A low-interest-rate environment is wreaking havoc with corporate defined benefit plans, according to a new study from Wilshire Consulting. Wilshire, based in Santa Monica, Calif., found that 94 percent of pension plans are underfunded.
“The $282.3 billion funding shortfall at the beginning of the year expanded to a $342.5 billion deficit,” Russ Walker, vice president, Wilshire Associates, said in a statement. “Defined benefit pension assets for S&P 500 Index companies increased by $113 billion, from $1.11 trillion to $1.22 trillion, while liabilities increased $174 billion, from $1.39 trillion to $1.56 trillion. The median corporate funded ratio is 76.9 percent, which represents a modest decline from 77.7 percent last year.”
The defined benefit plans in Wilshire’s study yielded a median 11.8 percent rate of return for 2012. This performance combines with the 3.6 percent median plan return for 2011, the 11.9 percent median plan return for 2010 and the 16 percent median plan return for 2009 to mark four consecutive years of gains for these plans after the global market dislocation events of 2007 and 2008.
The combined pension expense for the S&P 500 Index companies in the study was $57.1 billion for 2012, up from $44.7 billion a year ago. Regular annual pension expense accruals from employee service and interest expense on existing liabilities totaled $93.9 billion in 2012, 0.5% higher than the $93.5 billion a year ago.
The S&P 500 Index companies in the report contributed $57.8 billion into their defined benefit plans in 2012, an increase from the $54.4 billion contributed in 2011. Aggregate benefit payments from corporate pension plans increased somewhat during the past year. Benefit payments totaled $76.5 billion in 2012, compared with $72.5 billion during the previous year.
In related news, the Government Accountability Office recently warned that the Pension Benefit Guaranty Corp.’s financial assistance to multiemployer plans continues to increase, threatening the solvency of the fund.