News Markets Media

USA | Europe | Asia | World| Stocks | Commodities

Home News USA Pension Plan Funding Status Tumbled in 2008


Pension Plan Funding Status Tumbled in 2008
added: 2009-02-13

Pension plan funding levels at large U.S. companies reached historically low levels at the end of 2008 due to sharp declines in pension assets and discount rates, according to an analysis by Watson Wyatt.

"Changes in funded status are wreaking havoc with the projections companies have made," said Alan Glickstein, senior retirement consultant at Watson Wyatt. "Large and unexpected pension contributions will require companies to divert funds they had earmarked for other business activities into their pension plans precisely when they can least afford it."

The analysis looked at pension data for 450 Fortune 1000 companies and projected their pension funding status for 2008.* The results indicate that, on an aggregate level, funded status will decline an average of 32 percentage points, from 106 percent in 2007 to 74 percent in 2008. This represents a total loss of $445 billion, wiping out a 2007 surplus of $78 billion and leaving these companies with a combined $366 billion deficit on their year-end 2008 financial statements.

Pension funding levels are determined by comparing the value of plan assets to liabilities. In 2008, plan assets fell a total of 24 percent; since October this fall has been compounded further by rising liabilities.

For accounting purposes, the present value of future payouts to retirees (plan liabilities) is determined by using discount rates based on high-quality corporate bond yields. When bond rates drop, liabilities go up and pension funding levels go down. The analysis projects the significant decline in corporate bond yields over November and December 2008 increased liabilities in aggregate by $363 billion.

At the end of 2007, 46 percent of plan sponsors realized funding levels between 90 and 110 percent, and only 5 percent had levels between 50 and 70 percent. In contrast, Watson Wyatt estimates that only 5 percent of plan sponsors will have funding levels between 90 and 110 percent at the end of 2008, and that funding for 61 percent of sponsors will fall between 50 and 70 percent.

"Plan sponsors are feeling the effects of a pension funding crisis with both asset values and interest rates dropping," said Jim Shaddy, North American retirement practice leader for Watson Wyatt. "We urge Congress to respond with the appropriate temporary relief for plan sponsors."


Source: PR Newswire

Privacy policy . Copyright . Contact .