Corporate pensions suffer sharp declines

The funded status of U.S. corporate pension plans saw a sharp downturn in January, though by just how much depends on whom you ask.

According to Wilshire Consulting, an institutional investment advisor, the funded ratio – which measures the amount by which assets exceed a plan’s obligations – fell by 3.5 percent to 74.3 percent.

The BNY Mellon Investment Strategy and Solutions Group said the situation was worse, calculating the drop at 4.9 percent. The upside is that ISSG put the funded level at 82.4 percent — a far cheerier number than that provided by Wilshire.

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The BNY Mellon Institutional Scorecard put the increase for assets in the typical corporate pension plan at 1 percent — again, a tad better than the 0.9 percent posited by Wilshire — and the Aa corporate discount rate at 3.56 percent, causing liabilities to increase by 7 percent. Wilshire said that liability value increased by 5.7 percent.

Figures aside, the point is that liabilities rose faster than assets.

ISSG also attributed the drop in funded status to “the weak performance of U.S. equities, which detracted from improvements in other asset classes.”

Public defined benefit plans, endowments and foundations also fell short of funding targets, according to ISSG. It added that the funded status for the typical corporate plan is now down 12.8 percent from the December 2013 high of 95.2 percent, according to the scorecard.

“The huge fall in funded status in January combined with the changes in the mortality assumptions that many plans implemented in December 2014 means that many corporate plans saw their funded status drop by more than 10 percentage points in two months,” Andrew D. Wozniak, head of fiduciary solutions, ISSG, said in a statement.

“This could be a signal to plans to take on more risk by making such moves as increasing their exposures to equities and alternatives or going to shorter duration fixed-income. Shorter-duration fixed income may better position them to improve their funding if rates rise,” he said.

Rates, of course, are expected to do just that.

Source: Benefits Pro