(Refiles to correct typo in first sentence)
By Deepa Babington
NEW YORK, Aug 21 (Reuters) - A rising stock market coupled with stable interest rates will breathe some life back into struggling corporate pension plans this year, according to a report released by Bear Stearns on Thursday.
Overall, the 100 companies in the Standard & Poor's 500 index with the largest employee benefit obligations will be underfunded by 13 percent at the end of the year, compared to 18 percent at the end of last year, Bear Stearns estimated.
"With the S&P 500 index up 13 percent this far in 2003 and interest rates up 80 basis points off their June lows, market data suggests that the funded status of pension plans may be positioned to rebound," the report said.
A pension plan becomes underfunded when the value of its assets drops below the company's expected obligations to its employees.
By the end of 2004, the pension plans of those 100 company would be underfunded by a total of 6 percent, the report said.
Nevertheless, pension costs reported on the books will shoot up this year because accounting rules tend to spread pension costs over several years. The rules were designed to prevent company earnings from fluctuating wildly because of the performance of the pension fund.
As a result, net pension cost will jump to $11.9 billion this year for those 100 companies from the $3.3 billion booked last year, Bear Stearns said.
In recent years, corporate pension plans have been hit by a tumbling stock market that has shrunk pension assets while falling interest rates have added to their woes by boosting future pension obligations for companies.
Many companies have been forced to divert cash and stock to prop up underfunded pension plans, while increasing pension costs have begun to bite into earnings.