The 100 largest corporate pension funds in the US saw their funding levels drop to an all time low in 2011 due to a combination of falling stock prices, low interest rates and increased liabilities, pension consulting firm Milliman said.

Through its 2012 Pension Fund Study, which analyses the 100 largest US corporate funds, the firm revealed record-high pension liabilities and a funding shortfall of $326.8bn at the end of 2011. The pension funding ratio stood at 79.2% at the end of the year.

The funds, which collectively manage about $1.2tn, saw a decline in discount rates driving their pension costs. On top of that, the record growth in liabilities (9.3% in 2011) exceeded the 5.9% investment return for the year.

The expectation for 2011 was that investment returns would stand at 7.8%.

John Ehrhardt, a principal in Milliman's New York office and author of the report said: "Interest rates drove the pension funding deficit to record levels, and the record deficit drove everything else. We saw record pension expense and, for the first time in the history of this study, these pensions invested more heavily in fixed income than in equities." 

However, it was what the study didn't see, Ehrhardt said, that was perhaps the most interesting. "Despite our prediction of record pension contributions, we instead saw contributions decline, setting up 2012 as a major contribution year for some of these companies."

While the total of $55.1bn in contributions during 2011 was bigger than most previous years, it was lower than the record set in 2010 when the figure read $60.3bn. According to the study many contributions have been deferred to 2012.

Already 10 companies on the list (including Boeing and Verizon Communications) have announced to investors contributions in excess of a billion dollars each.

First published 30.03.2012

azeevalkink@wilmington.co.uk