Pension Deficit Surges in 2011

Biggest U.S. plans see funding shortfall swell 41%; pension-related charges hit record $38.3 bln.

The pension-funding deficit for 100 of the largest defined-benefit pension plans at U.S. companies, including Boeing Co. and AT&T Inc., increased 41 percent last year as low interest rates drove up liabilities.

The 100 largest plans posted a record shortfall of $326.8 billion for 2011, up from $232.1 billion a year earlier, according to a report by Milliman Inc., a Seattle-based actuarial and consulting company.

Pension-related charges to earnings rose to $38.3 billion, also a record, from $30.5 billion in 2010, according to the report, based on figures for the largest U.S. plans that reported 2011 data in 10K filings to the U.S. Securities and Exchange Commission by March 5. Contributions to pensions were $55.1 billion for the 100 companies tracked, according to the report.

Costs related to pensions will continue to rise because of low interest rates, which cause estimated pension payouts to increase after they are calculated at net present value. Companies use a discount rate based on a basket of corporate bond yields, which have been dragged down by the Federal Reserve’s pledge to hold rates at current levels until 2014.

“Given the record low discount rates, we estimate that 2012 pension expense will increase to $54 billion, resulting in another record-high charge to corporate earnings,” Milliman said in the report by John Ehrhardt, a consulting actuary, and colleagues.

A 9.3 percent increase in pension liabilities outpaced a 5.9 percent weighted-average return on assets for the 100 plans, Milliman said. Even with voluntary contributions, the funded level of the 100 plans fell to 79 percent at the end of 2011, from 84 percent a year earlier and 82 percent at the end of 2009.


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