Human Capital & Careers

Pension-plan Funding Levels Slide

Study by Merrill finds that market plunge has hit their status so that the average plan is 92-percent funded, down from 99 percent at year-end.
Stephen TaubOctober 6, 2008

The global plunge in the financial markets has caused the average funded status of pension plans for U.S.-based S&P-500 companies to fall to 92 percent, from 99 percent at the beginning of the year, according to Merrill Lynch estimates.

On average, pension-plan asset returns are down 11.6 percent through Sept. 30, driven primarily by equities — the majority allocation for most U.S. pension plans. (Equities represented 59 percent at the end of 2007.)

However, asset declines were not as bad for those pension plans that had reduced their equity exposure. Asset losses were offset by a 75 basis-point increase in yields, according to Merrill, which noted that this “decreased the average liability by 5.4 percent.”

The investment bank said that it used company-specific U.S. pension plan asset allocation data, along with their beginning-of-year accounting funded status, to perform the analysis. It then broke down the data into 10 broad industry groups.

As of the end of September, the telecommunications industry was the most flush, funded at 107 percent, although from 113 percent at the beginning of the year. This was followed by the financial industry, at 100 percent, down from 106 percent.

The utilities industry slipped from overfunded (104 percent) to underfunded (97 percent). But the least-funded industry at the end of the third quarter was information technology, at 83 percent, down from 88 percent at year-end. Next among the least underfunded was healthcare, at 88 percent, down from 95 percent.