January 4, 2013 (PLANSPONSOR.com) - The typical U.S. pension plan’s funding ratio remained at 77% during the fourth quarter of 2012, according to The UBS Global Asset Management US Pension Fund Fitness Tracker.
During the quarter, the funding ratio increased by less than one percentage point. But year to date, the funded status of plans has declined by approximately one percentage point, in spite of tremendous volatility in both assets and liabilities.
The slight increase in funding ratio for the quarter was primarily driven by two factors:
• Equity markets were modestly positive over the quarter, reflecting both global central bank stimulus policies and generally improved economic sentiments; however, uncertainty in the U.S. political arena due to both the presidential election as well as the “fiscal cliff” negotiations weighed heavily on market sentiment. Fixed-income assets showed mixed results, with increases across credit bonds outperforming declines in both the U.S. government bond markets and international government bonds. Cumulatively, aggregate performance of the capital markets led to an increase of nearly 1% on a typical pension plan’s assets.
• Slightly underperforming asset returns, liability values were marginally higher over the quarter. US Treasury yields increased, while credit spreads tightened; the tightening in credit spreads offset the majority of the increases in yields, and subsequent declines in Treasuries. The net result led to discount rates remaining flat to slightly up for the quarter, with liabilities gaining mainly due to the passage of time. For the quarter, pension discount rates are estimated to have increased by 1 to 5 basis points (bps).
For the quarter, a typical plan’s asset pool returned approximately 0.7%, 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. Liabilities for a typical pension plan increased by less than 1%, as increases in discount rates were offset by liability growth attributed to the passage of time.