Corporate Pensions Are Treading Water In The Face Of A Record Funding Gap

S&P 1500 companies were sitting on a record aggregate pension deficit of $484 billion at the end of 2011, according to Mercer. This corresponds to a funding ratio of only 75 percent.How are they dealing with pension problems?Rather than pay off the deficit using soaring corporate profits, "many plan sponsors are merly treading water, or even moving backwards on funded status," says Mercer's Jonathan Barry. “For many companies, the larger deficit will drive higher P&L expense, as well as large increases in pension funding requirements for 2012.”Many corporations are also hiding their deficits with unrealistic equity assumptions, notes The Economist:[E]xecutives seem to be counting on an equity-market rally to dig them out of the hole. Mr. Lapthorne finds that companies are expecting a return of 10%, after costs, from the equities in their pension-fund portfolios...The evidence suggests that companies themselves don’t really believe such rosy forecasts. A Duke University poll of chief financial officers shows they have an average forecast for equity returns over the next ten years of 6.3%. So why do their companies allow such predictions for pension returns to stand? The answer is that if they used more realistic numbers, they would have to contribute more money to make up for the shortfall. And that would dent their profits and thus their [own] share prices. See also: Only 6 Countries Have Sound Pensions Systems, And America Isn't On The List >Please follow Business Insider on Twitter and Facebook.Join the conversation about this story »See Also:Here Is The Anti-Obama Administration Letter That Was Read To Almost Every Catholic Sitting In Church On SundayApple Puts New Engineers On Fake Products Until It Can Trust ThemWhy The Obama Recovery Has Been Much More Impressive Than Reagan's

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