Most DB Plans Remain Underfunded

April 8, 2013 ( – Despite strong performance of U.S. equity markets in 2012, 94% of U.S. corporate defined benefit (DB) pension plans remained underfunded, according to Wilshire Associates.

This figure is unchanged from 2011 as market interest rates worked against the plans’ funding ratios, according to the report, 2013 Wilshire Consulting Report on Corporate Pension Funding Levels.

“As market-based discount rates moved lower, it increased these plans’ accounting liabilities pushing the aggregate funding ratio—which we arrive at by dividing assets by liabilities—for all plans combined down from 79.7% to 78.1% and the -$282.3 billion funding shortfall at the beginning of the year expanded to a -$342.5 billion deficit,” said Russ Walker, vice president, Wilshire Associates, and an author of the report.

Interest rates used to discount future benefits fell again during 2012, contributing to the overall increase in pension liabilities for the year. The median discount rate fell from 5% to 4.16%, while total liabilities increased 12.5% for the year, he added.

In addition, Walker noted, DB pension assets for S&P 500 Index companies increased by $113 billion, from $1.11 trillion to $1.22 trillion, while liabilities increased $174 billion, from $1.39 trillion to $1.56 trillion. The median corporate funded ratio was 76.9%, which represents a modest decline from 77.7% last year.

The DB plans in the report yielded a median 11.8% rate of return for 2012. This strong performance combines with the 3.6% median plan return for 2011, the 11.9% median plan return for 2010 and the 16% median plan return for 2009 to mark four consecutive years of gains for these plans after the global market dislocation events of 2007 and 2008.

The combined pension expense for the S&P 500 Index companies in the study was $57.1 billion for 2012, up from $44.7 billion a year ago. Regular annual pension expense accruals from employee service and interest expense on existing liabilities totaled $93.9 billion in 2012, 0.5% higher than the $93.5 billion a year ago.

The S&P 500 Index companies in the report contributed $57.8 billion into their DB plans in 2012, an increase from the $54.4 billion contributed in 2011. Aggregate benefit payments from corporate pension plans increased somewhat during the past year. Benefit payments totaled $76.5 billion in 2012, compared to $72.5 billion during the previous year.

“The distribution of pension liabilities and assets of S&P 500 Index companies is relatively concentrated among the largest plans,” Walker commented. “As of the end of fiscal year 2012, more than half of the total pension assets and liabilities were held by the 26 largest plans when ranked by both asset and liability size. Conversely, the smallest 100 plans when ranked by asset and liability size made up just 2.6% and 2.8% of the total asset and liability pools, respectively.”

The report was prepared using data on U.S. pensions from 10-K filings for companies in the S&P 500 Index at fiscal year-end. All data for fiscal years 2012 and 2011 were based on S&P 500 Index constituents as of year-end 2012.