Pension funding levels are moving into the black for the first time since the beginning of the decade, according to UBS Global Asset Management's U.S. Pension Fund Fitness Tracker, a quarterly estimate of the overall health of the typical U.S. pension plan.
The typical corporate pension fund that started 2006 with a funded ratio of approximately 90% closed the year at nearly 103% funded, and assets of the average large corporate pension plan — derived from Pensions & Investments' annual survey of the top 1,000 pension funds — increased by almost 14% for the year, while liabilities were roughly flat, as measured by the iBoxx US Pension Liability indexes.
Aaron Meder, UBS Global Asset Management's head of asset-liability investment, attributed the boost in funding levels to strong equity returns and a "modest increase in interest rates" over the course of the year.
Pension funds may be more likely to implement liability-driven strategies as a result of the more robust funding, Mr. Meder said. "Plans can implement liability-driven strategies that significantly reduce the uncertainty in their future pension contributions — often without reducing expected plan returns. This improvement in overall pension health provides many with an excellent opportunity to do so."
