and allow companies to smooth out the impact over several years.

Companies that switch to valuing assets at up-to-date market prices may incur more volatility in their earnings, but it offers a more current picture of a pension plan's health.

A year ago, AT&T posted a $7.6 billion pretax gain tied to pension accounting.

AT&T also said it would take a $2.1 billion noncash charge in the fourth quarter after it determined that certain copper assets won't be necessary to support future network activity, because of lower demand for legacy voice and data services and the move toward new technology. It said those copper assets will be abandoned in place.

Companies like AT&T and Verizon Communications Inc. have been replacing copper-based technologies in their networks with faster, Internet-based technologies that run over fiber-optic lines.

Write to Josh Beckerman at [e-mail]

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