S&P has released their annual S&P 500 Pension report. The short bottom line is that, in aggregate, pensions and OPEBs have become an acceptable and manageable expense for S&P 500 issues with respect to their underlying assets, earnings and cash-flow. For individuals, the additional responsibility has been shifted from corporations to them for pensions, and is already well underway for OPEBs, with the government, directly or indirectly, the â€˜insurerâ€™ of last resort â€“ and individuals, directly or indirectly, the â€˜insurerâ€™ of the government.
Some of the findings of the report are:
Global equity markets continued to post double-digit gains in 2013, as the S&P 500 rose 29.60% (13.41% in 2012) and the S&P Global BMI Ex-U.S. posted a gain of 13.39% (14.05% in 2012). These gains, while significantly adding to assets, were insufficient to counter the increase in liabilities due to artificially low interest rates.
- Year-over-year comparisons from 2012 to 2013 indicate the following
- Pension underfunding was cut in half, decreasing to US$224bn (US$218bn deficit in 2002) from the record US$452bn
- The pension funding rate increased to 87.8% from 77.3%
- The discount rate increased to 4.69% from 3.93%
- The expected return rate declined to 7.10% from 7.31%, the 13th consecutive annual decline
- Funds tilted toward equities in their 2014 allocations, but they remained cautious of risk
The authors is Senior Index Analyst, S&P Dow Jones Indices
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