Thursday, September 17, 2009

An Update on Pension Plans and Social Security

Melanie Waddell of Investment Advisor magazine recently provided updated data concerning the continued viability of corporate pension plans and Social Security:

A new study by global consulting firm Mercer has found that the funded status of pension plans for S&P 1500 companies fell again in July for the third consecutive month. According to Mercer, "although equity values are increasing, so is the value of plan liabilities so the net impact in July was a decline in funded status." Mercer found that the funded status of pension plans sponsored by S&P 1500 companies currently has an aggregate deficit of $269 million, which would mean plans could only afford to pay out 81% of liabilities.

Meanwhile, other troubling news about Social Security was released in August by the Congressional Budget Office (CBO). The CBO stated in its long-term Social Security projection that without changes in law, the Social Security trust fund will be exhausted in 2043. At that point, the amounts that could be paid would be about 17% less than those scheduled under current law.

The CBO states that "Social Security's annual revenues currently exceed its annual outlays, but as the baby-boom generation continues to age, growth in the number of Social Security beneficiaries will pick up, and absent legislative changes, outlays will increase much faster than revenues."

Finally, a quick measuring sticks for your 401(k) balance: Among all families with a defined contribution plan, the median plan balance was $31,800 in 2007. Seems like the American public still needs to develop better savings habits.

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