NEW YORK — The funded status of global pension markets improved in the fourth quarter of 2004, according to Towers Perrin estimates.
Brazil had the best funded status at year's end, 125%, followed by Australia, 83%; Canada, 76%; Japan, 67%; the United States, 65%; the United Kingdom, 60%; and the eurozone, 54%, according to the Global Capital Market Update: Fourth Quarter 2004 Results.
The improved funding levels come as major equity markets saw above-average returns for the second year in a row.
The report cites falling oil prices, the result of the U.S. presidential election, increasing corporate M&A activity and healthy corporate earnings as the reasons for a year-end equity rally. That rally led to an increase in the funded status of every pension market except Canada, which saw a slight decrease of 0.4%, and the eurozone, which saw a decrease of 5.76%. While the United States had a fourth quarter increase of 2.5%, its funding status decreased by 0.1% for the entire year.
"We've seen a strong rebound in equity markets, particularly since early 2003," said Martin Jaugietis, a consultant with the global consulting group at Towers Perrin, New York. "But because the trend of interest rates is going down, the liability side of the balance has been going up."
To calculate the funding levels, Towers Perrin constructed benchmark plan portfolios. According to Mr. Jaugietis, assumptions on the benchmark plans are what Towers Perrin consultants consider to be the proportions of both the liability mix and the asset mix in those markets.
"Those (benchmarks) are based on our understanding of what we believe is a common market practice of a normal defined benefit plan in that location," said Mr. Jaugietis. "On the asset side of the balance sheet, we make a broad assumption based on the asset allocation, and that does vary, based on the location."