Pension Funding Remains Credit Concern for U.S. Corporate Issuers

August 25, 2011 ( - The potential for elevated pension contributions in the coming years—given potential negative asset returns in 2011 and more conservative asset allocations by plan sponsors—is a concern for U.S. non-financial corporate issuers, according to a Fitch Ratings report.

In 2010, plan funding improved for sponsors in nearly all non-financial corporate sectors as a result of a 17% increase in contributions and higher equity market returns. At the same time obligations increased due to a decline in discount rates. Fitch does not expect to take rating actions based solely on increased contributions; however, for those on the edge of a rating category, the need to make ongoing payments could be a contributing factor that leads to Negative Rating Outlooks or rating changes.   

“Fitch’s analysis shows that at the end of 2010, the weakest four industries from a pension funding perspective are autos, consumer, energy (oil and gas), and retailing,” said John Culver, senior director, Fitch Ratings, in a press release.   

According to the report, at the end of 2010, the plans of the 242 non-financial U.S. companies with pensions reviewed by Fitch were approximately 79% funded, a modest increase from 76% at the end of 2009. For many issuers, contributions in 2011 and 2012 appear to be manageable relative to expected cash flows.   

The report screened U.S. non-financial corporate issuers by providing a high level view of their funded level at the end of 2010, and estimates their ability to fund potential contributions in 2011 and beyond. The screens identify companies that may need further investigation regarding their pension plan funding status and ability to fund potential contributions.   

The special report, “U.S. Corporate Pensions – Annual Overview – 2011,” is available at