Funding Shortfalls Increase for Largest Pensions

Liabilities still outpaced the growth in assets for the 16 publicly listed U.S. corporations with pension liabilities of more than $20 billion, according to an analysis conducted by Russell Investments.

The group that represents nearly 40% of the pension assets and liabilities of all U.S. listed corporations now has a combined shortfall of worldwide pension assets below liabilities of $173 billion on their balance sheets, up from $121 billion last year.  

According to Bob Collie, chief research strategist, Americas Institutional, at Russell Investments, the single largest cause of this deterioration in the funding position was a decrease in the discount rate used to value future benefit payments, causing a higher value to be placed on liabilities.  

To help eliminate some of this shortfall and to satisfy the requirements built into the Pension Protection Act of 2006, cash contributions are expected to be sizeable not only in 2012, but in subsequent years. While the contributions made by these 16 corporations from 2005 to 2011 totaled $114 billion, after incorporating the shortfall at the end of 2011 to the cost of new benefit accruals expected over the next seven years, the total over the next seven years may well be closer to $250 billion.  

“Pension risk matters a great deal. Both interest rates and asset values can change quickly, so it’s a very fluid situation,” Collie said. “But unless market conditions prove exceptionally favorable, we are likely to see sponsoring corporations continuing to make significant contributions for several years to come.”

The responses to this challenge that are recommended by Russell include de-risking, diversifying and focusing on total portfolio outcomes via multi-asset portfolios.  

A copy of the research is available at