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Archive for March 19th, 2009

Elephants’ Pensions Fatter

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frsized2008The pension plans of the largest corporations with the largest pension funds are generally better funded than pension plans of smaller corporations with smaller pension plans. As illustrated by this chart of funded ratios for the S&P 500 as of the close of fiscal years ending in 2008.

The 22 elephants with pension assets in excess of $10 billion per corporation stake out the leftmost green square, comprising more than half of the S&P 500’s pension assets, measured along the chart’s x axis. In the aggregate, the funded ratio of global pension plans for those elephants was 81.2% at the end of 2008, above the overall S&P 500’s aggregate pension ratio of 79.1%, indicated on this chart by the higher heavy dotted line.

Almost three times as many beasts staked out the blue region, indicating corporations with pension assets between $3 billion and $10 billion per corporation. For those companies, the aggregate funded ratio of global pension plans was 79.2%, almost exactly equal to the S&P 500’s overall pension funded ratio.

The purple region then indicates the 87 corporations with pension funds of $1-3 billion each, with an aggregate funded ratio of 76.0%. The brown region indicates 53 companies with pension funds of $0.5-1 billion each, with an aggregate funded ratio of 68.9%. And the red region indicates 111 companies with pension funds less than $0.5 billion, with an aggregate funded ratio of 67.2%.

Several off-the-cuff observations –

  • Research Universe Will Affect the Results . . . Slightly. Various studies of these results are typically published by actuarial consulting firms, banks and rating agencies, and others. Each of those outfits typically uses a different research universe for its study – one firm using only the 100 largest pension sponsors; several using the S&P 500; and at least one purporting to use the S&P Composite 1500. As this chart indicates, research based on the 100 largest “elephants” can be expected to report higher pension funded status figures than the reports that use the S&P 500 set, i.e., several ticks above the 79.1% aggregate funded ratio indicated by the heavy dotted line. Even so, while stretching out to the S&P Composite 1500 or beyond will drag the pension funded ratio lower than the S&P 500 results, the pension funds for the additional companies are so small that the effect is diminished relative to the overall aggregate, yielding a funded ratio for the larger set that should be only slightly below the 79.1% S&P 500 level.
  • Median Results Mean Something! For the full S&P 500, in contrast to the aggregate funded ratio of 79.1%, the median funded ratio corporation by corporation was 72.3%, indicated on this chart by the lower, lighter dotted line. While the 79.1% number tends to get most of the press, that number essentially acts as though the companies with well funded plans could easily and would willingly share their pension surpluses (or lesser deficits) with the companies that have less well-funded plans. Which of course is not the case. Note that here, the research universe can make a huge difference: the median pension funded ratio for the top 100 pension sponsors is around 80%, essentially ignoring that well over a third of the S&P 500 plan sponsors have pension funds that may be facing legal restrictions and significantly higher pension costs and contributions due to severe underfunding.

And why are the elephants’ pension funds fatter than those of the smaller beasts? I’ll get around to that interesting “why” in a subsequent post.

(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

19 March 2009 at 5:20 pm

Posted in άctuary