Lest anyone not have noticed, January was not a good month for the market—and that translated to a bad month for pension funded status as well.
According to consulting firm Milliman's Pension Funding Index, which analyzes the 100 largest U.S. corporate pension plans, those plans experienced a $31 billion decrease in funded status—largely due to a $25 billion decrease in asset values. The funded status for these pensions fell from 82.7 percent to 80.9 percent.
The latest version of the BNY Mellon Institutional Scorecard had no cheery news, either, pegging the drop in the funded status of typical U.S. corporate pension plans as falling by 3.8 percent in January, to 79.7 percent.
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And according to the Aon Hewitt Pension Risk Tracker, which monitors the funded status of pension plans of companies in the S&P 500, the aggregate funded status of pension plans for companies in the S&P 500 decreased from 80.0 percent to 78.0 percent.
The funded status deficit increased by $42 billion, driven by an asset reduction of $41 billion along with liability growth of $1 billion for the year to date.
Another key finding from Aon Hewitt was that month-to-date pension asset returns were as low as -4.10 percent in the month of January before settling at a rate of -2.00 percent.
"A 1.46 percent decline in asset values was the last thing these pensions needed after flat performance in 2015," Zorast Wadia, coauthor of the Milliman 100 Pension Funding Index, said in a statement. "About the only good news is that the market declines and expanding liabilities weren't enough to drop these pensions below 80 percent as was the case a year ago on January 31."
Of course, Aon Hewitt doesn't even have that "good news"—and neither does the BNY Mellon Scorecard; the latter also reported that the S&P pension deficit is estimated to have increased by $83 billion, to $411 billion over the month, with assets falling to $1.61 trillion and liabilities rising to $2.02 trillion.
However, it found that despite asset returns of negative 5.2 percent over the past year, the funded status of the typical U.S. corporate pension plan have still increased by 2.0 percent over the last 12 months, up from 77.7 percent.
Milliman's report also provided both optimistic and pessimistic projections of funded ratios for the end of this year and next.
According to the optimistic forecast, with rising interest rates (reaching 4.74 percent by the end of 2016 and 5.34 percent by the end of 2017) and asset gains (11.3 percent annual returns), the funded ratio would climb to 92 percent by the end of 2016 and 105 percent by the end of 2017.
Under the pessimistic forecast (3.64 percent discount rate at the end of 2016 and 3.04 percent by the end of 2017 and 3.3 percent annual returns), the funded ratio would decline to 74 percent by the end of 2016 and 68 percent by the end of 2017.
But pessimism is dominating many reports. "Plan sponsors are beginning to lose their patience with the onslaught of negative news surrounding their pension plans," Andrew Wozniak, head of BNY Mellon Fiduciary Solutions, said in a statement. "Whether it is increased longevity driving liabilities higher, poor investment returns or the negative impact of lump sum payments on their funding percentage, some sponsors are beginning to think that the only solution to their problem is proactively funding their plans."
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