The average funding ratio of the 100 largest U.S. corporate defined benefit plans dropped 7.7 percentage points in 2014 to 85.8%, despite strong investment returns that averaged 9.2%, Pensions & Investments' annual analysis of corporate SEC filings shows.
Revised mortality assumptions and a decrease in the average discount rate contributed to increased liabilities that offset asset returns. The data also showed a drop in expected corporate contributions for 2015, a surprise given the lower funding ratio.
Although aggregate assets of the top 100 plans increased to $1.199 trillion from $1.168 trillion in 2013, aggregate liabilities for P&I's universe rose to $1.45 trillion from $1.29 trillion.
The aggregate funding deficit of the largest 100 plans more than doubled to $249.9 billion from the previous year's deficit of $122.3 billion. The aggregate funding ratio fell 7.8 percentage points to 82.7% in 2014, from 90.5% in 2013.
“Even though funded status declined in 2014, we're seeing lower expected contributions in 2015, which is the opposite of what we've seen in past years,” said Justin Owens, senior asset allocation strategist at Russell Investments, Seattle.
The plans in P&I's universe have announced $14.42 billion in expected 2015 contributions, according to the annual filings, 32% less than the previous year's expected $21.09 billion in contributions.
“Sponsors are hoping a strong equity market or rise in the discount rate can help them save that cash,” said Andrew D. Wozniak, Pittsburgh-based head of fiduciary solutions for BNY Mellon Investment Management.
The Highway and Transportation Funding Act of 2014 reduced minimum required contributions by allowing plan sponsors to use a 25-year average interest rate to determine plan liabilities. However, increases to the required Pension Benefit Guaranty Corp. premiums could lead sponsors to make voluntary contributions above those required to raise funding levels and reduce future PBGC payments.