Corporate Plans See Slight Improvement in 2009

April 20, 2010 ( – The aggregate funding ratio for corporate pension plans increased from 80.2% to 83.4% and the -$217.9 billion deficit at the beginning of 2009 shrank to a -$198.2 billion deficit by year-end 2009, according to new Wilshire data.

In its new report, Wilshire said defined benefit pension assets for S&P 500 Index companies increased by $108.8 billion, from $883 billion to $992.9 billion, while liabilities increased $21.9 billion, from $1,101.5 billion to $1,191.2 billion.

Highlights of the Wilshire report included:

  • Ninety-two percent of corporate pension plans are underfunded, which is barely higher than the 91% reported for the previous year. The median corporate funded ratio is 79% which represents an improvement from 73.2% last year.
  • Pension fund performance experienced a decisive turnaround from the significant losses of 2008. The median 2009 investment return was 16.2%, a sharp rebound from the -27.4% median return of 2008, following five years of rising median returns of 8.2% in 2007, 11.2% in 2006, 8.5% in 2005, 10.8% in 2004, and 17.1% in 2003.    
  • Interest rates used to discount future benefits fell over 2009, contributing to the overall increase in pension liabilities for the year. The median discount rate fell from 6.25% to 6%, while total liabilities increased 8.1% for the year.
  • The combined pension expense for the S&P 500 Index companies in the study was $30.5 billion for 2009, up markedly from $16.4 billion a year ago.    
  • S&P 500 Index companies contributed $54.9 billion into their defined benefit plans in 2009, a notable increase from the $30 billion contributed in 2008.
  • Aggregate benefit payments from corporate pension plans increased somewhat during the past year. Benefit payments totaled $75 billion in 2009, compared to $71.4 billion during the previous year.    
  • According to Wilshire, 24 of the 308 corporations, or 7.8%, have pension assets that equal or exceed liabilities. In comparison, 28 of the 308 corporations’ DB plans, or 9.1%, were fully-funded or running a surplus at year-end 2008.

As was the case in 2008, all sector sub-groups ran an aggregate pension deficit at year-end 2009. Industrials, which comprise 28.6% of total assets and 29.1% of total liabilities among the S&P 500 Index companies studied, contributed 31.6% (-$62.7 billion) to the total -$198.2 billion deficit, with the Materials and Utilities sectors representing 13.0% (-$25.8 billion) and 12.1% (-$23.9 billion) of the total deficit, respectively.

The Financials sector had the highest funding ratio, at 95.4%, while the Energy sector had the lowest funding ratio at 73.4%. However, the Energy sector accounted for the smallest proportion of assets and liabilities in the surveyed companies, approximately 2.8% and 3.7%, respectively.

Wilshire said coming in second place, Telecomm Services posted a funding ratio of 90.2% followed up by the Information Technology sector’s 89.7% funding ratio. Overall however, eight of ten sectors experienced improved funding ratios for the year ending 2009.

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