Record Underfunding Found for S&P 500 Pensions

“S&P 500 2012 Pensions and Other Post Employment Benefits (OPEB): The Final Frontier,” released by S&P Dow Jones Indices, shows S&P 500 pensions reached an underfunding status of $451.7 billion in 2012, a $97 billion increase over the $354.7 billion posted in 2011.

OPEB underfunded levels increased to $234.9 billion in 2012, compared with $223.4 billion in 2011. Combined, the amount of assets that S&P 500 companies set aside to fund pensions and OPEB amounted to $1.6 trillion in 2012, covering $2.29 trillion in obligations, with the resulting underfunding equating to $687 billion or a 70% overall funding rate.

The report also shows estimated pension return rates declined for the 12th consecutive year, dropping to an estimated 7.31% in 2012, compared with 7.6% in 2011 and 7.73% in 2010. Discount rates declined for the fourth year in a row, falling 78 basis points to 3.93% from 4.71% in 2011 and 5.31% in 2010.

“The double-digit equity gains of 2012 were no match for the artificially low interest rates that vaulted pension liabilities into record underfunding territory,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices and author of the report. “The result is that companies have only 77 cents for each dollar they owe in pensions and only 22 cents for each dollar of OPEB obligations. The good news for current retirees is that most S&P 500 big-cap issues have enough cash and resources available to cover the expense. The bad news is for our future retirees, whose benefits have been reduced or cut, and will need to find a way to supplement, or even postpone, their retirement.”

A copy of this report and others can be found here.