Updated with correction.
The vast majority of the defined benefit pension plans of S&P 500 index companies remained underfunded at the end of 2012 despite strong U.S. equity performance last year, according to a report from Wilshire Associates.
Of the 308 companies in the S&P 500 that have defined benefit pension plans, 94% had underfunded plans in 2012, the same amount as the previous year, according to the 2013 Wilshire Consulting Report on Corporate Pension Funding Levels. The median funding ratio was 76.9%, down from 78.1% in 2011.
The drop in funding ratio despite a median 11.8% rate of return for 2012, up from 3.8% in 2011, was due to a drop in the median discount rate to 4.16% in 2012 from 5% the previous year.
Combined assets of the corporate pension plans increased to $1.22 trillion in 2012 from $1.11 trillion the year before, but liabilities increased to $1.564 trillion at the end of 2012 from $1.39 trillion.
“The one notable tidbit that one can get out of this, despite how strong the equity markets were, (is) we are now dealing with market conditions related to fixed income that are impacting pension funding in maybe a slightly unanticipated way, even though the reasons for what are going on are obvious,” said Russ Walker, vice president at Wilshire Associates, and co-author of the report, in a telephone interview, “and you can connect the dots between (Pension Protection Act) rules affecting how discount rates are calculated and how that percolates down to our current situations in which interest rates are pretty much artificially held low.”
The federal highway law, MAP-21, signed by President Barack Obama on July 6, which changed some pension funding requirements, did help keep funding ratios from getting too low.
“I think without that, contributions might have to have been quite a bit higher than they were and potentially we'd have some funding ratios which are lower than they are,” said Mr. Walker.