Top Aussie corporates face A$25-billion superannuation shortfall

About 50 of Australia's  ASX-listed companies face a combined A$25-billion ($18.17 billion) shortfall on company superannuation funds, brought on by plunging bond and equity markets.

This figure has blown out from a modest shortfall of about A$2 billion in super fund liabilities on the books of Australian companies as on 30 June 2008, according to a study by consultants Watson Wyatt.

Last month, Qantas said it would tip another A$66 million into its defined benefits scheme for its 13,000 staff over three years after the plunging financial markets drove it into deficit.

Among other big Australian companies whose scheme assets are not enough to cover anticipated payments to retired staff, AMP's superannuation deficit was estimated at A$120 million as on 31 December, while Westpac's deficit was A$473 million as on 30 September.

Rio Tinto last month disclosed an A$3.57 billion deficit on its various superannuation schemes around the world.

If the funding level materially deteriorates further, cash contributions from the group may be needed, the Rio warned in its annual report.

Watson Wyatt declined to name specific companies but said a relatively few companies - largely in the materials sector - held much of the liabilities.

"At 30 June 2008, the companies in our study were holding A$58 billion in defined benefit superannuation liability and backing that with A$56 billion in assets," said David McNeice, a principal analyst at Watson Wyatt.

"That is, there was a modest shortfall just before the impact of the financial crisis materially worsened in the second half of 2008. What happened in that second six months was unprecedented. The results have not been fully disclosed yet, but our analysis shows that the modest shortfall of less than A$2 billion would have increased to about A$25 billion over that six-month period, driven by a combination of falling interest rates and falling values in financial assets."

McNeice said these numbers were based on accounting disclosures and there were other measures of a defined benefit superannuation fund's health, such as the vested benefit index.

"A shortfall in accounting liabilities does not necessarily mean that a fund's assets do not cover its current benefit obligations," McNeice said.

The Watson Wyatt study covers ASX-listed companies only and does not survey unlisted companies (including subsidiaries of overseas businesses) or the public sector.

Payouts to members are usually determined by the number of years they worked for the company and their final salary.

"All funded superannuation funds have had a torrid 15 months: many are now dealing with underfunding and the sponsoring employers are dealing with the deteriorating balance sheets," McNeice said.