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Aided by another year of double-digit increases in investment returns, large U.S. employers' pension plans now are nearly fully funded, but funding levels remain far below where they stood in the late 1990s, according to a new survey.
On average, defined benefit plans offered by 100 large U.S. public companies were 99.7% funded in 2006, up from 91.4% in 2005, according to a survey released Wednesday by Milliman Inc. Milliman analyzed financial reports of companies sponsoring the 100 largest corporate pension programs for which full-year data was available.
Of the 100 surveyed employers, 40 had overfunded plans last year. That's double the number of overfunded plans in 2005.
The improvement was largely the result of an average 12.8% return on plan assets, considerably higher than the average 8.4% that employers were expecting.
Also helping improve plan funding was a rise in interest rates in 2006, which has the effect of lowering plan liabilities. Additionally, employers made $35.7 billion in plan contributions last year.
While plan funding is improving, it remains well below the levels of the late 1990s, when the bull market in equities led to hefty investment results.
For example, in 1999 the average funding level of surveyed employers' pension programswhich include both qualified and nonqualified U.S. plans and foreign planswas 130.4%. It then fell sharply for several years, before bottoming out at 82.7% in 2002.
Copies of the "Milliman 2007 Pension Study" are available at www.milliman.com.