A low-interest-rate environment is wreaking havocwith corporate defined benefit plans, according to a new study fromWilshire Consulting. Wilshire, based in Santa Monica, Calif., foundthat 94% of pension plans are underfunded.

“The $282.3 billion funding shortfall at the beginning of theyear expanded to a $342.5 billion deficit,” Russ Walker, vicepresident, Wilshire Associates, said in a statement. “Definedbenefit pension assets for S&P 500 Index companies increased by$113 billion, from $1.11 trillion to $1.22 trillion, whileliabilities increased $174 billion, from $1.39 trillion to $1.56trillion. The median corporate funded ratio is 76.9%, whichrepresents a modest decline from 77.7% last year.”

The defined benefit plans in Wilshire's study yielded amedian 11.8% rate of return for 2012. This performance combineswith the 3.6% median plan return for 2011, the 11.9% median planreturn for 2010 and the 16% median plan return for 2009 to markfour consecutive years of gains for these plans after the globalmarket dislocation events of 2007 and 2008.

The combined pension expense for the S&P 500 Index companiesin the study was $57.1 billion for 2012, up from $44.7 billion ayear ago. Regular annual pension expense accruals from employeeservice and interest expense on existing liabilities totaled $93.9billion in 2012, 0.5% higher than the $93.5 billion a year ago.

The S&P 500 Index companies in the report contributed $57.8billion into their defined benefit plans in 2012, an increase fromthe $54.4 billion contributed in 2011. Aggregate benefit paymentsfrom corporate pension plans increased somewhat during the pastyear. Benefit payments totaled $76.5 billion in 2012, compared with$72.5 billion during the previous year.

In related news, the Government Accountability Office recentlywarned that the Pension Benefit Guaranty Corp.'s financialassistance to multiemployer plans continues to increase,threatening the solvency of the fund.

Multiemployer pension plans — create by collective bargainingagreements including more than one employer — cover more than 10million workers and retirees.

Since 2009, PBGC's financial assistance to the plans hasincreased, primarily because of a growing number of plan insolvencies. PBGC estimated that the insurance fund wouldbe exhausted in about 2 to 3 years if projected insolvencies ofeither of two large plans occur in the next 10 to 20 years.

More broadly, by 2017, PBGC expects the number of insolvenciesto more than double, further stressing the insurance fund. PBGCofficials said that financial assistance to plans that areinsolvent or “are likely to become insolvent in the next 10 years”would likely exhaust the insurance fund within the next 10 to 15years. If the insurance fund is exhausted, many retirees will seetheir benefits reduced to an extremely small fraction of theiroriginal value because only a reduced stream of insurance premiumpayments will be available to pay benefits, the office notes.

The GAO cited two policy options to avoid insolvency of thefund, as well as other options for longer-term reform. In limitedcircumstances, trustees should be allowed to reduce accruedbenefits for plans headed toward insolvency, it said. Also, thelarge size of these reductions for some severely underfunded plansmay warrant federal financial assistance to mitigate the impact onparticipants.

This article was originally posted at AdvisorOne.com, a sister site of CreditUnion Times.