Posted by: Howard Silverblatt on July 6, 2010
If you are planning to retire soon, think again. Retirement, it appears, is only for the few, the rich or the benefit endowed. The stats of both Corporate Pensions and OPEB (Other Post Employment Benefits) is somewhere between dismal and don’t ask because I don’t want to know. Via the link below, is my annual S&P 500 P&O review. There are two bottom lines here. First, given reduced benefits, reduced personal and retirement accounts, and increased retiree longevity, workers who have a choice will delay retirement, change lifestyles, and accept that retirement as they envisioned it may not exist. And second, while pensions remain significantly underfunded, the record level of cash held by S&P 500 companies makes the financial obligation a business item, not a retiree problem; but the retiree now has to worry about reduced benefits.
The 34% global market rebound of 2009 only slightly improved S&P 500 pensions, as underfunding improved to a US$ 261 billion short fall from a short fall of US$ 308 billion. Pension funding rate increased to 81.65% from 78.10%. Discount rate declined to 5.81% from 6.29%. Expected return rate declined to 7.83% from 7.95%.
Laid-off workers, who otherwise might have remained with their employers, have added additional unanticipated expenditures to pensions as early retirees.
The shift back to equities from the safety of fixed income helped in 2009, but the current pullback shows the dangers. Funds want safety and companies want returns (less contributions).
OPEB underfunding remains massive, even as underfunding was reduced to US$ 215 billion from US$ 257 billion.
Only 18 issues were overfunded in pensions for 2009 compared to 296 issues ten-years ago. Only four issues were overfunded in OPEB in 2009, with just one of those issues overfunded in both pensions and OPEBs.
For details see the full report