If Detroit is the canary in the coalmine for pubic pensions…

Posted By on August 5, 2013

… what about employees and retirees of private companies – those who still have a pension plan?

Almost everyone realizes that public pensions are going to remain a major problem for our country, but not as many realize just how underfunded pensions are for most large corporations. A report published by S&P Dow Jones shows that large corporations have “growing” liabilities for their retirees and that low interest rates are impacting on how their employees retirement pensions are performing.

According to the report recently released, “S&P 500 companies set aside $1.60 trillion in 2012, covering $2.29 trillion in obligation with the resulting underfunding equating to $687 billion.” The point being made by Howard Silverblatt, Senior Index Analyst, is that “companies have only 77 cent for each dollar they owe in pensions and only 22 cents for each dollar of OPED obligations.”

The S&P Dow Jones Indices report also shows that estimated pension return rates declined for the 12th consecutive year, dropping to an estimated 7.31% in 2012 versus 7.60% in 2011 and 7.73% in 2010. Discount rates declined for the fourth year in a row, falling 78 basis points to 3.93% from 4.71% in 2011 and from 5.31% in 2010, significantly increasing projected obligations.

The report also reviewed the status of Other Post Employment Benefits (OPEB). Within the S&P 500, 286 companies offered OPEBs in 2012. With $302.3 billion in OPEB obligations, only $67.4 billion was funded, leaving OPEB funding at 22.3%. OPEB’s funding status continues to pale in comparison to that of pensions (77.3%).

“The American dream of a golden retirement for baby boomers has dissipated for most,” adds Silverblatt. “Plans have been reduced and the burden shifted with future retirees needing to save more for their retirement. For baby-boomers it may already be too late to safely build-up assets, outside of working longer or living more frugally in retirement. For younger workers, they need to start to save early, permitting time to compound their returns for their retirement. Corporations have shifted the responsibility to them, and if they don’t step up now, they won’t have anything for retirement.”

LINK to report (PDF)

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Desultory - des-uhl-tawr-ee, -tohr-ee

  1. lacking in consistency, constancy, or visible order, disconnected; fitful: desultory conversation.
  2. digressing from or unconnected with the main subject; random: a desultory remark.