S&P: $206 Billion Pension Shortfall in 2002

April 24, 2003 (PLANSPONSOR.com) - Standard & Poor's said 2002 saw a $206 billion pension shortfall among the companies in the S&P 500.

Shortfalls were rampant among index members, as 308 companies reported being underfunded in 2002, compared with 264 reporting the same only three years ago.   The shortage per employee is estimated at $10,000 per head, according to a news release.  

Also declining in 2002 were estimated future portfolio return and discount rates, resulting in less anticipated pension income and higher pension costs.   Overall numbers from the previous year represent a dramatic turnaround from a $251 billion surplus reported among companies in 1999.

“During the late 1990’s companies didn’t have to contribute to pensions, since their pension funds did so well in the market. In 2000 and 2001 and even into 2002, companies were able to withstand the market impact since they were able to live off the surplus of those excess earnings,” said Howard Silverblatt, analyst, Equity Investment Analysis, Standard & Poor’s. “Now, after three down years, they are having to make cash infusions into the pension plans, resulting in a cash flow drain which can negatively impact earnings and capital expenditures.”

However, despite the three-year market slide, some companies managed to maintain a pension surplus. Of the companies in the S&P 500, 35 issues were overfunded, down from 79 in 1999.

Standard & Poor’s numbers were only slightly better than earlier projections made by an analyst for Credit Suisse First Boston Corp who reported the pension plans of S&P 500 companies in aggregate were underfunded by $216 billion at the end of 2002 (See  Companies Pour $46 Billion Into Pensions in 2002 ).

Excluding net pension income, pension adjustments took $8/share of earnings, leaving 2002 S&P’s Core Earnings at an estimated $22.60.   The vast majority of the $8 pension adjustment was from the lack of pension asset returns since the S&P 500 pension funds lost over $100 billion in 2002, which has resulted in reduced current funding levels.