Some 58% of companies had fully funded defined benefit plans in 1993, down from 74% in 1992 and from 95% in 1988, according to Buck Consultants.
Buck also found that adjusted funding ratios are decreasing. The average adjusted funding ratio for all plans studied was 110% in 1993, compared with 123% in 1992 and 167% in 1988. An average ratio of 110% indicates companies had 10% more in assets than necessary to cover adjusted accumulated pension obligations.
But funding ratios should increase because of interest rate hikes, said Larry Wiltse, consulting actuary and director of forecasting and planning services.
Discount rates have converged at a more narrow range than in previous years because companies took notice of the opinion expressed in a Sept. 22, 1993, letter of an SEC chief accountant to the FASB Emerging Issues Task Force, that discount rates should reflect current high quality market rates.
Buck uses a model to develop an estimate of the accumulated benefit obligation for each company based on the Buck Forward Interest Rate index. The asset value is divided by the adjusted ABO to determine the adjusted funding ratio.