S&P 500 Pensions Funding Improves Slightly in 2009; OPEB Remains Severely Underfunded

NEW YORK, July 6 /PRNewswire/ -- A report published today by S&P Indices reveals that S&P 500 defined pension plans improved slightly in 2009, to 81.65% from 78.10% in 2008, but remains significantly underfunded by $260 billion. The report, S&P 500 2009: Pensions and Other Post Employment Benefits (OPEB), paints an equally dark picture for Other Post Employment Benefits (OPEB) which remains severely underfunded at $214 billion in shortfalls to cover the obligations.

According to the report, estimated pension return rates continued to decline to 7.83% from 7.95% in 2008, posting their ninth consecutive year of decreases (in 1999, the rate was 9.17%). Discount rates declined 58 basis points (bps), to 5.81% from 6.29%, significantly adding to projected obligations.

"For the year, even the best equity market in over a decade could not overcome the combined reduced returns from asset reallocation, higher obligations, and previous market losses," adds Howard Silverblatt, S&P Senior Index Analyst and author of the report.

The S&P Indices report also reviewed the status of Other Post Employment Benefits. Within the S&P 500, 293 companies (flat from 2008 and down from 310 companies in 2007) offer OPEBs, with the aggregate underfunding of $214.6 billion representing a 22.2% funding rate, up from 20.3% in 2008. While OPEB funding levels have increased, it pales in comparison to the pension funding status of 81.7%.

"Companies continue to cut back on OPEBs and are now introducing multitier benefit programs for new employees," notes Silverblatt. "OPEB benefits for many current retired workers, that collective bargaining agreements don't cover, are coming under additional stress as alternative public programs become available. As these alternative plans develop, companies are likely to introduce them, which will, directly or indirectly, shift more of the financial burden and responsibility to the retiree."

Combined, pension and OPEB assets that S&P 500 companies have set aside in 2009 amounted to $1.22 trillion to cover just under $1.70 trillion in obligations, with the resulting underfunding being $475.3 billion, or 28%, compared to 32.7% in 2008.  As for 2010, Silverblatt's current baseline estimate calls for pensions to improve from their current level of funding, ending the year at $205 billion underfunded.  

"Year after year the story remains the same: neither the public nor the private sector has shown a tolerance for the pain associated with the type of forward action needed to address the U.S. pension problem. The longer the situation goes unaddressed or short-term band-aids are applied, the stronger the measures will have to be to solve the situation," concludes Silverblatt.

The report can be accessed in full by going to www.standardandpoors.com/indices and clicking on "Index Research". Parts of this report were also used in a recently published Standard & Poor's CreditWeek Special Report that explores different aspects of the retirement issue.

About S&P Indices

S&P Indices, the world's leading index provider, maintains a wide variety of investable and benchmark indices to meet an array of investor needs. Over $1.25 trillion is directly indexed to Standard & Poor's family of indices, which includes the S&P 500, the world's most followed stock market index, the S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, the S&P Global BMI, an index with approximately 11,000 constituents, the S&P GSCI, the industry's most closely watched commodities index, and the S&P National AMT-Free Municipal Bond Index, the premier investable index for U.S. municipal bonds. For more information, please visit www.standardandpoors.com/indices.

About Standard & Poor's

Standard & Poor's, a subsidiary of The McGraw-Hill Companies (NYSE: MHP), is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research and data. With offices in 23 countries and markets, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for 150 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com

SOURCE Standard & Poor's

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