Corporate Pension Plans Slip in 2011

The percent of corporate pension plans that were underfunded in 2011 was 94%, according to the study completed by the Investment Research Group of Wilshire Consulting. This is somewhat higher than the 92% reported for the previous year. The median corporate funded ratio is 78.1%, which represents a decline from 81.8% last year. Eighteen of the 316 corporations surveyed, or 5.7%, have pension assets that equal or exceed liabilities, the study concludes. In comparison, 25 of the 316 corporations’ DB plans, or 7.9%, were fully funded or running a surplus at year-end 2010.

“Last year marked a reversal in accounting measurements of the financial health of corporate pension plans, as lower interest rates brought on markedly lower discount rates and, as a result, higher pension liabilities,” said Russ Walker, vice president of Wilshire Associates and a member of the Investment Research Group of Wilshire Consulting.

“The challenging investment environment during the year also factored into plan funding status,” he continued. “Defined benefit pension assets for S&P 500 Index companies increased by $48.2 billion, from $1,080.4 billion to $1,128.6 billion, while liabilities increased $142.5 billion, from $1,273billion to $1,415.5 billion. As a result, the aggregate funding ratio—assets divided by liabilities—for all plans combined decreased from 84.9% to 79.7% and the -$192.6 billion funding shortfall at the beginning of the year expanded to a -$286.9 billion deficit,” he noted.

"While the aggregated pool of S&P 500 Index defined benefit plans is only 79.7% funded this year, the concentration of assets and liabilities within this set of plans indicates that a relatively small sub-set of plans has an overwhelming impact on the entire pool of plans," Walker said. "The largest 25 plans when ranked by assets and liabilities represent 48.7% and 48.6% of assets and liabilities, respectively, of the 316 total plans. The median funded ratios stand at 80.9% and 76.7% for the 25 largest and 100 smallest plans, respectively.”

According to the study, interest rates used to discount future benefits fell during 2011, contributing to the overall increase in pension liabilities for the year. The median discount rate fell from 5.5% to 5.01%, while total liabilities increased 11.2% for the year.

The combined pension expense for the S&P 500 Index companies in the study was $45.8 billion for 2011, up from $33.8 billion a year ago. Regular annual pension expense accruals from employee service and interest expense on existing liabilities totaled $95.1 billion in 2011, 3.6% higher than the $91.7 billion a year ago. The S&P 500 Index companies in the study contributed $54.9 billion into their defined benefit plans in 2011, a decrease from the $57.9 billion contributed in 2010. Aggregate benefit payments from corporate pension plans increased somewhat during the past year. Benefit payments totaled $74 billion in 2011, compared with$71.3 billion during the previous year.

The ninth annual Wilshire study surveyed 316 companies in the S&P Index that maintain defined benefit plans.