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Archive for July 5th, 2008

Pension Plans with Unfunded ABO

aftermath exclusive

Here’s a graph you won’t see anywhere else. Various actuarial firms, credit-rating companies, trade publications, and others have echoed analysis that 2007 saw pension plans’ overall PBO funded status surpass the 100% milestone. But while that perspective is valid for many significant corporate and pension plan financial appraisals, it throws pension plans with a surplus into the same pot as those with a deficit. In contrast, this chart depicts trends for a separate disclosure prescribed by accounting standards: the funded status (shown here as the bottom line, in orange) of only those pension plans in which the accumulated benefit obligation (ABO, shown here as the upper line, in red) exceeded the market value of plan assets (MVA, shown here as the middle line, in blue).

Here we’re looking at results for the end of 2003 through 2007. For S&P 500 companies that maintained defined benefit pension plans and that disclosed data on plans with unfunded ABO, aggregate plan assets dropped about 50% during the past two years, from about $400 billion to about $200 billion, while ABO levels followed down at a slightly sharper pace. Assets down? Yes, down. Remember, we’re only looking at plans with unfunded ABO here. So as assets have increased during recent years while ABO leveled out, more pension plans that used to have unfunded ABO now have MVA exceeding ABO, so those plans drop completely out of this chart, removing those plans’ MVA and ABO from these figures, thereby giving us those recent decreases. The sharp decline of the past two years primarily means that the number of pension plans with unfunded ABO has declined significantly. If companies were to completely fund the ABO in every single pension plan, then both the MVA and ABO lines on this chart would drop to zero, and the unfunded amount would likewise disappear. Read the rest of this entry »

Written by macheide

5 July 2008 at 3:03 am

Posted in άctuary