The funding ratio for pension plans sponsored by Russell 1000 companies declined six percentage points to 81% in 2014, said a report from UBS.
Aggregate unfunded liabilities increased by more than $180 billion to $426 billion total in 2014, or roughly 2.5% of nominal gross domestic product, UBS estimated.
Poorly funded plans, defined as less than 80%, also outnumbered well-funded plans (more than 95%) in 2014 almost 4-to-1. In terms of industry, aerospace, airlines and auto manufacturers’ pension plans were the worst funded, according to UBS.
The report also found companies contributed more than $55 billion to their pension funds last year, down slightly from 2013 when contributions totaled about $60 billion. UBS anticipates a significant portion of the new money will go toward liability-driven investments.
“2014 should have been a decent year for corporate schemes,” said UBS, noting that the S&P 500 index was up 13% with some international equity markets achieving even stronger returns for pension funds. Nevertheless, falling long-term bond yields drove the funding ratio lower, wiping out most of the funding gains achieved in 2013 when the funding ratio improved 10 percentage points from 77%.