Human Capital & Careers

Amid Default Perils, Pensions Strengthen

The $72 billion contributed by the plans of many of the biggest employers brightens a picture otherwise clouded by the threat of pension defaults b...
Stephen TaubAugust 5, 2004

Nothing like a recovering stock market to boost the funding of many pension funds. Indeed, the funding of large-company pension plans improved last year despite significant increases in pension plan liabilities, according to a Watson Wyatt study of defined-benefit pension plans at 622 of the nation’s 1,000 largest companies.

The funded status of traditional pension plans at big companies improved from an average of 82 percent in 2002 to 88 percent in 2003, according to the consulting firm. (The funded status of a pension plan is the ratio of the value of its assets to the estimated cost of its accrued pension obligations.)

To be sure, the status of the pensions in one industrial sector—the major airlines—clouds the bright picture represented in the survey’s findings. Crippled by debt, the Pension Benefit Guaranty Corporation faces a possible $5 billion default by United Airlines on its plan obligations, according to an August 1 report in The New York Times. The possibility that more big airline defaults will hit the federal insurer has some experts fearing a pension crisis akin to the one accompanying the collapse of the savings and loan industry of the 1980s, the newspaper reported.

Outside the airline industry, however, pension funding appears stronger. Although pension-plan liabilities increased by about 11 percent in 2003, assets surged about 18 percent, according to Watson Wyatt. The firm attributes the improvement in the funded status to stronger investment returns and the nearly $72 billion the employers studied contributed to their pension plans in 2003.

The employer contributions dwarf the sums added in prior years: $44 billion in 2002: $14 billion in 2001; $16 billion in 2000; and $11 billion in 1999.

Watson Wyatt also estimated that the 622 companies studied would contribute another $40 billion to their pension plans during 2004.
The firm also pointed out that the trend toward fewer defined-benefit plans continued in 2003. The number of Fortune 1000 companies that reported sponsoring a defined-benefit plan declined from 660 in 2000 to 622 in 2003.