US- A new survey by the ratings agency Standard & Poor’s shows that more than three out of four large US corporate funds now face a pension fund deficit. S&P has recently finished surveying 624 companies in the US and discovered the average funding ratio of DB plans has dropped to 94% at the end of June, down from 100% at the end of last year.
S&P says this represents a fall of up to 15 percentage points since the end of 1999 when the average funding ratio stood at well over 100%.
Of the funds responding to the survey, 23.5% were fully or over funded at the end of June, down from 31.2% at the end of last year. The survey shows a decrease in the number of companies with funding levels between 80% and 99% but a significant increase in companies with levels below 80%.
Plummeting equity markets have led the assets of the surveyed plans to drop $67bn to $952bn in the six months to June. US funds continue to maintain significant exposure to equities- the average equity holding for respondents was 60% while 57% of companies have between 60% and 80% invested.
Scott Sprinzen, who oversaw the survey, says weak markets has led S&P to pay closer attention to the risks associated with defined benefit pension plans. Further deterioration in funding levels may lead S&P to downgrade companies’ debt ratings.
“Although our survey has not identified any companies whose ratings will be affected the increased pension liability, we will continue to monitor the situation to see if liabilities continue growing or if there are other negative developments,” he says.
The survey coincides with a report by analysts at UBS Warburg that says continued equity market weakness has wiped out the pension surplus of the S&P 500 companies. For the first time since 1993, S&P 500 company pensions are in aggregate deficit.
UBS goes on to estimate that in 2002, S&P 500 companies will report aggregate pension costs rather than income for the first time since 1998.