The aggregate funding ratio of Fortune 1000 companies' defined benefit pension plans declined in 2011 to an estimated 78% due to weak investment returns and falling interest rates, according to a Towers Watson report.
The aggregate ratio in 2010 was 84%, according to the annual reports of the 422 Fortune 1000 companies with defined benefit plans whose fiscal years end in Dec. 31.
It is the first year that those plans' average funding ratio has dropped since 2008, according to the report.
“The big story here is that interest rates were already low, (and) dropped rather significantly during 2011,“ said Alan Glickstein, senior retirement consultant at Towers Watson, in a telephone interview. “The point to underscore is that the other factors end up (meaning) next to nothing,” citing the decent returns and large contributions in 2011.
“Almost all of the drop (in the funding ratio) is due to this drop in interest rates,” he said.
Assets among the 422 plans rose 0.7% to an estimated $1.201 trillion in 2011, but projected benefit obligations increased 8.5% to an estimated $1.543 trillion.
It is the third consecutive year in which falling interest rates caused plan liabilities to rise, according to the report.
