Moody's Investors Service has now weighed in on what many in the pension industry have been saying lately: defined benefit funding levels are dropping, and quickly.
In its bi-weekly credit outlook publication, the ratings agency estimated that corporate pension funding levels fell a full 8 percent in 2014, to 78 percent.
In terms of dollars, that equates to an aggregate of $201 billion in increased underfunding, according to the agency.
Recommended For You
The drop resulted from two factors. The average discount rate at the end of 2014 fell to about 4 percent, from 4.8 percent the previous year. Moody's projects that means $165 billion in new funding liabilities.
The lower rate reduces expected returns on pension assets, requiring sponsors to increase contributions in order to cover projected obligations.
Conversely, an increase in interest rates can be of tremendous value to pensions' funding levels. For instance, one Credit Suisse analysis in 2013 suggested a 1 percent increase in interest rates could push a company like Caterpillar Inc.'s funding level up 15 percentage points.
Moody's also said its negative outlook for pensions' funding levels is explained by updated mortality tables, released last year by the Society of Actuaries, which increased pension benefit obligations for rated U.S. corporations by $100 billion.
A few days ago, Wilshire Consulting, an institutional investment advisor, said corporate pension funding level fell 3.5 percent in January to an average level of 74.3 percent.
BNY Mellon calculated a 4.9 percent drop in January, but found a considerably healthier funding average, 82.4 percent.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
