The aggregate funding ratio for U.S. corporate defined benefit plans fell to 85.5% in August, down from 86.1% the previous month, said a monthly report from Wilshire Consulting.
While assets increased 2.2% as a result of investment returns, that gain was canceled out by lower corporate bond yields causing liabilities to increase 2.9%.
The figures are the result of estimates of combined assets and liabilities of S&P 500 firms that have defined benefit plans.
The estimated asset allocation is 33% domestic equity, 26% long-duration fixed income, 22% international equity, 17% core fixed income and 2% real estate.
“The challenge is that the discount rate continues to drop so interest rates continue to drop,” said Jeff Leonard, managing director at Wilshire Associates and head of the actuarial services group of Wilshire Consulting, in a telephone interview. “I think there was something on the order of almost a 20-basis-point drop in the discount rate. Actually, in the last few days we've seen that rate pop up about nine basis points, so it's really volatile, it's really hard to predict, so that drop in the discount rate causes the liabilities to increase.”
While discount rates are keeping liabilities up, Mr. Leonard said there is encouraging news from a long-term perspective.
“It's pretty encouraging from the asset size that the assets continue to hold value and also increased a bit,” helping the funding ratio avoid dropping too much despite the discount rate continuing to fall, Mr. Leonard said.
Wilshire Consulting is the institutional investment consulting and outsourced CIO unit of Wilshire Associates.
