Company Pension Underfunding Jumps 38% to $351 Billion as Economy Slows
Corporate pensions in the U.S. are falling behind future payouts to retirees by the most this year as the U.S. economy slows, driving down bond yields that determine the plans’ future obligations.
The gap between the assets of the 100 largest company pensions and their projected liabilities has widened by $97 billion in August to $351 billion, actuarial and consulting firm Milliman Inc. said today in a statement. That compares with the record $446 billion deficit in August 2010.
“July was a brutal month for these pensions,” John Ehrhardt, a principal and consulting actuary in New York with Milliman, said in the statement. “Unfortunately it looks like we may be in for more bad news, with August off to a miserable start.”
Company pensions are a casualty of record low bond yields, a benchmark in determining future liabilities, that have been driven down by mounting concern that the U.S. economy is stalling. Pension plan assets fell $6 billion in July, while liabilities increased $62 billion, according to Seattle-based Milliman. Assets declined $64 billion and liabilities increased $33 billion between Aug. 1 and Aug. 8.
“We had a nice bounce on the assets since the financial crisis until the last month or so,” Ehrhardt said in a telephone interview. “The interest rates have been a tremendous drag on the pension plan funding.”
U.S. gross domestic product grew at a 1.3 percent pace from April through June, less than forecast, after almost stalling in the first quarter as consumers retrenched, government data showed on July 29. Standard & Poor’s lowered the U.S. long-term rating one level to AA+ after markets closed on Aug. 5, while keeping the outlook at “negative” as the firm becomes less confident that Congress will end Bush-era tax cuts or tackle entitlements.
Treasury yields fell to 1.27 percent yesterday, the lowest ever, according to Bank of America Merrill Lynch index data.
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