The funded status of corporate defined benefit plans in the U.S., U.K. and Canada dropped in the 12 months ended Dec. 31 as liabilities rose faster than assets, various funding reports showed.
- In the U.S., year-end reports showed the funding levels dropping anywhere from close to five percentage points to nine percentage points.
- Funding ratios in the U.K. dropped nearly six percentage points.
- In Canada, DB plans experienced their first funding decline since 2011, dropping nearly 2.7 percentage points.
The funded status of the 100 largest U.S. corporate defined benefit plans dropped to 83.6% at the end of December, down 470 basis points year-over-year, according to the Milliman 100 Pension Funding index.
The discount rate ended the year at 3.8%, the lowest level on record since Milliman Inc.'s study began 14 years ago and eliminated the funding gains experienced in 2013, said Zorast Wadia, New York-based principal, consulting actuary and co-author of the Milliman report, in a telephone interview.
“All of the gains that were achieved in 2013 were given back,” Mr. Wadia said. “We're looking more like year-end 2012” when the funded status was 77.2%.
Investments returned 9.5% in the 12 months ended Dec. 31.
According to BNY Mellon, the typical U.S. corporate pension plan ended the year 87.3% funded, down 7.9 percentage points from the Dec. 31, 2013, high of 95.2%.
A 93-basis-point-drop in the discount rate caused liabilities to swell 18.48% in 2014, while assets rose 8.79%, according to BNY Mellon.
“For (plan) sponsors, it's a painful reminder that you must take into account liabilities when you're developing your investment strategies,” said Andrew D. Wozniak, head of fiduciary solutions of the investment strategy and solutions group within BNY Mellon Investment Management, Pittsburgh, in a telephone interview.