Corporate Pension Funding Drops, Liabilities Grow in 3rd Quarter

It was a tough 3^rd quarter for the 100 largest corporate pension plans, as their funded ratio collectively dropped by nearly 4 percentage points and investment returns fell by 2.5 percent, according to data from Milliman.

Details from Reuters:

Pension liabilities grew 1 percent in the third quarter, as returns fell 2.5 percent, according to global consulting firm Milliman. The increase in the pension shortfall has been largely driven by investment losses in August and September, low discount rates used to value pension liabilities, and recent studies showing that people are expected to live longer over the next 20 years.

[…]

“Things are moving in the wrong direction,” said Andrew Wozniak, head of BNY Mellon Fiduciary Solutions in New York.

Thirty seven of the top 100 U.S. corporate pensions by assets tracked by Milliman had funding ratios below 80 percent at the end of 2014, more than double that level in 2013.

The overall funding ratio for these U.S. companies fell to 81.7 percent in September this year, down from 85.5 percent at the end of June, Milliman data showed.

[…]

Despite expectations for a Fed rate hike, longer-term bond yields have declined, a factor in computing discount rates used to estimate pension liabilities. Lower discount rates, which are based on the yield of high-quality corporate bonds, increase a pension plan’s projected liabilities.

Pension discount rates fell to 4.19 percent in September, from 4.23 percent in August and down more than 2 percentage points since the global financial crisis in 2008.

The S&P 500 fell 6.44 percent in the third quarter of 2015.

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