Wilshire Consulting Report Shows 94 Percent of Corporate Pension Plans Remain Underfunded

Strong U.S. Equity Performance Negated as Market Interest Rates Worked Against Plans

Santa Monica, California, UNITED STATES

SANTA MONICA, Calif., April 8, 2013 (GLOBE NEWSWIRE) -- Despite the strong performance of U.S. equity markets in 2012, the number of U.S. corporate defined benefit pensions that were underfunded remained at 94 percent -- unchanged from 2011-- as market interest rates worked against the plans' funding ratios, according to the 2013 Wilshire Consulting Report on Corporate Pension Funding Levels. This is the thirteenth corporate funding report issued by Wilshire Consulting, the institutional investment advisory and outsourced-CIO business unit of Wilshire Associates Incorporated (Wilshire®), a diversified global financial services firm.

"As market-based discount rates moved lower, it increased these plans' accounting liabilities pushing the aggregate funding ratio, which we arrive at by dividing assets by liabilities, for all plans combined down from 79.7 percent to 78.1 percent and the -$282.3 billion funding shortfall at the beginning of the year expanded to a -$342.5 billion deficit," said Russ Walker, vice president, Wilshire Associates, and an author of the report. "Interest rates used to discount future benefits fell again during 2012, contributing to the overall increase in pension liabilities for the year. The median discount rate fell from 5.00 percent to 4.16 percent, while total liabilities increased 12.5 percent for the year, he added.

"Defined benefit pension assets for S&P 500 Index companies increased by $113 billion, from $1.11 trillion to $1.22 trillion, while liabilities increased $174 billion, from $1.39 trillion to $1.56 trillion. The median corporate funded ratio is 76.9 percent, which represents a modest decline from 77.7 percent last year," Walker noted.

The defined benefit plans in Wilshire's study yielded a median 11.8 percent rate of return for 2012. This strong performance combines with the 3.6 percent median plan return for 2011, the 11.9 percent median plan return for 2010 and the 16.0 percent median plan return for 2009 to mark four consecutive years of gains for these plans after the global market dislocation events of 2007 and 2008.

The combined pension expense for the S&P 500 Index companies in the study was $57.1 billion for 2012, up from $44.7 billion a year ago. Regular annual pension expense accruals from employee service and interest expense on existing liabilities totaled $93.9 billion in 2012, 0.5 percent higher than the $93.5 billion a year ago.

The S&P 500 Index companies in the report contributed $57.8 billion into their defined benefit plans in 2012, an increase from the $54.4 billion contributed in 2011. Aggregate benefit payments from corporate pension plans increased somewhat during the past year. Benefit payments totaled $76.5 billion in 2012, compared to $72.5 billion during the previous year.

"The distribution of pension liabilities and assets of S&P 500 Index companies is relatively concentrated among the largest plans," Walker commented. "As of the end of fiscal year 2012, more than half of the total pension assets and liabilities were held by the 26 largest plans when ranked by both asset and liability size. Conversely, the smallest 100 plans when ranked by asset and liability size made up just 2.6 percent and 2.8 percent of the total asset and liability pools, respectively."

According to Walker, to prepare the report Wilshire collects data on U.S. pensions from 10-K filings for companies in the S&P 500 Index at fiscal year-end. All data for fiscal years 2012 and 2011 are based on S&P 500 Index constituents as of year-end 2012 and, therefore, may differ slightly from the list of companies represented in earlier years.

About Wilshire Associates

Wilshire Associates, a leading global, independent investment consulting and services firm, provides consulting services, analytics solutions and customized investment products to plan sponsors, investment managers and financial intermediaries. Its business units include, Wilshire Analytics, Wilshire Consulting, Wilshire Funds Management and Wilshire Private Markets.

The firm was founded in 1972, providing revolutionary technology and acting as an early innovator in the application of investment analytics and research to investment managers in the institutional marketplace. Wilshire also is credited with helping to develop the field of quantitative investment analysis that uses mathematical tools to analyze market risks. All other business units evolved from Wilshire's strong analytics foundation. Wilshire developed the Wilshire 5000 Total Market IndexSM and became an early innovator in creating the industry's integrated asset/liability analysis/simulation models as well as the industry's practical models in risk budgeting through beta and active risk analysis. Wilshire has grown to a firm of more than 300 employees serving the investment needs of institutional clients around the world.

Based in Santa Monica, California, Wilshire provides services to clients in more than 20 countries representing more than 500 organizations with assets totaling approximately US $7 trillion.* With ten offices on four continents, Wilshire Associates and its affiliates are dedicated to providing clients with the highest quality counsel, products and services. Wilshire® is a registered service mark of Wilshire Associates Incorporated. Wilshire 5000 Total Market IndexSM is a service mark of Wilshire Associates Incorporated. Please visit http://www.wilshire.com/.

*Assets are as of December 31, 2011, based on published data in the December 24, 2012 issue of Pensions and Investments.



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