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Pension funding levels hit new low last year

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Pension plan funding levels among large, publicly held U.S. employers sank to a new low last year as falling interest rates fueled a rise in the value of plan liabilities while mediocre investment results held down plan asset growth, according to a Milliman Inc. survey released last week.

Defined benefit plans offered by 100 U.S. employers with the largest pension programs were, on average, 79.2% funded in 2011, down from 83.9% funded in 2010 and 81.7% in 2009.

The previous lowest funding level was in 2008, when plans were an average of 79.5% funded, according to Milliman.

The plans' average earnings on assets fell to 5.9% last year, off from 12.8% in 2010 and 13.9% in 2009.

In all, the market value of pension plan assets increased about $37 billion to about $1.246 trillion in 2011. However, the value of plan liabilities grew about $133 billion to about $1.573 trillion.

The nearly $327 billion funding deficit was the largest in the 12-year history of the Milliman survey.

Low “interest rates drove the pension funding deficit to record levels, and the record deficit drove everything else,” John Ehrhardt, a Milliman consulting actuary in New York and co-author of the pension study, said in a statement.

While pension plan contributions declined slightly last year, contributions are expected to soar this year, which will be a “major contribution year for some of these companies. We're already seeing evidence of this, with several companies making high-profile announcements about pension contributions in excess of $1 billion,” Mr. Ehrhardt said.

Among surveyed employers, Detroit-based General Motors Co. had the largest defined benefit program as measured by assets. Last year, the automaker had $108.9 billion in plan assets. Its plans were 81.1% funded, down from 82.6% in 2010. The $25.4 billion difference between its assets and liabilities was by far the greatest of any of the 100 employers in the study.

With $86.6 billion in plan assets, Armonk, N.Y.-based IBM Corp. had the second-largest pension program in 2011. Its plans were 89.3% funded last year, down slightly from 91.6% a year earlier.

FPL Group Inc., a Juno, Fla.-based energy and utility company, had the highest funded ratio in 2011 at 147.1%, down from 162.1% in 2010. Atlanta-based Delta Air Lines Inc. had the lowest funded ratio of 40.4% in 2011, down from 47.1% a year earlier.

Ten employers had plans that were at least 100% funded last year, up from eight in 2010. On the other hand, 15 employers sponsored pension plans that were less than 70% funded last year, up from seven in 2010.

Employer plan contributions declined to $55.1 billion last year, down from $60.3 billion in 2010. By comparison, Milliman said annual plan contributions averaged $39.1 billion over the prior five years.

In conducting the analysis, Seattle-based Milliman analyzed financial reports of publicly held companies sponsoring the 100 largest pension programs for which full-year data was available.