Graphic: First quarter boosts corporate funds
An increase in interest rates during the first quarter resulted in a jump in pension funding ratios for large U.S. public companies. P&I examined the 10-K filings of 37 of the largest to project benefit obligations' sensitivity to changes in interest rates and estimated investment performance. The companies' pension funded status improved by an average of $1.9 billion, with plans at 97% funded, up 8 percentage points from year-end.
Lowered obligations: Investment-grade corporate bond yields rose by roughly 71 basis points in Q1, causing the average pension benefit obligation to fall by an estimated $2.1 billion. Actual decreases ranged from Kodak’s $209 million to UPS' $7.8 billion.
Changes in PBO, Q1 (millions)
Assets down: Fixed-income assets dragged down returns as the Barclays-Russell LDI 12-year index was down 7.5%. The Russell 3000 return topped 6%, and hedge funds returned 6%. Based on allocations, average assets dropped to $20.8 billion, from $21.1 billion.
Changes in asset value, Q1 (millions)
Rising ratios: The lower pension liabilities led to the average unfunded liability falling to $1.3 billion as of March 31 from a $3.2 billion unfunded liability at the end of 2020. On average, plan assets improved to 97% of the PBO as of March 31 compared with 89% at the end of the year.
Funding ratios
Higher yields: The median forecast calls for the 10-year Treasury yield to reach 1.84% by year-end, and 2.13% by the end of 2022. The spread on AA-rated bonds stands at about 60 basis points, compared with approximately 100 basis points last June and 63 basis points at the start of this year.
Distribution of Treasury yield forecasts
Sources: SEC 10-K filings, Bloomberg LP, National Council of Real Estate Investment Fiduciaries, Hedge Fund Research Inc.
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