Funded ratios of the typical U.S. corporate pension fund dropped 15 percentage points in the second quarter to roughly 70%, the third largest drop in 20 years, according to a report by Legal & General Investment Management America.
LGIMA's Pensions Fiscal Fitness Monitor report assumes a typical liability profile and an asset mix of 65% equities, 35 fixed income.
Aaron Meder, LGIMA's head of U.S. pension solutions, said the worst drop was in the fourth quarter of 2008.
The latest drop resulted from equity market losses — the S&P was down 11% for the quarter — and lower bond yields, with pension discount rates falling 50 basis points to 5.6%.
“This was a pretty bad quarter in the middle of a weak economic environment,” Mr. Meder said, noting that bigger deficits mean bigger contributions for corporate defined benefit plans.
Separately, a Standard & Poor's report showed the funded status of pension plans of companies in the S&P 500 improved 3.55 percentage points in 2009, to 81.65%. the plan's investment returns declined 0.12 percentage points to 7.83% in 2009 from a year earlier. Discount rates declined 58 basis points to 5.81% in 2009.
“Year after year, the story remains the same: neither the public nor the private sector has shown a tolerance for the pain associated with the type of forward action needed to address the U.S. pension problem,” Howard Silverblatt, S&P senior index analyst and author of the report, said in a news release. “The longer the situation goes unaddressed or short-term Band-Aids are applied, the stronger the measures will have to be to solve the situation.”