How Underfunded Are US Corporate Pension Plans?

Tyler Durden's picture

To be sure, we’ve written quite a bit about both public and private pension plans this year. Most notably, we’ve chronicled the deplorable state of the pension system in Illinois, where a State Supreme Court ruling in May set a de facto precedent for pension reform bids across the country. 

But while the focus - here and elsewhere thanks to America’s growing state and local government fiscal crisis - has been on the public sector, seven years of ZIRP has taken its toll on private sector pension plans. 

We touched on this briefly in March when we noted that ECB QE could end up widening pension deficits dramatically and as FT reported last month, “UK companies are paying less towards meeting their pension shortfalls than at any point since 2009, even as aggregate pension deficits reach their highest level in five years.” 

For those wondering about the extent to which falling discount rates have served to create a giant, multi-hundred billion dollar underfunded liability for S&P companies, look no further than the following graphic from Citi’s Matt King which should come with a caption that reads: “You’re welcome pensioners -- The Fed.” 

More color, from Mercer:

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies dropped by 2% to 81% as of August 31st, 2015, rising interest rates mitigated losses in equity markets. As of August 31st, 2015, the estimated aggregate deficit of $423 billion USD increased by $44 billion as compared to the end of July. Funded status is now up by $81 billion USD from the $504 billion USD deficit measured at the end of 2014, according to Mercer,[1] a global consulting leader in advancing health, wealth and careers.

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VladLenin's picture

a-hole is correct.

Money Boo Boo's picture

Yes ! but how underfunded are the corporate buy backs or corporate profit plans??

Manthong's picture

Many millions will be shell shocked when they are faced with the consequences of ZIRP and the government’s lack of enforcement regarding company pension contributions during the last dozen years or so while management got filthy rich. This will happen after the next stock market catastrophe.

This likely corresponds to the PTB’s desire for one big helpless fascist social welfare state.

Of course, that sad circumstance will not include GM autoworkers whose pensions were fully funded in bankruptcy by Obama in return for the UAW’s support.

Joe Davola's picture

Not to worry, the PBGC's got their backs.

Manthong's picture half the original benefit,

.. if they can stay solvent through a catastrophe.

DaddyO's picture

Judging by the recent headlines from HP, the buybacks are well funded.

Due to all the FED shenanigans, corporate profit plans are good for those still employed, eh?


aVileRat's picture

Well, you need to reconcile who is buying the stocks and how productivity ratios are calculated. Its so nice to finally see these "yield pigs" starting to become mainstream understanding, which will hopefully start a discussion on the audit of dynamic hedging and esocentric price models.


BullyBearish's picture

This is the reason for normalization

GotNuttin'todo's picture

I believe you are correct. We will see tomorrow. Up 25 basis points?

junction's picture

At least United Airlines' pension plan is in fine shape: 

United CEO Exits With $21M Package Despite Corruption Probe
Promethus's picture

We are entering the brown eye of the s storm.

Buckaroo Banzai's picture

How many S&P companies still have pension plans? I'd be shocked if it was more than a dozen.

Recidivism's picture
Recidivism (not verified) Buckaroo Banzai Sep 16, 2015 5:17 PM

No doubt they have "legacy" plans to which they are still committed. 

EscapeKey's picture

for the executives? all, i reckon.

TeethVillage88s's picture

Boss comes in says "Well, there isn't any money for your retirement, so you are fired. You're not close yet anyway. Go ahead and try to sue but you won't get anything. But the Executives are looking great, we get it all!"

chinoslims's picture

HAHAHA.  What about public pension plans?  

myRA for everyone, bitchez

cossack55's picture

What the fuck is a pension?

knukles's picture

Talk about public pension plains, you mean like CalPers and the like that are grievously underfunded, mismanaged and will simply rely upon higher taxes of those without pensions to pay the pensions of their participants who have never really worked? 
Oh yeah, them types of pensions.
Y'all think that corporate plans are underfunded, the calcs for public plans way the fuck overstate funding as are done on an accumulated as opposed to projected basis.
They're black holes for taxpayers

oak's picture

check your pension is insured or not.

knukles's picture

The PBGC stands behind (LOL) private qualified plans.
Please stop giggling

Sudden Debt's picture

Everybody now knows that that they won't get a pension anymore in a decade from now but when that shit becomes real.... man o man...


In my country already, the number of people over 65 who keep on working more then doubeled. And they're not doing it because it's fun.

TeethVillage88s's picture

I've been waiting for this kind of info and more proof of the damage ZIRP/LIRP is doing.

So probably it also plays out in City and State budgets where they think they can wait and kick the can down the road as long as rates are low.

"But while the focus - here and elsewhere thanks to America’s growing state and local government fiscal crisis - has been on the public sector, seven years of ZIRP has taken its toll on private sector pension plans. "

Catullus's picture

I had one. No longer contributing as of this year. Huge paycut. Not replaced with anything. They also cut the match to my 401k so that I don't contribute a percentage of bonus. Did the same thing to contributions from commissions. Cut my sick leave. And bonus pools decreased every year for the past 3. Also, now I'm on this dopey HSA for my health insurance which means I'm wearing all of the costs up to $2,500 a year.

7 paycuts in 3 years. And now they call COLA increases "performance bonuses". Fuck you.

r101958's picture

Be prepared for RIF's in the near future. Preceded ever so slightly by a new rule that states that, if you are RIF'd or quit, you may no longer withdraw your saved pension in a lump sum payment but can only get a certain percentage and then take payments.

fowlerja's picture

I am no longer on a pension plan..I am on the prisoner for life plan..given a life sentence of working with no possibility of parole..unless I win the lottery..

moneybots's picture

"I am no longer on a pension plan..I am on the prisoner for life plan..given a life sentence of working with no possibility of parole..unless I win the lottery.."


If you live in Illinois, you win an IOU.

Youri Carma's picture
Binko's picture

Standard operating procedure at American corporations now is for the executive class to pillage corporate assets for maximum short-term compensation and stock price boosts.

Pension plans for employees and other form of long term planning don't factor into things at all.

Smegley Wanxalot's picture

Hey, no worries about unfunded pensions.  We all get Social Security!

Omega_Man's picture

work till you drop at Walmart

Miffed Microbiologist's picture

Or until a mental breakdown looking at the the people who shop there. The creme de la creme of America these days where you can buy fake leather pants and matching thong in size 6x. I guess looking like a walking couch is the style now.


sonoftx's picture

Thanks for the belly laugh after a long day!

per-dask's picture

At least we try. Move someplace else like Russia. There you'll get $85 or so per month for two years; after that, it's on the street living under a piece of cardboard and begging for food. If you make it past 60 years old.

jakesdad's picture

I spent most of the 90s at a company that's now part of verizon.  for the 1st couple yrs after I left they'd call me offering to cash out whatever vested pension I'd accrued.  I declined figuring anything they went to the effort to track me down & proactively offer was almost certainly not in my best interest but they'll probably end up getting the last laugh & I'll end up w/nothing (from them - got other means)

khakuda's picture

UBS is doing this, too.  A lot of companies are because they are realizing they can get from point A to point B and would rather drop the problem back on the pensioner.

Fuku Ben's picture

Corporate unfunded pensions are nothing compared to Public and Military unfunded pensions. When the police pension post came up the other day I took a sample of 4 small/medium sized cities in the U.S. and found they had a total of about 1/4 billion in unfunded pension payments.

So between military, public and private corporate employees there are many trillions that will eventually be unpaid if those that know and planned what is coming allow the collapse and subsequent results to proceed.

So all of you that put say half your career into some future planned comfortable regular income can likely forget most if not all of it when this plays out.

Anyone that has current regular payments that will mean they get reduced significantly or stop completely. Lack of funding, bankruptcy, etc will cause this. I don't give financial or tax advice so check with someone that has the licenses and knowledge to do so for your particular needs if you can't do it on your own.

If there are withdrawal options or exceptions in the pension plan contract like advance withdrawals with a penalty or reduced lump sum pay outs with a penalty you may want to find out all of your options now and how long it would take to exercise each option.

In addition to the link below I have an older post that links the details of the GM bankruptcy and effects if you want to try and locate it.

UPDATE: Here's the GM bankruptcy link

tarabel's picture



Well, do the math.

Ultimately, pension funding is based on pension contributions.

Fire a bunch of your employees. Mandated pension contributions drop. Bad demographic news for those already cashing a check or expecting to get one soon. Worse for those crazy enough to think they will put in their 30 and pick up the gold watch. The existing pool gets less replenishment and draws down faster.

Eventually, they will all go bust about the same time and fall into the lap of the federales.

Who, in turn, will seize all retirement assets outstanding and fold them into a new parallel social security system for retirees. Everybody gets two checks and loses all their 401k and IRA savings.

Farmer Joe in Brooklyn's picture

...and this is just the direct effects of ZIRP (low return on fixed income assets). We still have equity markets near record highs.

Wait until the market crashes..!

God only knows what kind of equity allocation all these fuckers have and what other risky assets they've been chasing for yield.

A 2% drop to 81% funded will seem like a unicorn and lollipop filled wet dream when the financial tsunami lands on our shores soon. I bet we see a 50% funded number (or much worse if the bond market cracks along with equities, which I believe will ultimately happen).

Tick tock, motherfuckers...tock tock...

Farmer Joe in Brooklyn's picture

This is going to be one of the bigger stories to watch.

People haven no fucking clue that the promises they were told were just words. Most Americans believe that all pensions (public or private) are ironclad and 100% guaranteed to deliver.

There is a rude awakening coming for many...

khakuda's picture

DON'T FORGET IT IS WORSE THAN THIS!  Not only are the expected returns dismal BUT, after 2008/2009, Congress allowed pensions to discount the pension liability back at a higher rate (something like the average interest rate over the past 25 years, which is a much higher rate than would normally be used).  This has UNDERSTATED the liability.

SO, not only are the prospective returns less than the expected return being used, BUT the liability is much higher than stated on the books due to Congress's allowing the books to be cooked.

Many parts of the financial world are a disaster.  Not only is nothing being fixed, the damage is being covered up.

Omen IV's picture

fuckem if they cant take a joke - this is america it's not supposed to be fair