This is Milliman's tenth annual study of the financial reports of the 100 largest U.S. public corporations that sponsor defined benefit pension plans. As a group, these companies had pension plan assets of more than $1 trillion at the end of 2009.
The funded status of the Milliman 100 pension plans increased slightly during 2009, reaching 81.7%. The aggregate pension deficit (i.e., unfunded projected benefit obligation (PBO)) decreased by $10.6 billion during their 2009 fiscal years, partially reducing a $254 billion deficit at the end of 2008 and producing an aggregate pension shortfall of $243 billion for the 100 companies as of the end of their 2009 fiscal years.
2009 asset gains led to small improvement in funded status
Actual asset returns (14.1% for 2009 fiscal years) were above the expected returns (8.1%), partially recovering some of the historic investment losses realized during the 2008 financial crisis. Expected returns have remained fairly level in recent years (8.1% in 2009, 8.1% in 2008, 8.2% in 2007, and 8.3% in 2006).
Pension expense reverses trend and increases in 2009
Reflecting the historic level of losses incurred during the 2008 financial crisis, pension expense increased in 2009 to $25.7 billion (up from $10.7 billion in 2008), the highest level since 2006. There were 17 companies with pension income (i.e., negative expense) in 2009, down from 26 in 2007. Even with the gain in funded status in 2009, pension expense is projected to continue to increase for 2010, as companies using asset smoothing are still reflecting the impact of the asset losses in 2008.
Contributions projected to increase in 2010 despite funding relief
Contributions to these 100 pension plans increased significantly in 2009 ($54.5 billion vs. $29.5 billion in 2008). The losses in funded status during 2008, coupled with the new funding requirements under the Pension Protection Act (PPA), are projected to significantly increase required contributions in future years. Quarterly contribution requirements and a significant decrease in interest rates for funding valuations should increase the contributions to these 100 pension plans to record levels in 2010. The contributions for 2009 would have been even higher for these plans in the absence of funding relief enacted by Congress and regulations from Treasury.
Minor increase in asset allocation to equities during 2009
The percentage of pension plan assets invested in equities increased from 44% to 46% during 2009. The minor increase in equity allocations reflects the strong investment returns in 2009 offset by the rebalancing of portfolios to preserve funded status gains and control pension risk. We believe that many companies will adopt dynamic investment policy programs for de-risking their plans as they move from underfunded levels to fully funded levels, reducing their equity allocations.