Despite their double-digit market gains, S&P 500 pension funds failed to improve their funding status in 2004, Standard & Poor’s reported in its Pension Status Report for the S&P 500.
For 2004, the overall position of the 369 S&P 500 companies offering defined benefit pensions was basically unchanged at $164 billion underfunded from the $165 billion reported for 2003.
With expected below average market returns and modest increases in interest rates for 2005, funding should improve slightly, but still remain underfunded in the $140-150 billion range,” says David Blitzer, managing director and chairman of the Index Committee at Standard & Poor’s. “The major factor affecting pension underfunding in 2005 will be interest rates, and we expect them to increase, but not sufficiently enough to alleviate the funding shortage.”
For 2004, pension assets grew 13.6%, while obligations rose 11.8%. During the year, 55 issues were overfunded in the S&P 500, while 311 were underfunded. By contrast, in 1999, S&P 500 issues were overfunded with a surplus of $280 billion, as 296 issues were overfunded and 86 were underfunded.
“In spite of the continued underfunding, companies on aggregate have sufficient proceeds, both on hand and via the capital markets, to meet current pension obligations,” adds Howard Silverblatt, Equity Market Analyst at Standard & Poor’s. “The current situation is an investor concern as they need to assess what the obligations of a company are, where the required funds will come from, and how any shift in expenditures will affect future growth.”