Funding deficit recedes amongst largest US corporates, but the actual cost to companies continues to rise.

A study by Towers Perrin shows that the recent string performance of asset markets has helped to mitigate some of the pension funding gap of US corporates. The average plan’s funded status was an estimated 83% at the end of 2017 versus 81% a year earlier. Employer contributions have also risen sharply to $51bn from $43bn in 2016 showing that despite often cutting future benefits companies are still having to increase their cash flow to the funds in order to stabilise their funding.

Every US State Pension funding below 50%…. except for Wisconsin

The ‘healthy’ status of the private sector pension funds is in sharp contrast to the poor level of funding in the US State Pension industry. A recent report from the American Legislative Exchange Council (ALEC) showed that except for Wisconsin every state has a funding level below 50%.  The poor levels of funding get even worse when you make perhaps more realistic assumptions about future asset market returns. The poor state of finances casts a marked shadow over the finances of many of the state governments. ALEC shows that using  risk-free rate of assumed rate of return for the pension plans would amount to a projected deficit of over $6 trillion.

This article was attributed and provided by PG International


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