DB Funded Status Continues Struggle in 2016

Data from several providers indicate U.S. corporate pension plans’ funded status fell in April.

According to the BNY Mellon Institutional Scorecard, the funded status of typical U.S. corporate defined benefit (DB) plans fell by 0.3% in April, to 79.9%.

Likewise, Mercer found the estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by one percent to 78% as of April 30, as a decrease in discount rates more than offset mildly positive equity markets. And, S&P 500 aggregate pension funded status decreased in April from 78.2% to 77.9%, according to the Aon Hewitt’s Pension Risk Tracker.

According to BNY Mellon, after a slight increase in March, the funded status of corporate defined benefit (DB) plans has now fallen five out of the last six months, since closing the month of October, 2015, at 84.7%. Over the course of April, liabilities grew by 1.6%, which outpaced a modest 1.2% return in assets. Corporate discount rates fell by 9 basis points in April, to 3.91%—which led to much of the 1.6% gain in liabilities. For the year, assets are now up 4.4%, but remain behind liabilities, which are up 9.1%.

Funded status is now down by $100 billion from the $404 billion deficit measured at the end of 2015, according to Mercer. “After a rough first quarter of 2016, April continued the trend of declining funded status,” says Matt McDaniel, a partner in Mercer’s retirement business. “Long term interest rates continue to fall in spite of the Fed’s rate hike last year.” McDaniel notes, however, this presents some compelling savings opportunities for plan sponsors making lump sum payouts. “With rates down 50 basis points from last fall, plans paying lump sums in 2016 can book gains when using the IRS-prescribed rates. However, this window of opportunity is closing, and plan sponsors will need to move quickly to take advantage.”

Aon Hewitt found that year-to-date, the aggregate funded ratio for S&P 500 plans decreased from 81.1% to 77.9% and the funded status deficit increased by $92 billion. Aon Hewitt estimates that this change was driven by asset gains of $29 billion overshadowed by a liability increase of $121 billion.

BNY Mellon Institutional Scorecard, which is available online here. Aon Hewitt’s Pension Risk Tracker is at https://pensionrisktracker.aon.com/.