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1、 Corporates June 10, 2010 Corporates U.S. Special Report U.S. Corporate Pensions Annual Overview 2010 Overview Fitch is concerned that pension funding levels for corporate issuers improved little in 2009 and that companies taking advantage of flexible funding requirements may face a day of reckonin
2、g over the next two or three years due to the potential for a steep acceleration of funding requirements. In 2010 and in the following years, Fitch expects claims to increase, mainly due to two factors. First, the severity of equity market declines from their peak levels has caused defined benefit p
3、ension plan assets of corporate plan sponsors to remain below funding levels achieved at the end of 2007. The full effect of market declines is beginning to show in 2010, as contributions for plan years beginning on Jan. 1, 2009 are initiated (generally companies have 20.5 months after the start of
4、their plan years i.e. January 2009 to fund contributions). In general, contributions in 2010, whether required or voluntarywith voluntary contributions serving to moderate future required increasesare expected to increase for many companies. Second, as Congress has not passed additional funding reli
5、ef as desired by some participants, funding targets continue to tighten as outlined by the Pension Protection Act of 2006 (PPA). The PPAs funding targets are designed to strengthen plan funding, with a 100% funding target fully phased in by 2011 (with exceptions for severely underfunded “at risk” pl
6、ans, which are subject to accelerated funding rules). Summary The primary emphasis of this report is to screen U.S. nonfinancial corporate issuers rated by Fitch by providing a high level view of their funded level at the end of 2009 and also includes Fitch estimates of their ability to fund potenti
7、al contributions in 2010 and beyond. The screens serve to identify companies that may need further investigation regarding their pension plan funding status and ability to fund potential contributions. As an additional resource, the report also provides data regarding plan asset allocations, plan as
8、sumptions, and the proportion of illiquid Level 3 assets in pension plans. For those companies with material underfunded positions, limiting contributions to the minimum required level may be a red flag if the result is sharply higher required contributions in subsequent years. Investors should be a
9、ware of the impact of various accounting and funding issues (full realization of smoothed losses, use of selective discount rates, etc.) and request additional disclosure on potential contribution requirements over the next several years. Equity returns to date in 2010 indicate that in the absence o
10、f a strong equity market return in the second half, most companies are unlikely to achieve expected return assumptions, which would further exacerbate underfunded positions. Key conclusions of the report are: By year-end 2009, corporate pension plan assets partly recovered following the dramatic plu
11、nge in equity market valuations in 2008, owing to improved equity Analysts John C. Culver, CFA +1 312 368-3216 Jamie Rizzo, CFA +1 212 908-0548 Jacob Bostwick +1 312 368-3169 Related Research Applicable Criteria Corporate Rating Methodology, Nov. 24, 2009 Liquidity Considerations for Corporate Is
12、suers, June 12, 2007 Other Research Demystifying Recent Accounting Pronouncements, April 1, 2010 U.S. Corporate Pensions Annual Overview 2009, Oct. 21, 2009 Consumer Product Sector Pension Shortfalls No Near-Term Concerns, Sept. 9, 2009 Telecom Pension Plans in a Tumultuous Market, June 24, 2009 Pen
13、sion Analysis: U.S. Media and Entertainment, Nov. 3, 2008 Pensions Mortality Assumptions and Their Impact on Corporate Credit Quality, May 21, 2008 Analysis of U.S. Corporate Pensions, Sept. 24, 2007 The Evolving Pension Landscape, Sept. 24, 2007 Corporates 2 U.S. Corporate Pensions Annual Overview
14、2010 June 10, 2010 market levels at the end of 2009 relative to 2008. However, pension plan funding levels only improved modestly, with the median funding of issuers U.S. based plans rising to 75% in 2009 from 71% in 2008. Funding improvements were held back by declines in the discount rate, as the
15、median discount rate dropped to 5.90% from 6.30%. Moreover, current major equity market indices remain well below average levels prior to 2008. Interest rate volatility can cause benefit obligations to change significantly, as a 1% decrease, for example, can lead to a 10%20% increase in the present
16、value of a companys liabilities. The weakest three industries from a funding perspective are the automotive, building materials and construction, and consumer sectors, with the weakest company in each sector being American Axle in some cases the non-U.S. plans may not be funded in advance if not encouraged by tax conventions and regula
