April Pension Funding Dips On Lower Interest Rates

By Cyril Tuohy

InsuranceNewsNet

The funded status of the nation’s largest corporate pension plans dipped in April, reversing months of improving trends, according to a pair of pension index reports.

The nation’s 100 largest corporate defined benefit pension plans experienced a $37 billion decrease in funded status in April based on a $60 billion increase in the pension benefit obligation and a $23 billion increase in assets, according to Milliman ’s Pension Funding Index.

“We knew that the funded status improvement that has characterized these 100 pension plans so far in 2013 couldn’t last forever,” John Ehrhardt, co-author of the Milliman Pension Funding Study, said in a news release. “We saw a $106 billion improvement during the first quarter of 2013, thanks to strong investment performance and cooperative interest rates.”

Despite stock market highs, interest rates, which dropped below 4 percent, were largely to blame for the big increase in the pension obligation, Ehrhardt also said.  Pension benefit obligations at the end of April rose to $1.71 trillion from $1.65 trillion. The value of the largest 100 pension plans also rose, to $1.39 trillion from $1.36 trillion.

The aggregate deficit of pension plans sponsored by S&P 1500 companies increased $47 billion at the end of April, resulting in a $419 billion deficit, according to a separate report by Mercer, the global health and benefits broker.

The funded ratio, or all the plan assets divided by all the liabilities, also fell 2 percentage points to 80 percent, Mercer reported.

“After six straight months of improvements in funded status, April saw a bit of a step back for U.S. pension plans,” Jonathan Barry, a partner in Mercer’s Retirement business, said. “It’s an important reminder to plan sponsors that these plans can go down just as quickly as they went up.”

The estimated aggregate value of S&P 1500 pension plan assets through April 30 was $1.71 trillion, compared with liabilities of $2.13 trillion, Mercer said.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].