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APM – October 2008

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As noted several days ago in the continuously updated APM sticky post currently holding aftermath‘s lead chair, the aggregate funded status of global defined benefit pension plans maintained by S&P 500 companies had dropped to a deficit of about $56.7 billion, measured via the Aftermath Pension Metric as the excess of estimated projected benefit obligations over the estimated market value of plan assets. Certainly a material drain on corporate balance sheets, but far far less than some of the doomsday estimates making the rounds (one commonly cited exaggeration pegging the pension deficit for the S&P 500 in excess of $200 billion…ummm, wrong). Contrasting the 10/31/2008 APM of for the S&P 500 set with other commonly referenced datasets, and comparing the 10/31/2008 numbers with those of 9/30/2008 (with these APM numbers representing the aggregate funded ratio, i.e, 100.00 representing pension assets equal to pension obligations) –

      10/31/08   9/30/08
  APM – S&P 500   95.79   99.56
  S&P Composite 1500   95.25   98.85
  Fortune 1000   94.40   97.95
  100 Select Large Pension Plan Sponsors   97.92   101.26
  Dow Jones 30 Industrials   102.41   105.62

The 10/31/2008 deficit of 56.7 billion represents a loss of funded status of almost $150 billion over the past year since 10/31/2007’s S&P 500 pension plan surplus of $91.5 billion, as estimated via the APM. But it could have been much worse if, as was recently done by yet another somewhat exaggerated report slanted for effect, one were to choose the most extreme one-year period for analysis. At its most recent peak, back on 10/9/2007, the APM had S&P 500 pension plans showing a surplus of $118.5 billion. As chance would have it, this year’s anniversary of that peak, 10/9/2008, was one of this past month’s lowest points for the recently ultra-volatile APM, with an S&P 500 pension plan deficit of $131.4 billion, for a one-year funded status loss peak-to-trough of almost $250 billion!

But as bad as this past October and the past year can be painted, we still don’t yet have what ought perceived as a pension “crisis.” Granted, the APM doesn’t look at public employee retirement systems or multiemployer pension funds, two major pension sectors that do tend to be less well funded than single-employer pension plans. And we’re looking at defined benefit plans, leaving appraisal of individuals’ losses in 401(k) accounts and other defined contribution plans to another study, another day. Even so, S&P 500 single-employer defined benefit pension plans do paint a representative picture of a very large segment of institutional retirement savings experience. And as is frequently noted, APM numbers for that picture include less well funded foreign plans and unfunded supplemental executive retirement plans. That means that overall, the U.S. single-employer qualified defined benefit pension plans sponsored by S&P 500 companies quite likely remained slightly over 100% funded as of the end of October 2008, in the aggregate.

Further details on APM methodology are provided in the APM document.

(Remember, as I’ve previously disclaimed, posts such as this represent efforts of my favorite pastime. My formal work does not involve any of this, and none of it represents any position or comment that should in any way be attributed to my employer. Likewise, as always, it represents general personal impressions and should not be treated or used as formal professional advice.)

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Written by macheide

5 November 2008 at 2:16 pm

Posted in άctuary


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