S&P 500 companies’ pension schemes go "from bad to worse"

HoleIncreasing liabilities outpaced asset growth and corporate contributions last year, Standard & Poor's (S&P) warned in its latest issue of Credit Matters.

Pension schemes failed to get the boost initially expected from equity market growth and funding deficits “ballooned” as a result, S&P said.

Deterioration in the funding status of plans for other post-retirement employee benefits pushed the combined underfunding to $578 billion (€470.1 billion), up from $455.1 billion in 2010. Medical care was the main cost driver.

“The state of corporate pension funding has gone from bad to worse,” the report noted, pointing to a record funding deficit of $345.7 billion for the S&P 500 companies’ pension obligations at the end of last year.

 In contrast, the funding deficit for these companies’ pension obligations was $245 billion in the year before. 

This means the S&P 500 companies are covering just 70.5% of their liabilities.

In 2009 and 2010, growth in the equity markets had helped to rebuild plans’ assets after falls in the market wiped out a significant portion of pension funding. This - against expectations - was not the case last year.

“Even with the continued growth in corporate earnings and assets which we saw in the first half of 2012, reaching full funding will take years and likely depend on future interest rates,” the report said.

“Many companies are phasing out their pension and other post-retirement employee benefit programs in an effort to cut costs and are shifting responsibilities for post-retirement expenses to individuals and - in the case of medical care - the government.”

©2012 funds europe