Corporate pension plans are on the path to recovery in 2003 after struggling with underfunding problems last year, thanks to the rising stock market and higher interest rates, a Bear Stearns report said Wednesday.
Overall, the 100 companies in the Standard & Poor's 500 index with the largest employee benefit obligations will be underfunded by 12% at the end of this year, compared with 18% at the end of last year, the report said.
By the end of 2004, those plans will be underfunded only by 2% overall, Bear Stearns accounting analysts estimated. A pension plan becomes underfunded when the value of its assets drops below the company's future obligations to its employees.
A three-year bear market and frequent interest rate cuts have ravaged pension plans in recent years, forcing several companies to divert cash and stock to prop up their pension funds.
But with the S&P; 500 index up about 19% this year and interest rates up more than half a percentage point from June lows, the funded status of pension plans is expected to show a "marked improvement" by year's end, Bear Stearns said.