Rough Third Quarter for Corporate Pensions

U.S. Corporate pension plans had a tumultuous third quarter as the typical plan saw a 5 percent drop in its funding ratio, according to the UBS Global Asset Management US Pension Fund Fitness Tracker.

More details from a UBS release:

“In the third quarter, we saw the funding ratios of pension plans decrease as both investment returns as well as liability returns were unfavorable. Over the course of the full year many plans have seen a substantial aggregate negative net effect on the overall funding ratios. Because of that, some plans have started to re-risk due to upward adjustments of expected return targets. Other plans have not yet taken action, but we do expect more shifts in allocations given the decreased levels of funding ratios. We continue to advise our clients on appropriate strategy and timing of implementation of new allocation targets,” said Frank van Etten, head of Client Solutions at UBS Global Asset Management.

Negative investment returns of -3.1%, along with positive liability returns of 2.5%, led to nearly a 5 percentage point drop in funding ratios over the third quarter. Widening credit spreads failed to offset lower Treasury yields this quarter. These estimates are based on the average corporate plan’s reported asset allocation weightings from the UBS Global Asset Management Pension 500 Database and publicly available benchmark information.

In the third quarter of the year, the investor focus shifted from Greece to China, with the latter having a much more pronounced market impact. China’s decision to bring the yuan closer to a market-based valuation mechanism and its ensuing weakening triggered a selloff in risk assets globally. Concerns about a major slowdown in the Chinese economy caused investors to lower their global growth expectations, which exacerbated the flight to quality.

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

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