DB Plans Closer to the Pink of Health in 2006

April 2, 2007 (PLANSPONSOR.com) - Corporate pension plans saw their financial health significantly improved in 2006 with the funding ratio jumping from 93% to 101% and a $83.5 billion deficit at the beginning of the year changed to a $16.6 billion surplus.

That was the conclusion of a new report by Wilshire Consulting, the pension advisory business unit of Wilshire Associates, according to a news release.

According to the report, defined benefit pension assets for S&P 500 companies grew $132.5 billion, from $1,112 billion to $1,244 billion, while liabilities increased $32.3 billion, from $1,195 billion to $1,228 billion. While 71% of corporate pension plans are underfunded, that figure is notably lower than the 83% reported in 2005, Wilshire said. The median corporate funded ratio is 91%, which is an improvement from last year’s 85%.

“A fourth consecutive year of positive equity returns contributed to the increase in pension assets,” noted Julia Bonafede, a senior managing director of Wilshire Associates and the head of Wilshire Consulting. “The median 2006 investment return was 11.5%, up from 8.5% in 2005 and 10.8% two years ago. Additionally, S&P 500 companies contributed $36.3 billion into their defined benefit plans in 2006. However that was less than the $46.3 billion contributed in 2005.”

Combined pension expense for S&P 500 companies was $35.3 billion for 2006, up from $30.5 billion a year ago. Regular annual pension expense accruals from employee service and interest expense on existing liabilities totaled $96 billion in 2006, slightly higher than the $91.3 billion a year ago.

The distribution of pension liabilities and assets of S&P 500 companies is relatively concentrated among the largest plans. More than half of the total pension liabilities and assets were held by the 24 and 21 largest plans when ranked by liability and asset size, respectively. Conversely, the smallest 100 plans when ranked by liability and asset size made up 1.8% and 2.1% of the total liability and asset pool, respectively, according to Wilshire.