It wasn't too long ago that the nation's private pension system was the picture of financial health. Although some troubled companies had sizable unfunded pension liabilities, the huge stock market runup in the 1980s left most defined-benefit plans with money to spare. Indeed, according to Buck Consultants Inc., in 1987 the pension fund assets of major corporations equaled 170% of their accumulated pension obligations, and 93% of such plans were fully funded.
Now, however, the recessionary climate of recent years is beginning to take a toll on the system. Although most companies' pension plans continue to be well-funded, Buck estimates that last year the ratio of assets to liabilities in pension plans of major corporations dropped to 129%, and the percent of fully funded plans declined to 79%.
Why the decrease in the percent of companies that are adequately covering their pension obligations? The biggest reason, says a Buck spokesman, is the decline in market interest rates, which has sharply raised the present discounted value of future pension obligations. In other words, corporations with pension plans, like other debtors, are finding that they can no longer count on inflation to lessen the burden of meeting their future liabilities.