Survey: 63% Corporate Pension Plans Underfunded

March 26, 2003 ( - More than six in 10 US corporate pension plans were not fully funded in 2002, a new study found.

According to a Watson Wyatt survey, 63% of company plans were underfunded, a dramatic increase from the 16% in that status in 1998. The consulting company defines a fully funded pension plan as one where the market value of plan assets is sufficient to cover at least 100% of benefits accrued by employees to date.

But that doesn’t mean officials were sitting on their hands. The survey found that 70% of responding companies ploughed more than the ERISA funding minimums into their plans during 2002, up from the 43% doing so in 1992.   “With almost two-thirds of pension plans falling short, we expect to see many companies struggling in the midst of a very bad economy to make massive cash contributions to improve their funding levels,” Kevin Wagner, a Watson Wyatt retirement practice director, said in a statement.

Official: ‘Don’t Panic’

However, the Watson Wyatt official cautioned that corporate benefits managers shouldn’t panic. “The best course of action is to focus on developing appropriate funding policies that balance the capital needs of the underfunded pension plans against the overall capital needs of the organization, keeping long-term goals in mind,” Wagner said in the statement.

Wagner also said the Treasury Department needs to act quickly to replace the 30-year Treasury bond rate with a composite high-quality long-term corporate bond rate that can be used to determine funding requirements (See  GAO Urges Flexibility in Pension Interest Rates ).  The latest Watson Wyatt survey covered 419 companies and 472 pension plans.

A Bitter Response

An earlier Wilshire Associates study focusing on public pension plans, which drew a dire picture of the plans’ funding status, prompted a sharp rebuke from the public plans’ trade group (See    State Pension Group: Wilshire Research ‘Alarmist’ ). The Wilshire report (See    Wilshire: Public Pension Landscape Still Bleak ) noted that some 79% of all state plans are now underfunded – up dramatically from 31% in 2000 and 51% in 2001 – and the highest since 1990.

Labeling the Wilshire survey “alarmist,” the National Association of State Retirement Administrators (NASRA) said the report didn’t adequately take into account that pension plans are designed to fund their liabilities over a long period of time.