AT&T and Verizon Communications, two of the largest U.S. telecommunications companies, face a potential problem that has little to do with their core business: funding their pension plans.
Moffett raised concerns that a sharp drop in interest rates and weak equity market returns would require the telecom titans to contribute significant amounts of cash” to their pension plans next year, Forbes reported, adding the following: If the capital markets end the year where they stand today, AT&Ts unfunded post-retirement liability will have climbed to $41.6 billion while Verizons total will have risen to $31.6 billion, according to Moffett.
As a result, the pensions at AT&T and Verizon would be less than 80 percent funded, the analyst said, potentially triggering required employer contributions under the Pension Protection Act.
Dallas-based AT&T didnt seem overly concerned: “We will make any decisions about potential pension funding at the end of the year, as we always do,” CNET quoted an AT&T representative. “But as we said on last week’s earnings call, we anticipate that we can manage any pension funding with the cash flows that we are generating.” Meanwhile, a spokesman for New York-based Verizon said the company hadnt revealed expectations for 2012 pension funding, according to CNET.
One fact that helps AT&T and Verizon with their pensions is their ability to generate billions of dollars in cash. In the third quarter, AT&T generated free cash flow which the company defines as cash from operations minus construction and capital expenditures of $5.1 billion. Verizon also reported third-quarter free cash flow of $5.1 billion.