More S&P 500 companies' defined benefit plans were underfunded and their average funding ratio slipped in 2011, according to a Wilshire Associates survey.
Of the 316 companies with DB plans, 94% had underfunded plans in 2011, up from 92% the previous year, according to the 2012 Wilshire Consulting Report on Corporate Pension Funding Levels. The median funding ratio was 78.1%, down from 81.8% in 2010.
The combined assets of S&P 500 companies' DB plans rose to $1.129 trillion in 2011 up 4.5% from 2010, while projected benefit obligations increased to $1.416 trillion in 2011, 11% higher than in 2010.
The median rate of return for defined benefit plans in 2011 was 3.8%, down from 12% in 2010 and 16.2% in 2009, while employer contributions to respondents' DB plans went down in 2011, with a total of $54.9 billion compared to $57.9 billion in 2010.
The reasons given by the report for the drop in the funding ratio were lesser returns than the previous year and low interest rates.
Given the excellent returns in 2010, plan sponsors may have approached 2011 slightly too optimistically in terms of how much in the contributions they decided to make, according to Russell J. Walker, vice president and co-author of the report.
“Maintaining or slightly ratcheting back their level of contributions, plan sponsors were overly optimistic in that action but you know again, all things at the end of fiscal year 2010 going on the way they were, they should've been fine. What happened was, guess what, the interest rate fell again. That's disconcerting, I suppose, but not surprising,” Mr. Walker said.
Considering the challenges plan sponsors have had to face with a volatile market and low interest rates, they're doing very well, according to Mr. Walker.
“I think you see the plan sponsors, you know, being responsible and taking into consideration the fact that they have to manage their risk as much as they manage their assets,” Mr. Walker said.
