Strong Asset Returns Boosting Pension Funding Levels

by: Research Recap

Moody’s says pension funding levels among rated US companies are improving thanks to the strong stock market performance over the last year.

Excerpts from Moody’s Special Comment Strong Asset Returns Expected To Boost Pension Funding Levels:

Strong asset returns in 2010 will give a much needed boost to pension funding levels for year-end 2010.

However, offsetting the strong asset performance is a modest rise in pension obligations due to contracting discount rates.

Overall we expect funding levels to improve from 79% to 85-89% for our rated universe of non financial issuers.

  • Pension contributions will be going up in 2011 which could strain liquidity. Expiring temporary funding relief had allowed plan sponsors to push contributions out a couple of years, however absent further market rebounds and/or further legislative relief, required cash contributions will increase.
  • We expect more companies will be issuing debt in 2011 to reduce pension underfundings and take advantage of related tax benefits. We also expect that companies will shift asset allocations to reduce equity and interest rate risks in the future.