Top 25 Corporate Pension Plans Alone Are Underfunded By Over $225 Billion

Tyler Durden's picture

Massively underfunded public and private pensions, and all the risks inherent therein, have been a frequent topic of conversation for us recently.  Today, Tobias Levkovich at Citigroup published a report pointing out just how dire the situation is for the S&P 500's largest corporate pension funds.  The study found that pensions of just the companies in the S&P 500 alone were over $375BN underfunded at the end of 2015 with the top 25 underfunded plans accounting for over $225BN of the underfunding.  Moreover, Citi pointed out that pensions don't seem to be participating in the massive equity rally that has grown ever so "bubbly" since 2009 (and issue we explained in detail here: "Pension Duration Dilemma - Why Pension Funds Are Driving The Biggest Bond Bubble In History").

Pension under-funding continues to be a major issue for S&P 500 constituents as very respectable equity market gains over the last seven years have not substantially alleviated pension pressures. The S&P 500 has appreciated by more than 200% at the end of 2015 since the low in March 2009 but the aggregate underfunded status of $376 billion in December 2015 is now 22% higher than the $308 billion under-funding peak seen in December 2008 (see Figure 1). While the funding status in 2013 recovered by more than $225 billion versus 2012 alongside strengthening equity market performance and a higher discount rate, this trend reversed in 2014 and only improved moderately in 2015. Specifically, the slightly higher discount rate contributed to the progress in 2015’s pension funding status, not higher equity prices.

Per the table below, S&P 500 corporate pensions went from being fully funded in 2007, in aggregate, to $375BN underfunded in just 8 years.  The primary problem, of course, is the Fed's low interest rate policies which are crushing both sides of the pension equation.  Pension assets have basically stagnated since 2007, up less than 10%, as pensions struggle to "find yield."  Meanwhile, lower yields on corporate bonds have driven discount rates through the floor causing the present value of liabilities to skyrocket over 40% over the same period. 

After dipping in 2014, the discount rate rose modestly in 2015, causing pension obligations to ease but pensions remain severely underfunded. The present value of corporate pension obligations is heavily influenced by interest rates and thus lower yields typically cause deterioration in funding status. While forecasts for higher yields in the future should lead to decreased concerns over the underfunded status of US pensions, Other Post Employment Benefit (OPEB) accounts remain significantly under-funded as corporations attempt to shift these costs onto individuals, but that may take some time.



Citi points out that all ten S&P 500 sectors remain underfunded, with Energy continuing to be the least funded sector. The pension review found that only 30 companies within the S&P 500 were fully funded at year-end 2015, with nearly half of the overfunded companies coming from the Financials sector.



Finally, Citi points out that pensions have been pulling assets out of equities and moving into fixed income, a phenomenon they attribute to pensions being "unwilling to allocate assets towards stocks after two major equity pullbacks in the past 15 years."  But, as we've suggested before (see "Pension Duration Dilemma - Why Pension Funds Are Driving The Biggest Bond Bubble In History"), the problem is less likely due to fear of historical equity volatility and more related to a desire to match asset and liability duration.

Pension funds appear unwilling to allocate assets towards stocks after two major equity pullbacks in the past 15 years clobbered pension programs leaving allocators and consultants relatively risk averse with LDI (liability driven investing) taking over the mindset. Moreover, current ERISA requirements call for companies to keep enough short-term cash and equivalents available to pay out current pension liabilities. Fortunately, corporate cash flow, free-cash flow, earnings and cash holdings are at or near record highs making required cash contributions to pension funds a much more manageable expense for S&P 500 constituents. Note that the funding status at 81.5% declined from the 87.8% level seen in 2013, which was the best reading in the past eight years, but remained markedly better than 2012’s 77.3%, which was the weakest point since 1991.


S&P 500 constituents’ pension plan allocations to equities edged down to 42.4% in  2015 from 44.5% in 2014, the lowest level we have seen in the past nine years (see Figure 4). Interestingly, bond mutual funds saw a reversal of flows, as released by ICI, which saw more than $25 billion flow out of bond funds last year (vs inflows of roughly $58 billion so far this year), while US pension funds increased their fixed income allocation by almost one percent to 44.8% (see Figure 5).

Pension Equity Allocation


Citi Fixed Income Allocatin


Equity markets have largely dismissed pension underfunding issues as they reach higher highs everyday.  That said, at some point the pension underfunding issue will deteriorate to a level that will be too large to ignore requiring either massive cuts in benefits for 1,000s of employees or taxpayer funded bailouts.  We suspect we know which will be the more palatable to our elected officials. 

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pitz's picture

All of this in one of the best environments for bond returns over the past 35 years ever in the history of mankind.  Bonds comprising the majority of pension fund assets.


Imagine what kind of pain they'll be in when bonds return little to nothing for the next 30-35 years. 


Yes, most pension fund managers robbed the pensions blind with fees and unsustainable enhancements to payouts for a select few.  But most pensions were actuarially unsound from the outset and assumed economic growth rates that have basically never been achieved. 

leanux's picture
leanux (not verified) pitz Aug 22, 2016 9:47 PM

No surprise there. Corporate greed came with a money problem.

38BWD22's picture



I guess the GOOD news re the $225 billion short-fall is that .gov won't be able to steal it!  Bwa ha.

Soul Glow's picture

The good news is that right now you are enjoying stocks at an all time high, bonds at an all time high, and $20 still buys you a night out with a lady.  She may be a college girl but are there any better?

espirit's picture

Shit, Mr. Yellen can print that much in an overtime weekend.

It's the hangover thats a bitch.

auricle's picture

When the stock market takes its next hit, and stays down, these pensions will be vaporized. 

bada boom's picture

I was thinking the opposite, the never ending flow of central bank QE will continue to inflate the markets, these pension loses will be vaporized.

Infocat's picture

Wonderful and all that can rescue you are precious metals!

Infocat's picture

Let us hope they try to print all of it away!

Infocat's picture

This type of deficit will clearly sooner or later blow up!

GUS100CORRINA's picture

Not to worry ... this is chump change compared to federal, state and municiple pension fund SHORTFALLS (in the TRILLIONS). Companies can just issue a couple of billion dollar bond OFFERINGS to deal with the short fall ... at these low interest rates, it won't even move the decimal point for company expenses. 

It is interesting that GE is at the top of the list ... not sure why ... but given its ability to raise capital ... 25 Billion is a "FART IN THE WIND".

The bigger problem is healthcare!!!!! Thank you Mr. President ... another accomplishment to add to your extensive list of accomplishments on your resume!!! 


IRC162's picture

It looks like they need to abort some pensioners.


Can .gov draft the geezers for the war machine?  Turn those walling liabilities into liberators.

pitz's picture

Allowing the young to work would be a good start.  Instead of giving their jobs away to foreigners.

chunga's picture

This is interesting because in Friday's mail I got a pension buyout offer from an old employer. I'm nowhere near retirement age but I might call them because my concern is eveything goes tits up or the $$$ get's seized for the "common good" or some other bullshit.

IRC162's picture

Good luck chunga , tough decision for you no doubt.... eventually someone (me) will get stuck holding the bag, best to be sure it isn't you. Hope you're offered something satisfactory.

Redhotfill's picture

Take the money, AND RUN!!

ToSoft4Truth's picture

Pensions is where the next $4,000,000,000,000 QE will go. 

38BWD22's picture



Maybe!  Then the government can steal it right back.

Soul Glow's picture

Pay your taxes to the King damn you.  It is your obligatin under God.

Newbie lurker's picture

That's a fun chart. What would really give you a right old guffaw is if  we included the public pensions too!

Seasmoke's picture

Look st 2002-2007 recovery. Then look at the Obama recovery 2008-2016. There is none this time. Mr. Yellen we have a problem. And the public pensions are a much bigger ponzi problem than these 25. So many fires. So little time.

pitz's picture

There was no 2002-2007 recovery unless you were a foreign national or a RE speculator.

VWAndy's picture

 Wait a second. Were they just talking about using private pensions to shore up the public ones. Thats kinda like fixing a hole in a banket buy cutting it out. 

Soul Glow's picture

In other words the Fed needs another 14k tonnes of gold to keep it's fiat system afloat.

Why you ask?  Because all fiat assets are based on tangible asstes.  Oh you don't believe me and are one of those who think the ponzi will last forever?  Good for you.  Go buy a McMansion.  See how well it works out for you to be part of the herd.

g3h's picture

All you need is to tax the 1% on their wealth one time.

mary mary's picture

Inflation.  The FED creates inflation, and no pension plan can withstand inflation.  The enemy is within, and the enemy is the FED.

Bunga Bunga's picture

So what? Yellen could print that before breakfast tomorrow.

G-R-U-N-T's picture

Kalifornia alone has 500 billion of unfunded pension liabilities and that was in 2010, the private unfunded pension problem is not but a spec, comparatively.

Add the Government National debts, domestic and worldwide and what we have here is a nightmare beyond one's own imaginings!

KashNCarry's picture

Confiscate off shore corporate accounts...

pitz's picture

Yeah I get a good laugh out of those who swear up and down that a broke US government is going to allow "repatriation" at preferrential rates. 

NoYouAreAnAsshole's picture

Does anyone reading this give a flying fuck about the pensioners of GE?  IBM?  No?  Didn't think so.  Nevertheless, as a tax payer you should be concerned, because if these pension plans are allowed to go sour, it is on you and me.  Yes, there will be reduced payouts to pensioners if a corporate pension plan goes south, but we, the taxpayer are obligated by congress to make the pension plan whole.


What is of even more concern are not corporate pension plans but city, state, and federal pension plans.  They are in even worse shape and not only are we already responsible for their funding, but are bound by law to make them whole should they falter.


The solution is to get the goverment and corporations out of the investment business on behalf of their workers.  That doesn't mean abandoned them, but set up in their place 401k plans and match employee contribution 100% up to 6% of the employee funded amount. 


Note the serious hurdle that the above good sense proposal has to overcome - both the corporations that are named above and the city, state, and federal pension programs are for largely union employees.  Try getting anything past them, if voters keep voting democrap polticians into office. 


The upshot is a future shit storm that we tax payers will ultimately pay for.  

FLHRS's picture

GE and GM top the list, and both were at the head of the line for a bailout in 2009.

Scuba Steve's picture

Am I the only 1 that would like to shove a Hot Poker tree limb up Jeffrey Immelts ass and tell him to smile when we are doing it ...

That smug lil fuck business czar.


Kirk2NCC1701's picture

Seeing that they are TBTF, they could just give them an IOU, backed by the Fed.

More Ponzi, backed by Ponzi, backed by Promises, backed by BS, backed by Lies, backed by Fraud, backed by the US Army.

christiangustafson's picture

Paging RadicalMarijuana ...

Please pick up the courtesy telephone.

Kaleb's picture

Have no idea what you just said, but sure like the moving image above. Geepers, that is flat aerodynamically unsound.....but enticing.

JailBanksters's picture

You can never underfund a Pension Fund, these are never expected to be paid out.

If too many are claiming, you just bump up the Retirement Age, how simple is that.

When you've got one foot in the Grave, we'll let you have one dollar at a time, we don't want you to squander it all in one go.


bankbob's picture

I see dead retirement funds.  But, they don't know they are dead.

max2205's picture

So if that was your portfolio since 2009 you'd be up like 25x.  What's the big dealio