The McGraw-Hill Companies, Inc. : S&P 500 Companies Post Record Level of Underfunding for Pensions -Report
07/17/2012| 03:10pm US/Eastern
By Nathalie Tadena
Standard & Poor's 500 companies posted a record level of underfunding for pensions and other post-employment benefits in 2011, according to a recent report from S&P Dow Jones Indices LLC.
S&P 500 defined pensions were underfunded by $354.7 billion in 2011, an increase of over $100 billion from the end of 2010, according to data from the McGraw-Hill Cos. (MHP) unit. Underfunding for the other post-employment benefits, or OPEB, category increased to $223.4 billion last year from $210.1 billion in 2010.
According to the report, S&P 500 companies set aside $1.38 trillion to fund pensions and OPEB to cover $1.96 trillion in obligations, representing a 70.5% overall funding rate.
"Companies are continuing the trend of moving away from pension obligations and into 401 types of investments as they shift the responsibility of retirement away from the corporation and over to the individual," said senior index analyst Howard Silverblatt. "Despite the record underfunding level, both pensions and OPEB have, in aggregate, become a manageable expense as cash levels remain at near-record highs and cash flows at an all-time high."
Mr. Silverblatt added it may be too late for many baby boomers to safely build up assets outside of working longer or living more frugally in retirement.
Pension return rates declined for the 11th straight year, dropping to an estimated 7.6% in 2011 from 7.73% in 2010. Meanwhile, discount rates declined for the third consecutive year, falling to 4.71% in 2011 from 5.31% in the previous year.
S&P Dow Jones Indices reported that 292 companies in the S&P 500 offered OPEBs in 2011. OPEB funding levels fell to 21.8% last year from 23.5% in 2010, compared to the 78.8% funding level of pensions.
Write to Nathalie Tadena at email@example.com
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