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Company pensions in peril as shortfalls hit record

Dominik Pabis | E+ | Getty Images

Young workers may want to start counting on something other than company pensions to fund their retirements.

It turns out that the plans of S&P 500 companies are underfunded to the tune of $451.7 billion, a number that has grown some 27 percent in just the last year alone, according to data released Wednesday by S&P Dow Jones Indices.

While firms have plenty of cash to cover older workers currently on the payroll or in pension plans, that may not be the same once the younger generation gets ready to stop working.

(Read more: Big jobs number coming? Data firm says just 23,000)

"The good news for current retirees is that most S&P 500 big-cap issues have enough cash and resources available to cover the expense," Howard Silverblatt, senior index analyst at S&P Dow Jones Indices said in a report. "The bad news is for our future retirees, whose benefits have been reduced or cut and will need to find a way to supplement, or postpone, their retirement."

Pension underfunding has been a persistent problem for corporate America for years.

Though many workers have switched to 401(k) plans over the years, pensions still have far more workers—91 million to 51 million.

The combination of poor investment choices along with low interest rates have pushed "pension liabilities into record underfunding territory," Silverblatt said.

This year actually was supposed to be better for pensions under an accounting trick Congress approved in 2012.

(Read more: Underfunded pensions are red flag for investors: Greenberg)

The move would allow corporations to use a 15-year average of bond yields, rather than the current level, to calculate their obligations.

However, even that didn't work.

Pension return rates fell for a 12th straight year in 2012. slipping to 7.31 percent from 7.6 percent in 2011 and 7.73 percent the year before. That performance has been triggered by falling discount rates, which dropped to 3.93 percent in 2012 from 5.31 percent just two years before.

A number of companies have tried to reach settlements with employees to reduce their obligations, a process known as de-risking.

General Motors, Ford and Verizon Communications all took significant measures, including offering lump-sum payments and annuity purchases for former vested participants and retirees, according to consultant firm Milliman, which measures the obligations of 100 companies.

(Read more: Ford could close US pension funding gap by end of 2014)

The firms included in the Milliman 100 reduced their burdens by $45 billion, but were still left overall with a record shortfall.

GM, for instance, reduced its obligation by $30 billion but still had a $111 billion deficit.

While Fed policies of near-zero interest rates and $85 billion in money creation each month have helped boost the S&P 500 stock index, pension-burdened companies have been hammered.

"Because the Federal Reserve has announced that it plans to keep interest rates low through 2014 (and perhaps longer, until the overall unemployment rate reaches 6.5 percent), there is little expectation that rising discount rates will contribute to improvements in the funded status of the Milliman 100 pension plans," Milliman said in a report.

S&P's Silverblatt said young workers should be paying attention.

"For baby boomers it may already be too late to safely build up assets, outside of working longer or living more frugally in retirement," he said. "For younger workers, they need to start to save early, permitting time to compound their returns for their retirement. Corporations have shifted the responsibility to them, and if they don't step up now, they won't have anything for retirement."

By CNBC's Jeff Cox. Follow him @JeffCoxCNBCcom on Twitter.

Wall Street