Due to continued market volatility and record-low interest rates this year, the average funded status of U.S. corporate pensions dropped 2.9 percentage points in July to 68.7%—the lowest since 2007. The goal of the survey was to determine the investment challenges and strategies that had the greatest impact on pension management in the U.S. and Canada this year.
Some key findings include:
The future remains uncertain. More than half (55%) of pension plans surveyed are either closed or frozen, meaning new employees cannot participate, but only 1% of plans have begun the termination process. An additional 37% said their pension is 81% to 90% funded; only 11% admitted having a plan that is below 70% funded. In the U.S., 27% of plans surveyed currently fail to meet the federal funding minimum of 80%, the poll found.
When asked whether or not they would terminate their plans if they were fully funded, 44% of respondents said they would terminate the plan but continue to offer an alternative retirement benefit such as a 401(k), and 56% said they would not terminate because the pension is too critical a part of the benefits structure.
U.S. MAP-21 to leave contributions largely unaffected. Less than half (43%) of U.S. respondents believe MAP-21 – the recent law that changes how liabilities are calculated, potentially lowering contributions in the immediate future – will be effective, while almost one-quarter (21%) said it was too early to gauge the impact.
Popularity of alternatives declines in 2012. In previous polls, alternatives in portfolios steadily increased (78% in 2011). However, this year’s poll saw a slight decline in use (down to 65%), the same percentage as 2010. This decrease had the greatest impact on plans with more than $1 billion in assets, which dropped usage by 25%.