Funding Gap Doubles For US Pensions

Loading...
Loading...
FINANCIAL TIMES
By Dan McCrum and Nicole Bullock

January 3, 2012

The funding gap for US corporate pension plans almost doubled in 2011 as bond yields dropped and stock market performance failed to keep up with rising liabilities, to leave a far greater hole than at the height of the financial crisis.

From a moderate surplus at the end of 2007, pension plan assets at S&P 500 companies now cover only about 74 per cent of estimated liabilities, calculates Credit Suisse, a deficit of roughly $450bn.

At the start of the year the S&P 500 pension funding gap was estimated at $250bn, according to Credit Suisse.

Falling interest rates, or yields [cnbc explains] , have also lowered the discount rate used to calculate the value of promises to past and present employees.

Credit Suisse calculates that every 25 basis point fall in the discount rate equals a $45bn increase in liabilities.

The discount rates used by companies has fallen about three times that much this year.

David Zion, head of accounting and research for Credit Suisse said: "You need really good returns to offset that. The typical pension plan has generated slightly positive returns this year, you can't say that's good".

Some companies will have to make greater pension contributions next year, unless the US government passes some form of pension funding relief.

Current rules require companies to contribute the amount of any funding shortfall, spread over seven years. However, after times of market stress, the authorities have previously given companies temporary relief from requirements to ...

Loading...
Loading...
We simplify the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

Loading...