The average funded status of pension plans of Russell 3000 companies fell slightly to 86.9% at the end of the third quarter,down 150 basis points from the end of 2013, due to “ebbing rates” and “moderate asset returns,” said a new Pension Pulse report from J.P. Morgan Asset Management.
In 2013, strong stock market performance and higher interest rates drove the average funded status to 88.4%, a post-financial crisis high, said the report.
Still, the 150 basis point drop from the end of the 2013, “is not really significant,” compared to other years, said Karin Franceries, head of J.P. Morgan Asset Management’s US. strategy group, in a telephone interview.
However, “if you look underneath the average, [you] see that funded status distribution is shifting a little bit,” Ms. Franceries said.
The number of plans with funding ratios at or below 80% grew to 40.9% at the end of the third quarter, up from 34.5% at the end of 2013, said the report.
In response to funded status improvement in 2013, plan sponsors reduced their contributions to $60 billion last year, down 33.3% from 2012, the report found. Moreover, the five largest contributors accounted for $11.5 billion in contributions in 2013, down 34.7% from 2012.
The report also addressed some of the implications of new mortality tables on U.S. corporate pension plans moving forward. The tables, released by the Society of Actuaries in February, reflect an increase in life expectancy, resulting in increased liability values and durations. Money currently set aside to pay benefit payments “could become insufficient” under the new tables and “wider funding gaps could lead to forced contributions and higher Pension Benefit Guaranty Corp. premiums,” the report said.
