S&P 500 Pensions, OPEB Remain Severely Underfunded; Is Time Running Out For The Baby-Boomers?

NEW YORK, May 26, 2011 /PRNewswire/ -- A report published today by S&P Indices reveals that S&P 500 defined pensions, despite improving their funding status slightly in 2010, remain significantly underfunded by $245 billion. The report, "S&P 500 2010: Pensions and Other Post Employment Benefits (OPEB)", also shows that OPEB remains severely underfunded at $210 billion.

Combined, the amount of assets that S&P 500 companies set aside in 2010 to fund pensions and OPEBs amounted to $1.34 trillion, covering $1.79 trillion in obligations with the resulting underfunding equating to $ 455.1 billion, or a 25.5% funding rate.  

"Even with a 15% equity return and a market recovery of over 45% over the past two years, S&P 500 companies still could not put a dent into the pension underfunding situation," says Howard Silverblatt, S&P Senior Index Analyst and author of the report. "However, there is a faint light at the end of this tunnel. Because of the record recovery in 2010, companies are currently in much better shape to handle corporate pensions – now considered an acceptable and manageable expense well within their income and assets levels."

According to the report, estimated pension return rates declined for the 10^th consecutive year, dropping to an estimated 7.73% in 2010 versus 7.83% in 2009. Discount rates declined 50 basis points, increasing projected obligations.

The S&P Indices report also reviewed the status of Other Post Employment Benefits (OPEB). Within the S&P 500, 296 companies offered OPEBs in 2010. With $274.1 billion in OPEB obligations, only $64.5 billion was funded. While OPEB funding levels have increased in recent years, its funding status (23.53%) still pales in comparison to that of pensions (83.9%).

"The American dream of a golden retirement for upcoming baby boomers is quickly dissipating," adds Silverblatt. "The current underfunded situation leaves few options for a comfortable retirement, and few years for baby boomers to significantly add to their retirement resources...outside of working longer," concludes Silverblatt.

The S&P Indices 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, a world 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.

SOURCE Standard & Poor's

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