The top 100 U.S. corporate pension plans in aggregate were overfunded for the second year in a row, according to Pensions & Investments' review of annual reports.
The plans had an aggregate funding surplus of $111.1 billion in 2007, based on projected benefit obligations, up from $37.3 billion in 2006. In 2005, the 100 plans were underfunded by $50.6 billion; in 2004, they were underfunded by $69.5 billion.
Of the top 100 plans, 64 had funding surpluses at the end of 2007, a 42.2% increase from 2006.
At the height of the corporate pension funding crisis in 2002 when the top 100 plans were underfunded by an aggregate $151 billion there were only 14 plans with funded ratios over 100%.
The increase in corporate plan funding is attributable to several factors, according to Steven J. Foresti, managing director at Wilshire Associates, Santa Monica, Calif.
One would be a slight fall in rates, which would (cause) the measurement of liabilities to fall slightly. Remember that most corporations have fiscal years ending in December, and (at) that time (December 2007) the market was doing OK. Asset returns were healthy.
He also cited the Pension Protection Act of 2006 which, from a contribution standpoint, would inspire companies that are below the 100% line to be a little more aggressive, Mr. Foresti said.
Indeed, 18 plans in the P&I survey became overfunded last year. Of those, 14 were among those receiving the largest employer contributions.
The best way to think about it is a schedule of asset growth, Mr. Foresti said. There's a well-funded plan that on average is 100% funded, is underfunded half the time and overfunded half the time. In that respect, think of 100% funded as being on a schedule. And a plan that's above 100% is ahead of that schedule. It doesn't mean that they're not going to have to contribute. It doesn't mean that the plan is free. It means the timing of those contributions becomes more voluntary. The more that's put aside to date just provides additional flexibility in terms of contribution policy in the future.
The best-funded plan was FPL Group, Juno Beach, Fla., with a funding ratio of 216.5%, up from 200.1% in 2006. This is the third year in a row that FPL headed the list of best-funded plans.
Bank of New York Mellon, New York, had the second-best funding ratio, with 159.3%. This was the first time that the Bank of New York Corp. and Mellon Financial Corp. reported combined assets; their merger was completed July 10. The combined assets also brought the new firm into the top 100 list for the first time. The funding ratio for Bank of New York was 164.4% in 2006.
Rounding out the top five best-funded plans were J.C. Penney Co. Inc., Plano, Texas, with a funded ratio of 154.5% in 2007, up from 124.3% in 2006; Wachovia Corp., Charlotte, N.C., at 153.5%, up from 126%; and MeadWestvaco Corp., Glen Allen, Va., at 152.2%, up from 137.7%.
J.C. Penney and Wachovia contributed $300 million and $270 million, respectively, to their pension plans.