The level of underfunding in corporate pension funds is at its worst in North America, shows analysis by MSCI ESG Research.
The firm looked at the funded status of almost 5,300 companies that disclose details of their defined benefit funds, across North America, Western Europe, Asia-Pacific and Japan. It analyzed the ratio of underfunded liabilities to annual revenues of the company.
North America’s underfunded ratio was 9.2% according to the analysis made in September. Europe came in second at 4.7%, followed by Japan at 3.7%, and Asia-Pacific at 1.8%.
For Western Europe, Denmark had the best ratio at an average of 2.1%. That compares with the worst underfunded companies, which reside in the U.K., with an average 7.8% underfunding. In North America, Canada’s 6.1% average underfunded ratio bettered the U.S.’s 10.3% average. In Asia-Pacific, Thailand-based companies showed the best average underfunded ratios, at 1.2%, compared with the worst in Singapore at an average 2.5%.
Compared with 2015 figures, the underfunded ratio increased across all four regions, with a few exceptions at country level. The ratio increased 21.7% in 2016 vs. 2015 in North America, 8.2% in Western Europe, and 41.1% in Asia-Pacific. For Japan, the underfunded ratio grew 5.7% over the year. Specific dates were not available.
MSCI said six of the top 10 companies with the highest underfunded ratios are based in the U.S. E.I. du Pont de Nemours & Co. was on top with an underfunded ratio of 42% and Hess Corp. was tied for second at 36% with U.K.-based BT Group PLC. Dun & Bradstreet Corp.’s 34% underfunded ratio tied it for third with Delta Air Lines Inc. The remainder of the top 10 included CenturyLink Inc. and Entergy Corp. from the U.S., Bank of Kyoto Ltd. in Japan, BAE Systems PLC in the U.K., and Electricite de France SA, based in France.
MSCI also looked at sectors. Utilities showed the worst funded ratios in aggregate, with an average 10.9% underfunded ratio, followed by banks at 7.5% and telecommunications at 7.3%.
“Our findings confirmed at least some of the short-term concerns over a widening gap between pension obligations and funds set aside to meet those obligations,” said MSCI’s report, published Monday. Only Australia, Ireland, Portugal and Italy’s average underfunding ratios did not deteriorate in 2016 vs. 2015.
