There's more grim news for pension plan sponsors. The pension plans of companies in the S&P 500 could end 2004 with a record total shortfall of $254 billion, their worst funding levels in a decade. And that follows an improvement last year, when the level of underfunding fell to $172 billion, after rising to $216 billion in 2002.
This year's underfunding is the result of mediocre returns on pension assets that have not kept pace with the increase in liabilities, according to the a new report by David Zion, an accounting analyst at Credit Suisse First Boston in New York. The dire prediction of shortfalls this year is notwithstanding the pension law changes enacted in April, which were expected to ease the contribution burden on employers for three years ended Dec. 31, 2005. But with interest rates flat or down — the Moody's AA Corporate Bond index has dropped 21 basis points to 5.8% on Sept. 2, from 6.01% on Dec. 31 — and the stock market not cooperating either, Mr. Zion expects pension assets to increase just 1% in 2004, to $1.08 billion, based on an average asset allocation of 65% equity and 35% fixed income, and liabilities to increase slightly to $1.33 billion, from $1.31 billion last year.