U.S. corporate pension plans' funding ratios dropped roughly three percentage points in the second quarter to 81%, according to UBS Global Asset Management's U.S. Pension Fund Fitness Tracker.
In a separate Bank of America/Merrill Lynch report, the funded status of the average S&P 500 company was expected to be 75% as of June 30, up four percentage points from Dec. 31.
Stronger equity returns for the quarter were offset by lower discount rates, which led to a higher present value of liabilities, according to a UBS news release. Assets were up 9% for the quarter, and liabilities were up 14%.
“In addition to interest rates rising, high-quality corporate bond credit spreads narrowed approximately 180 basis points for the quarter,” Aaron Meder, executive director and head of asset liability investment solutions in the Americas, said in the news release. “As a result, pension discount rates for a typical pension plan decreased over 100 basis points during the quarter, which increased the present value of pension liabilities.”
The Bank of America/Merrill Lynch report said pension plan assets were up 2.4% for the six months ended June 30, and liabilities were down 4%. The liabilities were attributed to an approximate 50-basis-point increase in yields since early 2009.