The aggregate funded status of Russell 3000 defined benefit plans is expected to increase 19 basis points to 96% at the end of this year, according to the Pension Pulse report from J.P. Morgan Asset Management.
The funded status was 94% through the end of November, as one in five plans went to being overfunded from underfunded during the year. Currently, about 28% of plans are overfunded, about the same level as 2007. Total assets are a little less than $2 trillion.
Karin Franceries, executive director of JPMAM, said pension plans might even be healthier today for a number of reasons. “They have way more assets, 31% higher (than 2007),” Ms. Franceries said in a telephone interview. “Plan sponsors are in better health today through balance-sheet deleveraging, and there is a large amount of cash on balance sheets.”
Pension plans are also better positioned, she added. The discount rate was about 6% in 2007 when the same number of plans were overfunded, about 100 basis points lower than today. Plan executives are also more liability-aware; fixed-income allocations are up five percentage points.
“Everyone is talking about derisking,” Ms. Franceries said. “There is clearly a shift toward more fixed income.”
Even with the discount rate rising about 50 basis points this year, it was strong growth-asset returns that made up about 60% of the funded status improvement, with the S&P 500 up 29%. Pension contributions are expected to be flat, if not decrease, for the year, despite large contributions from companies like Lockheed Martin, Boeing and Ford.
The overall pension deficit has decreased to $131 billion at the end of November from $535 billion at the end of 2012. JPMAM estimates corporate America’s ratio of pension deficit to market capitalization declined to 1% at the end of November, the lowest level in the past five years, from 6% at the end of 2012.