S&P Sees Coal in 2008 Pension Funding Stocking

December 23, 2008 (PLANSPONSOR.com) - S&P 500 pension funds are expected to report broad losses in their $1.5 trillion portfolio for 2008, as well as "potentially post record setting underfunding", according to Standard & Poor's Index Services.

According to the announcement, based on Standard & Poor’s Index Services data and estimates, S&P 500 defined benefit plans as a group was overfunded by $63.4 billion in 2007, their first surplus year since 2001.   However, the 2008 year-to-date equity declines of approximately 41% for the S&P 500 and 44% for the S&P Global Broad Market Index are expected to drastically reduce the equity value held by U.S. plans (approximately $780 billion) and non U.S. plans (approximately $140 billion), according to the report.

“Massive losses in the equity markets will require companies to either sell assets at their depressed levels, or shore up assets with significant cash infusions,” says Howard Silverblatt, Senior Index Analyst at Standard & Poor’s and the author of the research.

Lower Liabilities

While assets will decline, Standard & Poor’s Index Services also expects discounted pension liabilities to fall slightly due to the higher discount rate used in their computation. The result is that pension funds will be underfunded on an aggregate basis by $257 billion (17.9%), easily surpassing the record $219 billion under funding set in 2002.

Standard & Poor’s notes that the smoothing, or averaging of historical returns, essentially flattens the pension performance over several years – and that, in extreme markets, such as this year, it will reduce reported losses (as they are spread over several years), and similar to 2002, could actually permit some funds to report gains for 2008 (for more on the impact of smoothing, see  Moving the Goal Posts ).

“In reality, any pension fund manager that came remotely close to breaking even in 2008 is quietly celebrating that they survived one of the worst markets in the modern era,” concludes Silverblatt.


For more pension research from Standard & Poor’s Index Services, visit:www.marketattributes.standardandpoors.com.

STANDARD & POOR'S INDEX SERVICES  
S&P 500 SUMMARY PENSION DATA
Values in $ Millions unless otherwise noted, estimates in bold
DATEPENSIONPROJECTEDPENSIONPENSIONGAAP
ASSETSBENEFITFUNDFUNDINCOME
OBLIGATIONSSTATUSLEVEL
2008 EST*$1,175,328$1,432,063-$256,736-17.93%$419,081
2007$1,504,516$1,441,135$63,3804.40%$587,232
2006$1,470,964$1,511,301-$40,184-2.67%$708,486
2005$1,318,010$1,458,439-$140,430-9.63%$599,571
2004$1,265,338$1,429,667-$164,328-11.49%$545,143
2003$1,113,478$1,278,265-$164,787-12.89%$450,372
2002$950,963$1,169,472-$218,509-18.68%$253,516
2001$1,089,896$1,086,950$2,9460.27%$222,743
2000$1,238,920$1,012,893$226,02722.31%$432,729
1999$1,274,083$994,061$280,02228.17%$397,122
1998$1,144,454$1,018,479$125,97512.37%$299,585
1997$991,008$793,773$197,23524.85%$306,274
1996$859,478$723,084$136,39518.86%$292,739
1995$750,907$676,150$74,75611.06%$250,267
1994$641,749$573,707$68,04211.86%$221,147
1993$650,713$588,333$62,37910.60%$153,287
1992$609,356$532,718$76,63714.39%$131,260
1991$612,080$518,013$94,06618.16%$107,026

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