Corporations will have to increase their pension plan contributions by 55% to a combined $190 billion this year, according to an estimate by CT Capital.
The 1,415 publicly traded companies reviewed by CT Capital will also have to contribute another $190 billion next year, amounting to a total of $380 billion for those two years, said Kenneth S. Hackel, CT president.
That’s a major reason “why companies are holding on to large amounts of cash” because they are waiting to see how much they will have to contribute to their plans at year end, Mr. Hackel said. The projected increase in pension contributions “affects their operations,” he added.
In their most recent previous fiscal year, the companies contributed a combined $122.7 billion, he said.
Corporate plans with more than $5 million in assets are undercontributing to their pension plans by an average 35% less than the amount they are reporting as their pension expense, Mr. Hackel estimated. They are currently underfunded by a median 19%, Mr. Hackel estimated, compared to a median 15% at the end of the companies’ last fiscal year, he said.
Investment returns of those companies’ plans so far this year, on average, have matched their 8% median long-term return assumption, fueled by a generally rising stock market, But that gain leaves them far short in the long term of meeting their expected return, Mr. Hackel said.
Over the last three years, their annualized median investment return was -4.91% and for the last five years, 0.18%.
All periods on the investment returns are ended as of midday trading Tuesday. The data consist of the U.S. and foreign pension plans of companies publicly trading in U.S. markets.