S&P 500 pension plans see uptick in overall funding ratio
A combination of rising interest rates and volatile markets in 2018 helped improve the pension situation for the 313 S&P 500 companies managing pension obligations. The combined funding ratio of the index was 86.3%, up from 85.6% in 2017; the total gap between assets and liabilities was $270.4 billion at the end of 2018, down from $304.6 billion the year before.
The picture could change when 2019 wraps up, as interest rates have fallen significantly and if strong equity returns in the first half of the year continue to be whittled away. In its research, S&P notes that interest rates have had a disproportionate influence on plan funding relative to asset gains, particularly as more corporate plans shift asset allocations in favor of fixed income. Fixed-income allocations collectively were 48.7% in 2018, up from 32.3% in 2007, as equity allocations fell 25 percentage points over the period. It's a trend S&P pointed out, noting the average plan expected return has fallen in each of the past 19 years.
Funding ratios improved across the index constituents as more plans were 80% or more funded. Forty-six plans were fully funded in 2018, up from 43 in 2017.