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CCH® PENSION — 04/20/11

Average Funded Ratio For Pensions Estimated To Increase From 77% To 82%

from Spencer’s Benefits Reports: The average funded ratio of the 421 Fortune 1000 companies that sponsor defined benefit pension plans was 82% for fiscal years ended in December 2010 compared to 77% in 2009, estimated Towers Watson in its March 2011 Insider Newsletter. The average funded ratio for defined benefit pension plans in the past ten years has been as high as 115% in 2000 and as low as 70% in 2008.

For 2010, Towers Watson estimates a 6% growth in plan liabilities and a 9% increase in plan assets. The projected benefit obligations (PBO) of all 421 plans is estimated to be $1,393 billion and the market value of assets will be $1,159 billion. In 2009, the PBO was $1,312 billion and the market value of assets was $1,068 billion. Employer contributions totaled $58 billion in 2009, with a return on assets of $124 billion. The plans paid $91 billion in benefits in 2009.

At the end of 2009, funded levels were less than 70% for 31% of the Fortune 1000 companies, Towers Watson reported. Funded levels were between 70% and 90% for 56% of the Fortune 1000 plans in 2009 with 15.91% of the plans between 70% and 75%; 14.49% of the plans between 75% and 80%; 14.96% of the plans between 80% and 85%; and 10.21% of the plans between 85% and 90%. Of the remaining Fortune 1000 plans in 2009, 4.75% were 90%-95% funded; 3.09% were 95%-100% funded; and 5.46% were 100% or more funded.

Towers Watson estimates that for yearend December 2010, 9.98% of the plans will be funded 100% or more. An estimated 40.85% of the plans will experience funding levels between 80% and 99.9% in 2010. Less than 50% of the plans will be funded less than 80% in 2010, compared to 61.53% of the plans in 2009.

In conclusion, Towers Watson noted that “While declining interest rates increased projected defined benefit plan obligations, favorable asset returns coupled with sizable employer contributions gave assets a considerable boost, thereby increasing aggregate funded levels for 2010. Estimated average funded levels have increased for the second year n a row, with a good part of this improvement attributable to contribution strategy.

“The aggregate pension deficit for companies in this analysis remains quite large. Barring a significant extension of the capital market recovery or a large jump in interest rates, sponsors will have to contribute even more to their plans over the next few years to fully recover from the 2008 funding shortfalls.”

For more information, visit http://www.towerswatson.com/assets/pdf/3953/Towers-Watson-Insider-Fortune-2b.pdf.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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