| NEW YORK, April 7
NEW YORK, April 7 The gap between what major
corporations will owe retired workers and how much they have put
aside grew last year despite a strong stock market rally,
according to a study set to be released on Monday by Wilshire
The cumulative liability among defined benefit pension plans
sponsored by companies in the benchmark Standard and Poor's 500
index increased to $1.56 trillion in 2012 from $1.38 trillion
the year before, outpacing the growth in assets.
As a result, the overall funding ratio - a measure of a
plan's assets divided by its commitments - for all plans fell
from 79.7 percent to 78.1 percent, the study found.
Low interest rates - which are used to calculate future
benefits - were a significant factor behind the increase in
pension liabilities, said Russell Walker, a vice president at
Wilshire and one of the authors of the report. Mergers and
acquisitions also increased pension funding liabilities.
United Technologies Corp saw its liability increase
by $5.2 billion after its acquisition of Goodrich Corp, for
instance, while the pension obligation at Kraft Foods Group Inc
increased $7.2 billion as a result of its spinoff of
Mondelez International Inc.
Walker said plans will either have to invest in riskier,
long-duration credit, hope that interest rates rise and/or
increase their contributions.
The issue of pension funding will grow in importance to both
corporations and investors alike as the oldest members of the
baby boom generation retire and draw down assets.
"The huge cohort of upcoming plan beneficiaries are going to
put a strain on defined benefit plans," Walker said. "There's no
question that we are going to see a need to stabilize funding
sooner rather than later."
Approximately 10,000 baby boomers will turn 65 each day
until 2029, according to estimates from the Pew Research Center.
The generation is the last to be widely covered by defined
benefit pension plans that guarantee workers a set monthly
benefit regardless of market conditions. Most of these plans are
closed to new employees, who instead save for retirement in
so-called defined contribution plans such as 401(k)s.
The pending deficits of some companies amount to billions of
dollars. At $19.7 billion, Boeing Co. had the largest
shortfall among the 308 companies studied. General Electric
, Lockheed Martin Corp, and AT&T also had
shortfalls of more than $10 billion in fiscal 2012. Pension
funding could be a risk that affects the future net earnings of
these and other companies, Walker said.
Overall, the plans included in the study had a median rate
of return of 11.8 percent in 2012, the fourth consecutive year
of gains. Plans invested a median of 49.6 percent of assets in
equities, 36.4 percent of assets in fixed income, and the rest
in a mix of cash, real estate, and private equity or hedge
Benefit payments rose to $76.5 billion from $72.5 billion
the year before.