The aggregate funded status of S&P 500 companies with defined benefit plans fell 120 basis points to 82% in the first quarter as liability growth outpaced assets, Aon Hewitt said.
For the three months ended March 31, liabilities increased about 2.1% to $2.13 trillion, the result of an 18-basis-point drop in the discount rate, the Aon Hewitt Pension Risk Tracker said. During the same period, assets rose by about 0.63% to $1.75 trillion, the result of positive investment returns of 2.27%.
Aon Hewitt estimates daily the funding ratio of the 361 S&P 500 companies with DB plans.
In March, the aggregate funding ratio fell 83 basis points.
“Falling interest rates continue to drive liabilities higher, outpacing pension asset growth. As a result, we anticipate continued settlement activity throughout 2015,” said Ari Jacobs, global retirement solutions leader at Aon Hewitt, in a news release. “Additionally, in-year declines in interest rates may contribute to the attractiveness of lump-sum programs, which often base lump-sum rates on interest levels from the end of the previous year, resulting in potential accounting gains for plan sponsors.”
Separately, a monthly report from Wilshire Consulting found that the aggregate funding ratio for pension plans sponsored by S&P 500 companies fell 90 basis to 81.5% in March, the result of an 80-basis-point decrease in assets and 30-basis-point increase in liabilities.
“The asset (decline) is due to negative returns for equities, while the liability value increased due to the maturation of pension liabilities,” said Ned McGuire, vice president and a member of the pension risk solutions group of Wilshire Consulting, in a news release.
The funding ratio is down one percentage point for the quarter.
The estimated asset allocation for plans reviewed by Wilshire is 32% domestic equity, 27% long-duration fixed income, 21% international equity, 18% core fixed income and 2% real estate.
Wilshire Consulting is the institutional investment consulting and outsourced CIO unit of Wilshire Associates.