Despite strong market performance and high employer contributions, the funded status of the 100 largest U.S. corporate pension plans remained relatively flat for 2012, according to Pensions & Investments' annual analysis of corporate SEC filings.
The average funding ratio dipped one percentage point in 2012 to 80.6%, down from 81.6% in 2011 and 86.9% in 2010. The 2012 funding level was only slightly higher than 2008, the peak of the financial crisis, when the average funding ratio was 79.1%.
“Fiscal growth in 2012 was very strong and asset growth was pretty robust, so you would expect that to improve funding ratios,” said Steven J. Foresti, managing director at Wilshire Associates Inc., Santa Monica, Calif. “But when you put all the numbers together, you realize they didn't improve, and in fact, they pulled back.”
In P&I's universe, the plans had an aggregate funding deficit of $301.6 billion in 2012, a $43.3 billion increase from the previous year.
Aggregate assets of the top 100 plans increased to $1.11 trillion, up from $1.06 trillion in 2011, partly because of strong market performance in 2012. The S&P 500 index gained 13% for the year; while the Russell 3000 index rose 16.4%; the MSCI All Country World index, ex-U.S., increased 16.4%; and the Barclays Global Aggregate Bond index was up 4.3%.
The average expected long-term rate of return was 7.73% in 2012, down from 7.94% a year earlier.
Total assets for the top 100 plans would have been larger except for buyouts and lump-sum payments offered last year by Verizon Communications Inc., General Motors Co. and Ford Motor Co. that caused those large corporations to report lower assets.
“Lump-sum (payments) and annuities can increase or decrease funded status,” said Justin Owens, asset allocation and risk management analyst at Russell Investments in Seattle. “On a funding basis, lump sums and annuities will decrease that status right now because of MAP-21. Lump-sum and annuity purchases are expensive ones on that basis.”