Corporate pension funds in seven of the world's largest retirement markets continued to ride the equity bull in 2017, producing another year of impressive returns.
The average return for pension funds in Australia, Canada, Japan, Switzerland and the U.S. were higher in 2017 than the year before. Returns for the Netherlands and the U.K., while still in positive territory, were lower than the year previous. They ranged from 13% in the U.S. to an estimated 4.3% average for Dutch funds.
Geopolitical dramas filled headlines again in 2017, but market volatility remained stubbornly low. Markets continued to grow with the MSCI All-Country World index returning 23.97% in 2017, following a 7.86% gain in 2016.
The highest average return, for U.S. corporate pension funds, came in at 13% compared to a 6.7% gain in 2016. Figures from Willis Towers Watson PLC and Wilshire Consulting both showed the funded status of corporate funds in the U.S. improved over the year.
WTW's figures show an improvement in funding ratios for the 389 Fortune 1000 companies that sponsor U.S. defined benefit funds to 83% at the end of 2017 vs. 81% at year-end 2016. Wilshire's numbers, covering funds sponsored by S&P 500 companies, show funding ratios improved to 85.4% as of Dec. 31, compared with 80.9% a year previous.
"It was a very good market in the U.S. from an equity market performance perspective," said Beth Ashmore, a senior retirement consultant at Willis Towers Watson based in St. Louis.
She said it is interesting to note that the funded status of U.S. plans had been "pretty steady" at the 81% mark in 2014 through 2016, but 2017 showed a "modest increase — that's definitely one of the factors being fueled by the stock market, and being addressed by some sponsors coming out and starting to make larger contributions to their plan." She also cited examples of sponsors choosing to increase contributions in response to market factors.
"I look at this (higher funding level) and say that's welcome news, good news, it means a lot of different things in terms of benefits for sponsors," added Ms. Ashmore, noting higher funding ratios mean a lower financial impact from pension funds on corporate balance sheets and lower Pension Benefit Guaranty Corp. premiums to pay. "But the question sponsors will be asking here is: 'Now what; what's next?'"