Underfunded defined benefit (DB) pension plans can expect to see their liabilities surge over the next several months due to volatility from the COVID-19 pandemic. According to research from Moody’s Investors Service, companies are on pace to see a 6% increase in total adjusted debt in 2020 as modest asset returns fail to offset tumbling discount rates.

Moody’s said in a recent report that 2020 has so far “proved to be a roller coaster ride” for the two drivers of pension funding: the discount rate and the return on plan assets.

It noted that the discount rate has plunged 96 basis points (bps) to an all-time low of 2.26% as of the end of July, while asset returns have had monthly swings from being down 5% in March to a high of being up 2% in July relative to their fair market value at the end of 2019.

The report also said that the transportation and auto industries lead the list of companies with legacy pension exposure that have also been affected by the pandemic.

The top four companies in these two industries are American Airlines, Delta Airlines, Ford Motor Company, and General Motors. Moody’s noted that many of the larger corporate pension plans have calendar year-ends, and that pension disclosures are updated on an annual basis and included in a company’s year-end filing.

“The world has vastly changed since Dec. 31, which means disclosed pension funding levels may not be recognizable when Dec. 31 Form 10-Ks are filed,” according to the report.

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