Three monthly measures of defined benefit pension plans’ funded status slipped or remained flat in February after a strong start to 2013, due mostly to weakening interest rates.
The Milliman 100 Pension Funding Index, which monitors funding for the U.S.’s largest corporate DB plans, posted a decrease in funded status for the month to 81.5 percent from 81.7 percent in January, a $6 billion decline. The gap was caused by a collective $17 billion increase in the pension benefit obligation at the companies to $1.683 trillion, defeating a surge by the plans’ assets of $11 billion as equities prices crested as 2013 began. February’s wider gap follows near-record improvement of $107 billion in funded status for the Milliman 100 PFI’s constituents in January.
Regardless of February’s setback, the index is still in better shape than it was at the end of 2102. “Thanks to cooperative interest rates in January, we are still ahead for the year,” John Ehrhardt, co-author of the actuarial and consulting firm’s Pension Funding Study, said in a March 6 press release. “Even with the Dow hitting new record highs, it will ultimately be interest rates that dictate the pension funding story in 2013,” he said. At the end of February, the discount rate used to calculate pension liabilities declined to 4.40 percent from 4.45 percent.
BNY Mellon also announced a lower February funded-status indicator for the typical corporate pension plan it monitors. In a March 5 press release, the investment management firm’s Investment Strategy and Solutions Group said the measure slid 0.5 percentage point to 80.7 percent in February, as a decline in interest rates drove liabilities higher. But year-to-date, the funded ratio has risen 4.4 percentage points.
Liabilities for the typical corporate plan increased 1.4 percent in February, outpacing the 0.8 percent gain in assets during the month, according to the BNY Mellon Pension Summary Report for February. Similar to Milliman’s explanation, the report attributed the gain in pension liabilities to the eight-basis-point decline in the double-A corporate discount rate in the month to 4.05 percent.
In addition, consulting firm Mercer on March 5 announced its barometer for the funded status of typical pension plans at Standard & Poor’s 1500 companies decreased by $3 billion to an aggregate deficit of $479 billion at the end of February. The index’s funded ratio remained at 77 percent during the month. February’s gap compares with an aggregate pension deficit of $482 billion on Jan. 31. At the end of February, the estimated aggregate value of pension plan assets for the S&P 1500 companies Mercer tracks was $1.64 trillion, less than estimated aggregate liabilities of $2.12 trillion.
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