According to two recent studies performed by two consulting firms, Towers Perrin and Watson Wyatt, and as reported in the Wall Street Journal today, pension plans appear to have recovered from the budget imbalances experienced over the last several years. According to Towers Perrin:
For the first time since 2000, the assets of defined benefit pension plans offered by Fortune 100 companies exceed plan liabilities. . . The estimates show that the defined benefit pension plans are 102.4% funded in aggregate at year-end 2006, up significantly from the 91.6% aggregate funded level at the end of 2005. . . . Towers Perrin estimates that the 79 Fortune 100 companies that offer defined benefit pension plans now hold an aggregate pension funding surplus of roughly $23 billion at year-end 2006.
Watson Wyatt is in accord:
pension plan liabilities posed relatively high amounts of financial risk for only 9 percent of companies, down from 17 percent in 2003 – a decline of about half over three years. Meanwhile, more pension sponsors experienced relatively low pension-related risk. Pension liabilities posed scant risk to the core business for 60 percent of plan sponsors, an increase from about 56 percent in 2004 and 51 percent in 2003.
Interestingly, this recovery does not appear to have been caused by (or even related to) the recent federal legislation designed to shore up the nation’s retirement systems. Most of the provisions of that new law only went into effect this year. Instead, this remarkable turnaround was caused by dramatic stock market gains in 2006, coupled with slightly higher interest rates.
We at PomTalk are obviously happy to see that workers pensions are on more stable financial footing. However, given the cyclical nature of the stock market and interest rates, this is an issue that needs to be watched carefully in the coming years.
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