The funded status of U.S. corporate defined benefit plans fell between one and two percentage points in September because of rising liabilities and declining asset values, said reports from Milliman, Wilshire Consulting and Aon Hewitt.
The Milliman 100 Pension Funding index, released Friday, showed the funded status of the 100 largest U.S. corporate pension plans fell 1.6 percentage points to 81.7% at the end of September. Liabilities rose 0.53% to $1.708 trillion, the result of a four-basis-point drop in the discount rate to 4.19%. Asset values declined 1.34% to $1.396 trillion due to investment losses of 0.97% in September.
“The calendar year began with strong equity performance that seemed so promising, and yet here we are looking at an overall decline in equities for the year,” said John Ehrhardt, principal, consulting actuary, and co-author of the Milliman report, in a news release. “It will take a massive rally in the fourth quarter for these 100 pension (funds) to sniff their annual expected return of 7.3%.”
If the pension funds achieve a median 7.3% asset return and the discount rate remains at 4.19%, the funding ratio would increase to 82.2% by the end of this year and 84.2% by the end of 2016, Milliman predicts.
In another monthly report, Wilshire Consulting found the aggregate funding ratio for U.S. corporate pension plans declined two percentage points over the month to 81.3% due to a 1.8% decrease in asset values combined with a 0.6% increase in liabilities.
Negative equity returns and falling corporate bond yields drove the asset and liability changes, said Wilshire Consulting, the institutional investment consulting and outsourced CIO unit of Wilshire Associates. Wilshire's figures are the result of estimates of combined assets and liabilities of companies in the S&P 500 index that have defined benefit plans.
The estimated asset allocation was 32% domestic equity, 27% long-duration fixed income, 21% international equity, 18% core fixed income and 2% real estate.
Separately, Aon Hewitt found the aggregate funding ratio of S&P 500 companies with defined benefit pension plans declined 1.7 percentage points to 78.7% at the end of September from 80.4% the previous month.
Liabilities rose 0.45% over the month to $2.045 trillion while assets declined 1.7% to $1.61 trillion.
