Companies Must Contribute More to Fund Pension Plans

November 30, 2005 ( - Since stock market returns are expected to dwindle in the years ahead, US companies need to increase contributions to their pension plans to fully fund them, according to the asset management arm of JPMorgan Chase & Co.

Reuters reports that JPMorgan said in a Web presentation that, sincethe average pension plan is about 84% funded, it will need annual returns of about 11% to become fully funded over the next seven years.   “It’s not particularly likely that the markets will deliver (that performance) so more contributions are needed,” said Gabriella Barschdorff, strategic investment advisor at JPMorgan, according to Reuters.

JPMorgan estimates that over the seven-year period, market returns will average about 7.5%, which would leave companies to fill the remaining 3.5% contribution.   The firm surveyed the top 185 US pension plans for its study and found that about one-third were less than 80% funded, but most companies could afford to plug the pension funding gap.

Pension plan funding has been in the spotlight lately as US airlines continue to default on their pensions, and the Senate recently approved its pension reform legislation (See Senate OKs Compromise Version of Pension Reform Measure).   The Pension Benefit Guaranty Corporation (PBGC) went from a $10 billion surplus in the late 1990s to a $22.8 billion deficit as of the end of September in its single-employer insurance program (See  PBGC Financial Status Still Dire).