GM May Lower Pension Return Expectations

General Motors (GM Quote) will likely lower its expected rate of return on its pension fund from 10% -- a move that will raise pension costs and possibly eat into earnings.

The nation's largest automaker will update its forecasts on Thursday, providing information about its pension fund performance in 2002 as well as expectations for 2003, according to spokesman Jerry Dubrowski.

"In light of where the market (has traded) the last three years, we have said that if we need to make any change in the assumption ... it's more likely to be to the downside as opposed to the upside," he said.

The move would likely increase GM's pension expenses, although Dubrowski declined to offer specific details. In general, a full one-point cut in the projected rate of return equates to a $700 million increase in pension expenses. The firm has said it would offset any increase in pension costs by slashing expenses elsewhere. Still, shares fell 4%, or $1.60, to $38.24.

General Motors is one of the S&P 500's most underfunded companies on an absolute basis. The firm's U.S. pension plan was underfunded by $9.1 billion at the end of 2001.

Accounting rules allow companies to book profits or expenses based on expected, rather than actual, returns on pension assets.