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Record US Employer Contributions In 2010
Joan E. Solsman of the Dow Jones Newswires reports in the WSJ, Large US Pensions Saw Record Sponsor Contributions In 2010-Milliman:
Large
U.S. pension plans experienced record sponsor contributions last year,
consulting firm Milliman Inc. reported in a study, saying a decline in
discount rates fueled record levels of pension expense and cash
contributions.
In its study
of the 100 largest defined-benefit pension plans, Milliman said the
pensions went into the year expecting to make contributions of $30.3
billion collectively, but the final number almost doubled that
estimate, rising to $59.4 billion.
Funded
status for 2010 "changed only modestly," Milliman said. In August,
falling interest rates drove up the projected benefit obligation and
resulted in the largest deficit since the firm began the annual study
11 years ago.
The plans had asset returns of 13% last
year offset by a liability increase of 7.7%, and asset allocation
didn't change significantly, Milliman reported.
Jerry Greisel of Business Insurance also reports, Largest pension plans' funding improved in 2010:
The
funding levels of pension plans sponsored by large, publicly held U.S.
employers improved slightly in 2010 due to strong investment returns
and hefty contributions, according to a Milliman Inc. survey released
Tuesday.
Defined benefit plans offered by 100 U.S. employers
with the largest pension programs were, on average, 83.9% funded during
2010, up from 81.7% in 2009 and 79.3% in 2008, according to the
survey.
Solid investment gains and increased employer contributions were responsible for the turnaround, Milliman said.
On
average, plans earned 12.8% on assets last year, down slightly from
14.1% in 2009 but a huge improvement over 2008 when investment losses
averaged 18.9%.
In addition, employers contributed a record
$59.4 billion to their plans last year, up from $54.1 billion in 2009
and $29.8 billion in 2008.
“This was a
record year for pension contributions, though the number could have
exceeded $60 billion if a few things had gone differently,” John
Ehrhardt, co-author of the “2011 Milliman Pension Funding Study,” said
in a statement.
“Pension funding relief
enacted last summer helped reduce the funding burden, along with
positive investment performance. If interest rates remain at current
levels (or decline), contributions will be even higher in 2011,” added
Mr. Ehrhardt, who is a principal and consulting actuary in Milliman’s
New York office.
In all, the market
value of the plans’ assets increased about $115 billion to just more
than $1.2 trillion. The value of plan obligations increased nearly $103
billion to about $1.43 trillion, Milliman said.
Even with the
improvement in funded status, plans’ funded ratio was the fourth-lowest
since the Seattle-based actuarial consulting firm began the surveys in
1999. The lowest average funded ratio was 79.3% in 2008, when the
equities markets’ slump sharply reduced the value of plan assets. The
highest average funded ratio was 130% in 1999.
Finally, PR Newswire reports, Modest Increase in 2010 Funded Status as a Result of Record Employer Contributions:
Milliman,
Inc., a premier global consulting and actuarial firm, today released
the results of its annual Pension Funding Study, which consists of 100
of the nation's largest defined benefit pension plans. In 2011, these
plans experienced asset returns of 12.8% (a $115 billion improvement) that were offset by a liability increase of 7.7% (a $103 billion increase) based on a decrease in the discount rate. The
decline in discount rates fueled record levels of pension expense for
these plan sponsors. Collectively, these pensions went into the year
expecting a $30 billion charge to earnings, with the final number almost doubling that estimate, at $59.4 billion.
"This was a record year for pension contributions, though the number could have exceeded $60 billion if a few things had gone differently," said John Ehrhardt,
co-author of the Milliman Pension Funding Study. "Pension funding
relief enacted last summer helped reduce the funding burden, along with
positive investment performance. If interest rates remain at current
levels (or decline), contributions will be even higher in 2011."
While
the funded status for the year changed only modestly, the year was
marked by several significant events. In August, falling interest rates
drove up the projected benefit obligation and resulted in a record
deficit for the 11 year history of this study. Over
the course of the year, several companies adopted new accounting
approaches, which involved full or substantive recognition of
accumulated losses and a larger charge to 2010 balance sheets. Had
similar accounting changes been instituted across all of the companies
in this study, the resultant charge would have totaled $342 billion.
Despite the eventful (and sometimes volatile) year, pension investment strategies remained relatively consistent.
"For the year, the asset allocation of these 100 pension plans did not change significantly, as investment in equities only decreased from 45% to 44%," said Paul Morgan,
co-author of the Milliman Pension Funding Study. "Fixed income
allocations were unchanged at 36%, but allocations to other
(alternative) investments increased from 19% to 20%. On average, there
were not many changes, though we did see eight of the 100 companies
decrease their equity allocations by more than 10%."
You can read the Milliman analysis by clicking here.
It clearly shows that large US corporate defined-benefit plans are doing modestly
better but are still struggling. The study ends by looking at what to
expect in 2011 and beyond, noting that "even with the improvement in
funded status during 2009, 2010 and thus far in 2011, most plan sponsors
will still face increases in pension expense and contribution
requirements. Overall, the plan sponsors in this study group have a
significant asset-liability mismatch, thereby exposing their plans to
relatively high funded status and future contribution volatility."
Despite the low interest rate environment, the study recommends risk
management practices that adopt liability-driven investing and risk
budgeting (risk allocation) techniques.
Interestingly, it is also worth noting that unlike the large US public
plans, corporate plans have not been as aggressive allocating to
alternative investments and some companies, like GM, are looking to “de-risk” their pension portfolio
by investing less in equities and real estate, and more in fixed
income assets. It makes you wonder who is going to turn out to be right
over the next decade.
The other thing that caught my eye was the
new accounting rules that 12 companies adopted leading them to increase
allocations more than 5% to other asset classes. The study states
that "the allocation increase to other asset classes was partially
attributed to diversification strategies and partially attributed to
changes in GAAP reporting requirements under FASB ASC Subtopic 820-10
(formerly known Statements of Financial Accounting Standards Number
157), which require significantly greater detail on asset allocation."
The PR Newswire article above states that if the accounting changes
been instituted across all of the companies in this study, the
resultant charge would have totaled $342 billion. WOW!!! It also means that as more companies adopt these new accounting rules,
they will have to increase their allocations to other asset classes. Stay tuned.
»
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Comrade Obama wants your pension -- "we need to spread the wealth around."
Stay tuned.
Nothing to stay tuned for.
Between banksters, (O)bummer, and Bernokio, what's not looted / confiscated will be debased to worthlessness.
You future pensioner wanabes better figure out how to get along without that pension.
You've been warned.
beep
Yep; that Obamacare only cost every employee their 10% raise this year...wait till I tell them they are giving it to them (the non workers) again in November. No problem, I will work so these bastards can sit on their asses collecting their "gettin even" shit.. I think a great great great great grandfather of mine might have been a racist; so it's cool. I'll give em half the shit I make while alive and 25% of everything when I die..
Oh crap. Did I mess up the environment?? Can I give you fuckers some cash for that?? Please fleece me.
Leo, I get the idea you think people will pay any rate of taxes. I am here to tell you that more I am taxed- the less I will produce. It will all be about profit and no employees with the current costs.
You forgot to ask that they steal from you at gunpoint. If you don't pay they will send men in silly suits to point guns at you and throw you in "ass pounding" prison.
Land of the free and home of the slave.
Land of the fee, home of the slave.
There, fixed that for ya.
The correct title to this blog should be . . .
Record Unfunded US Employer Obligations In 2010
I assume these "contributions" are being made in "QE X" valuations and subject to repayment to qualifying individuals in "Y" number of years at valuations subject to "QE + Z" redemption requirements? That is, given such requirements have the weight of the full faith and credit of the citizens of the United States of America at such point in time?
Just askin.
This is just one more place that the Ben's Printing Press Works overtime. All part of the plan. Stay Tuned. More to come.
"some companies like GM are looking to “de-risk” the portfolio by investing less in equities and real estate, and more in fixed income assets"....wait. Fixed Income Assets...like maybe munis?!?!?? Great. Just in time for the Meredith Whitney implosion call to kick in...
IMO, Whitney's doomsday call is off base. I don't see it happening. I haven't moved my money from ST munis.
Whitney is waaaay overrated! Made some good calls in the past but she just loves the publicity she's milking on this mumi destruction call. Whatever!