U.S. pension funding among S&P 500 companies is on track to improve for the fourth consecutive year in 2006, according to a new Credit Suisse report.
The 372 pension plans of S&P 500 companies could be underfunded by a collective $77 billion as of Dec. 31, or roughly 95% funded, "barring a collapse in the stock market or a sudden drop in interest rates," according to Credit Suisse estimates. That compares with a collective $145 billion in underfunding in 2005, for an aggregate funded level of 90%. The healthier funding level should improve stock prices and reduce the need for cash contributions, according to the report.
More companies may terminate their plans altogether to further shrink required contributions and limit the growth of their pension obligations, the report said. Particularly if interest rates continue to climb, "it may become more attractive for companies to go a step further and look to close … their pension plans," the report said.