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Archive for March 20th, 2009

Elephants’ Pensions Fatter II

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frranked2008As I observed in yesterday’s aftermath post, the 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. Whereas yesterday’s post illustrated that trend by grouping large companies versus smaller companies and charting them against aggregate assets, today’s chart looks at the funded ratio of the global pension plans of each and every S&P 500 pension sponsor, then simply plots those against the rank of the company in terms of pension assets as of the close of the 2008 fiscal year, from the largest pension sponsors at the far left of this chart to the smallest at the far right.

Were we expecting to see a more obvious decline, left to right? That’s not there, per se. But closer inspection of this chart does show the same trend as yesterday’s chart.

Let’s start by observing one somewhat remarkable thing that shows through on this chart – how very many of the companies have pension plans with a funded ratio between 70% and 75%, through the middle of the yellow zone on this chart. From nearly the largest through the smallest, the large number of companies at that level almost draw their own line across the chart, without necessitating having me do so. See that line, and the trend discussed in yesterday’s post emerges via the divergences from that line.

First, with the exception of Exxon and Caterpillar – the two “elephants” actually below the yellow zone – that yellow zone is empty at the far left edge of the chart, within the region enclosed by a red rectangle. And the thing is, since the companies within that red rectangle in the aggregate hold well over half of the pension assets for the entire S&P 500, those elephants drive the calculation of the aggregate funded ratio for the entire universe, since the aggregate funded ratio is essentially a weighted average, as if the entire universe of companies pooled everything into one gigantic single pension fund. That’s where yesterday’s graph – charted on the basis of aggregate assets – versus today’s – charted on simple ranking – better illustrates how the size of the pension fund, together with the higher funded ratios typical among the elephants, drives most of the results we were seeing yesterday.

But it’s not just the weight the elephants are throwing around. Look at the green band of the chart, left to right – the number of companies in that band tends to decrease as we reach the right side, the companies with smaller pension plans. In other words, even when we’ve left the elephants behind, we’re still seeing results that exhibit the trend we presented yesterday: lower funded ratios for the smaller pension plans.

And I’m still aiming toward getting around to an examination of why we’re seeing these results. Later.

(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

20 March 2009 at 9:54 am

Posted in άctuary