For plan sponsors, the party is over.
After riding the 1990s bull market to surpluses in their pension funds, sponsors have seen the relative health of their funds decline over the past two years - the first two years of lousy stock market returns in more than a decade. Nearly 70 percent of respondents in this month’s Pensionforum say their current funding status is worse than it was a year ago.
Not surprisingly, most respondents blame the declines on the stock market: 77.5 percent say they are “concerned” about the faltering market’s effect on the funded status of their plans.
Despite their more fragile positions, 84.4 percent of plan sponsors say they are not making changes in the management of their funds. Those altering their strategies aren’t looking to double their bets via more aggressive investment tactics - just 11.1 percent say they are investing in asset classes that offer the potential for higher returns. Instead, 88.9 percent say they are increasing their contributions to their funds.
Not everyone is hurting. A big chunk of respondents report relatively healthy funds: 64.6 percent say their ratio of assets to liabilities is still 100 percent or more, and only 7.1 percent say their funding status is substantially worse than it was a year ago.
And most plans with a surplus have had one for years - 95.8 percent of respondents controlling such funds say they’ve been in that position for more than two years. Among those plans with unfunded liabilities, 44 percent say they don’t expect to erase those deficits for more than ten years, and 8 percent say they never expect to do so.
Will the situation improve? The verdict is mixed: 31.4 percent of respondents expect their funding ratio to look better a year from now, while 27.1 percent expect their situation to be worse.
What is your fund’s ratio of assets to liabilities?
Less than 80 percent 8.8%
80 to 99 percent 26.5
100 to 110 percent 27.9
111 to 120 percent 8.8
121 to 130 percent 8.8
131 to 140 percent 4.4
More than 140 percent 14.7
How does your current funding compare with that of a year ago?
Substantially better 0.0%
Somewhat better 17.1
About the same 14.3
Somewhat worse 61.4
Substantially worse 7.1
How does funding compare with that of two years ago?
Substantially better 4.3%
Somewhat better 25.7
About the same 15.7
Somewhat worse 41.4
Substantially worse 12.9
Compared with that of today, how do you expect the funding ratio to look a year from now?
Substantially better 1.4%
Somewhat better 30.0
About the same 32.9
Somewhat worse 25.7
Substantially worse 1.4
Can’t say 8.6
Is your plan sponsor contributing to the plan this year?
Yes 56.3%
No 43.7
If yes, how does the contribution compare with last year’s?
Greater 42.2%
Smaller 6.7
About the same 51.1
If your plan is underfunded, how long do you expect it will be before it is fully funded?
Never 8.0%
Within two years 12.0
Three to five years 20.0
Six to ten years 16.0
More than ten years 44.0
Has the sharp deterioration in the economy in the past several months had any effect at all on your plan’s push to fully funded status?
Yes 34.5%
No 65.5
Are you concerned about the declining stock market’s impact on the funded status of your plan?
Yes 77.5%
No 22.5
Does your fund use the “smoothing” technique to spread investment gains and losses over a period of years?
Yes 80.6%
No 19.4
If your plan is underfunded, do you think the fees charged by the Pension Benefit Guaranty Corp. are fair?
Yes 19.0%
No 23.8
Can’t say 57.1
If you think the PBGC fees are unfair, is it because . . .
The fees are too high 22.2%
The fees are based on calculations that undervalue our funding level 77.8
Are you making changes in the management of the plan to become fully funded?
Yes 15.6%
No 84.4
If yes, what are you doing?
Increasing contributions 88.9%
Investing more assets in classes that have potential for higher returns 11.1
If you are fully or overfunded, how long has that been the case?
Less than two years 4.3%
Three to five years 29.8
Six to ten years 27.7
More than ten years 38.3
If you are substantially overfunded, what are you doing with the excess? (Check all that apply.)
Improving pension benefits 15.6%
Providing retiree medical benefits 9.4
Using it as a cushion 40.6
Taking a contribution holiday 62.5
Reducing contributions 12.5
If you are taking a contribution holiday or have reduced contributions, would it be a financial strain to either start making contributions again or to increase them?
Yes 43.8%
No 56.3
If so, would that require cutbacks in other areas?
Yes 50.0%
No 50.0
The results of Pensionforum are based on quarterly surveys of a universe of 800 corporate and 250 public pension plan sponsors. Because of rounding, responses may not total 100 percent.
