S&P 500 Companies’ Pension Funding Ratio Drops in 2011

The funding ratio of S&P 500 companies’ pension plans fell to 78.9 percent at the end of 2011 from 83.9 percent the previous year, according to a report from Standard & Poor’s Corp.

Plan assets totaled $1.322 trillion, with obligations of $1.676 trillion, according to the report, “S&P 500 2011: Pensions and Other Post-Employment Benefits.”

The drop in funding ratio was attributed to market conditions and low discount rates, which declined on average to 4.71 percent last year, from 5.31 percent.

As part of the effort to manage liabilities, according to the report, pension plans increased fixed-income exposure and reduced equity exposure to manage risk.

The average allocation to equity dropped to 48.4 percent from 51 percent, and fixed-income allocations increased to 40.9 percent from 35.9 percent.

Only 18 of the 338 S&P 500 firms with pension plans were fully funded. Twenty-five firms had a funding ratio between 90 percent and 100 percent, 84 firms had ratios between 80 percent and 90 percent, 113 between 70 percent and 80 percent, and 64 between 60 percent and 70 percent. Thirty-four firms had funding ratios of less than 60 percent.

Howard Silverblatt, senior index analyst with S&P Dow Jones Indices and author of the report, said in a telephone interview that the federal highway bill signed by President Barack Obama on July 6 contains pension funding relief that solves a lot of these problems.

“Basically, it almost solves the problem without costing companies a penny,” Silverblatt said.

Overall, however, there is not a lot to worry about regarding their funding because of their “astronomically high values” and a lot of cash.

“The vast majority of retirees do not have that much to worry about given the asset levels of the companies,” Silverblatt said.

Rob Kozlowski writes for Pensions & Investments, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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