S&P 500 companies will contribute a total of $65 billion to their U.S. defined benefit plans this year, according to a forecast in a Goldman Sachs report today.
Sponsors may seek to increase their exposure to equities and other risky assets as they rebuild plan funding through new contributions and reallocation of existing assets, noted the report, Pension Review 2009 Fallout from Funded Status Decline Just Beginning.
Steep equity price declines pushed equity allocations down more than 11 percentage points in 2008; about 80% of all plans are now underweight their equity targets, the report said.
The S&P 500 companies have more than $425 billion of unrecognized losses on their U.S. pension plans, the report said. These may be a drag on EPS for several years as the losses work through income statements.
The funded status of S&P 500 companies U.S. defined benefit pension plans dropped to 79% at year-end 2008 from 108% at year-end 2007, the report said. As a result, the plans have aggregate underfunding of $252 billion compared to combined overfunding of $95 billion, the report said.
The median funded ratio was 71% at year-end 2008 for the 345 companies in the S&P 500 that had U.S. defined benefit pension plans, the report said. Fewer than 10% were overfunded, and many of them are off-calendar year-end companies that have yet to report.
The report was written by Michael A. Moran, vice president-portfolio strategist, and Abby Joseph Cohen, managing director-portfolio strategist and chair of the investment policy committee.