After 'Modest' 250% S&P Returns, Corporate Pension Funding Levels Roughly Same As 2008

Tyler Durden's picture

We spend a lot of time writing about public pensions because the aggregate underfunding levels, $3 - $5 trillion on the low end, are simply staggering and at some point they will be realized for the ponzi schemes that they are and the systemic risk they represent to the global financial system.  Until then we'll just keep shouting into the abyss.

And while we don't spend as much time on corporate pensions, for some companies their underfunded defined benefit obligations will almost certainly result in their demise at some point in the future.  As a recent study from Pensions & Investments points out, the top 100 corporate pensions were underfunded by over $250 billion at the end of 2016.  Moreover, despite a 250% S&P rally from the 2009 lows, corporate pensions have only managed to improve their funded status from 79.1% in 2008 to 84.5% today. 

The aggregate funding deficit for P&I's universe rose to $258 billion as of Dec. 31, up 5.3% from a deficit of $245 billion the previous year.


The average funding ratio of the 100 largest U.S. corporate defined benefit plans continued to slide in 2016, dropping to 84.5% from 85.1% at the end of 2015 and 85.7% at the end of 2014, Pensions & Investments' annual analysis of corporate SEC filings shows.


“The big story on DB plan funding is how little it's recovered from the big downturn in the recession,” said Alan Glickstein, Dallas-based senior retirement consultant at Willis Towers Watson PLC.


The average funding ratio for P&I's universe was 108.6% at the end of 2007, which plunged to 79.1% at the end of 2008 at the peak of the financial crisis.

Meanwhile, the bottom 10 corporate pension funds alone, as ranked by funded percentage, were underfunded by nearly $70 billion. 



And while a $250 billion funding shortfall is significant, at least investors can take some solace in the fact that corporate pensions, unlike their public counterparts, are using somewhat reasonable discount rates to calculate the present value of their future funding obligations.  According to P&I, the average corporate pension used a discount rate of 4.39% in 2016...

The average discount rate used to calculate plan liabilities began to decline in 2008, dropping to 4.05% in 2012 from 6.45% in 2008. The average discount rate used by the plans in P&I's universe was 4.39% in both 2015 and 2016.

...compared to 7.5% for several public pensions like CalPERS in California.

But, it's no big deal...if public pensions lower their discount rates to force them inline with private corporate assumptions it would only increase net underfundings by $3.5 biggie....taxpayers can definitely absorb that.


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
LetThemEatRand's picture

On the bright side, all of the fund managers are driving exotic sports cars and living in very nice homes.  Suckers.  Sums up the American dream, actually.

junction's picture

Steal from one person and you are a thief, steal from ten thousand and you are a pension plan administrator.  Commerce Secretary Wilbur Ross belongs in prison for the way he robbed 100,000 retirees of steel companies of their health insurance, a score that made Ross over $500 million.  No fake reporter here even covered that story when Trump nominated Ross, their editors spike any criticism of the looters who run this country.  Xi and his thieving Chinese communists follow the same playbook as Congress. 

fx's picture

Interesting that uncle warren piled into airlines - after stating in the past that buying an airline was one of his biggest mistakes ever. And then you see three airlines among the top 10 underfunded pension funds. Oh well, warren....

ChargingHandle's picture

Child's  play Tyler. Californiastan has a 1 trillion+ pension shortfall, social security hs a shortfall of nearly 12 Trillion, and the US government has at least 130 trillion in unfunded liabilities in all the last time I checked. War helps.....

Seasmoke's picture

Corporate Ponzi pensions don't bother me. Not my problem. Public Ponzi pensions think they are my problem. Fuck them !!

alfredhorg's picture

That's right: fuck public pensions!  But when companies can't fund their pensions the company pensions go on the PBGC dole and become public pensions.  So I say FUCK ALL PENSIONS!  Workers can invest for themselves.  Investing is so easy that even a janitor can do it:

r3phl0x's picture

401(k)s and IRAs are a massive skimming operation that benefits Wall St. The best solution would be a currency that doesn't lose 8-10%/yr in actual purchasing power & then retirement "savings" could actually just be risk-free, fee-free savings of the currency, instead of highly risky speculation in equities, real estate, etc.

HRH Feant's picture
HRH Feant (not verified) Apr 17, 2017 11:24 PM

Once shit got real for the Mandibles the old guy found a solution for himself and his insane wife. 2 bullets to her chest and one to his head. Kid had a gun. Grandpa found it. No way they would have made the 60-day hike to upstate NY.

Do you want to be a burden to your family or a blessing?

Mercy killings are going to be common. When? Sooner rather than later.

Dragon HAwk's picture

What goes up  can come Down, fortunately when the Stocks crash, and the Pensions  POP, all they have to do is wait about a half a year and it will all come back for them  /sarc

konadog's picture

The problem with higher market returns is that both public and private plan sponsors argue that it's ok to contribute less to the fund (via higher return assumptions), but during market declines the opposite logic doesn't apply. When the market goes down, the sponsors argue that they can't afford to contribute more to the fund because business profits or tax revenues are down. Regardless of your view on pensions, good or bad, this is called criminal fraud (entering into a contract knowingly misrepresenting a material fact), but don't hold your breath for the US guvment to prosecute a white collar-crime unless it just happens to upset the military industrial complex in some way.

BeanusCountus's picture

The problems with pensions today is they can't count on bonds to deliver their historical returns on what should amount to 35% of their portfolio. So you have to overwight equities. And now equities are set to under-deliver for the next five to seven. And if there's a blowdown in that period they are all screwed.

Van G's picture

I manage accounts in Singapore. Same thing here.

Bunga Bunga's picture

Calm down guys, someone needs to hold the bag.

GunnerySgtHartman's picture

To: "Low Rate Alan" Greenspan, "Helicopter Ben" Bernanke and "Auntie Janet" Yellen

From:  US Pension Plan Participants

Subject:  Pension fund performance

Dear Alan, Ben, and Janet:

Thanks for nothing, you idiots.


US Pension Plan Participants