The defined benefit plans of 220 non-financial U.S. companies rated by Fitch Ratings were about 75% funded by Dec. 31, up four percentage points from a year earlier, but funding increases over the next two to three years remain a concern, according to Fitch.
“Funding relief granted during the recession has only postponed the day of reckoning for issuers with underfunded plans, while at the same time obligations have increased due to a decline in discount rates,” according to a news release detailing a Fitch report's findings. “Fitch doesn't expect to take rating actions based solely on increased contributions; however, for those on the edge of a rating category, the need to make ongoing payments could be one of the factors leading to negative rating outlooks or rating changes.”
John Culver, senior director at Fitch and lead author of the report, said in the news release that the weakest industries at the end of 2009, from a pension funding perspective, were autos, building materials and construction, and consumer.
The study also notes that 144 of the 220 companies were less than 80% funded on a GAAP basis.
“These companies warrant further investigation, given that the 80% ‘at-risk' threshold under the (Pension Protection Act of 2006) will be fully phased in by 2011,” according to the report. “Of the 144 companies, 109 were under the 75% funding level, which is the ‘at-risk' level for 2010. Of the remaining 72 companies, 55 were funded in the 80%-90% range, while 21 companies were funded above the 90% level.”
The study is available at http://www.fitchratings.com.