January 19, 2012 7:16 pm

Kodak’s pension schemes underfunded

Eastman Kodak, the Rochester-based photographic company which filed for protection from creditors on Thursday, leaves behind a legacy of underfunded pension schemes, mostly outside the US, including a significant shortfall in its UK scheme.

Schemes outside the US, including those in the UK, had collective shortfalls of $1bn out of a total liability of $3.6bn at the end of 2010.

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According to accounts of Kodak Ltd for the year ended December 31 2010 and filed at Companies House in London, the UK scheme had assets of £984m and liabilities of £1.561bn, leading to a pre-tax shortfall of £576.5m. The accounts note that Eastman Kodak gave guarantees to trustees of its UK pension scheme that all promised payments would be made until 2024 or until the scheme is fully funded.

The accounts note that under a recovery plan between Kodak Ltd and the trustees of the scheme, the company paid £37.2m into the plan in 2010 and agreed to pay a further £37.7m in 2011. From 2012 to 2014, Kodak Ltd agreed to pay about £37m annually, raising that to about £62m until 2022. If full funding was achieved, contributions could halt earlier. “Any remaining deficit is expected to be funded by the end of 2024,” the accounts note, although the actual amounts will depend on exchange rates and tax relief.

Kodak Ltd appears to be a creditor to its parent company as well as a debtor. The accounts note that as at December 31 2010, it had an outstanding loan to Eastman Kodak of £29.9m bearing interest at 0.43 per cent.

Relative to its foreign subsidiaries, Kodak’s US pension scheme is well-funded, according to disclosures filed with the US Securities and Exchange Commission. These show that at the end of 2010, Kodak had accumulated pension obligations of $5bn to its US employees, but that the scheme was only $200m short of what was needed to pay all benefits.

For US retirees the concern may instead be life insurance, healthcare and dental costs covered by the company. Like many companies, Kodak met these US obligations out of ongoing resources, rather funding a specific scheme, and from 2008 had begun to phase out many benefits.

At the end of 2010 the size of these unfunded obligations, both US and non-US, were estimated at $1.4bn. Such non-pension related benefits are not covered by the US Pension Benefit Guarantee Corporation, which is the insurance backstop for the pension promises of insolvent employers who leave behind an underfunded retirement scheme.

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