S&P 500 companies were on average 11.2% underfunded at the end of 2004, compared with 13.1% at the end of 2003, according to a report from Henry "Chip" Dickson, chief U.S. strategist at Lehman Brothers. Nine of 10 S&P 500 industry sectors improved their funding status last year, utilities being the exception.
The mean return assumption for pension plans last year was 8.2%, down from 8.3% in 2003, a level Mr. Dickson said was reasonable.
"We expect firms to continue to use more conservative assumptions than they did in the mid-1990s through early 2000s period," he wrote in the report. "We think underfunded pensions are one of the catalysts causing firms to keep extra cash on their balance sheets. Underfunded pension obligations may also be preventing hiring and capital spending from being as robust as might otherwise be the case."