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Pension underfunding is turning into a thing of the past

Pensions at the Standard &Poor's 500 pension plans took on a healthy glow in 2006 thanks to strong equity returns and lower bond yields. The ...

By Staff Writer | Updated on May 08, 2007

Pensions at the Standard &Poor’s 500 pension plans took on a healthy glow in 2006 thanks to strong equity returns and lower bond yields. The S&P 500 managed to slice nearly 75% of their underfunded status in the year just ended, closing out the year with $36.4 billion in underfunded liabilities vs. $140.4 billion at the end of 2005. The funding ratio status is expected to stand at 98% by yearend 2006, vs. the 90% funded status at the end of 2005, estimates Howard Silverblatt, senior index analyst at the Standard & Poor’s, thanks to the run-up in equities that began at the end of the fourth quarter and the mild up-tick in interest rates. The current run-up in funding, however, is still a long ways off from the heady days of 1999, when the funded status at S&P 500 pensions reached 128.2%. Still, the number of fully funded plans nearly doubled to 82 by yearend, from 47 in 2005. “Sometime this year, S&P 500 pensions will again be overfunded–on paper,” says Silverblatt, based on S&P’s current projections for the equities and interest rates. S&P is forecasting that the S&P 500 stock index will end 2007 at around 1510 and that interest rates will remain below 6%.

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