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Pension Funds

S&P: U.S. corporate pension funding dips in 2016

The aggregate funding ratio of U.S. corporate pension plans in the S&P 500 fell 70 basis points in 2016, according to a report from S&P Dow Jones Indices.

Total U.S. corporate pension plan assets at the end of the year totaled $1.64 trillion, compared to $2.03 trillion in projected benefit obligations, for a funding ratio of 80.7%, compared the previous year's total of $1.614 trillion in assets and $1.983 trillion in projected benefit obligations, for an aggregate funding ratio of 81.4%.

Of the 325 pension plans sponsored by companies in the index, only 24 were fully funded, compared to 32 in 2015.

In 2016, 33 plans had funding ratios of less than 60%, compared to 30 the year before, while 47 were between 60% and 70% (34 in 2015), 84 were between 70% and 80% (96), 85 between 80% and 90% (93) and 52 between 90% and 100% (41).

Despite strong equity markets in 2016, lower interest rates continued to lower funding ratios, the report said. Despite the underfunding, the report said "pension costs have become a reasonably controlled expense for corporations" because the "costs and outflows fit well within income and asset levels." Also helping corporations is the move toward 401(k) plans, with more participants retiring and fewer newer employees coming into the plans contributing to a shrinking obligation base. However, for individuals, personal wealth depletion "has left potential retirees with little ability to retire, even as homes and equity prices have improved.

The report is available on S&P Dow Jones Indices' website.