The funding levels of Towers Watson's hypothetical benchmark corporate pension plans for seven major global markets dropped significantly in 2011 despite a fourth-quarter rebound in many capital markets.
U.S. corporate plans' funding dropped 11.9% to 62.3 in the Towers Watson Pension Index, from 70.7 at the end of 2010, despite increasing 4.4% in the fourth quarter.
Canada had the biggest year-end decline, dropping 16.2% to 57.1; U.K. plans decreased 8.6% to 79.6, with a 2.7% decline in the fourth quarter.
The Towers Watson Pension Index is a measure of funding ratio based on the projected benefit obligations for a benchmark pension plan. It tracks seven markets — U.S., U.K., Canada, eurozone, Brazil, Japan and Switzerland.
Investment returns in the U.S. were 2.4% for the year, including 6.9% for the fourth quarter, while the U.K. returned 7.6% for the year and 8.6% for the quarter. However, liabilities last year grew by 16.2% in the U.S. and 17.6% in the U.K. because of a significant drop in the discount rate. Canada's returns were generally flat at 0.5%, but had the largest liability increase, at 19.8%.
“It is kind of interesting that with all the money supply growth, interest rates continue to drop,” said Jerry Mingione, senior retirement consultant at Towers Watson.
Despite all the turmoil in 2011, the eurozone had the smallest decreases in funding next to Brazil, falling by 4.5% to 87.5. Mr. Mingione said the eurozone took a different path than the other markets in reaching a funding ratio decline as interest rates remained stable or slightly up for the year, while investment returns declined 2.1% for the year.
