The UBS Global Asset Management U.S. Pension Fund Fitness Tracker found that the typical U.S. pension plan’s funding ratio declined by five percentage points during the second quarter, from 83% to 78%. UBS attributes the decrease to rising plan liabilities and low market returns.
During the quarter, equity markets performed poorly in an uncertain economic and political environment. Fixed income assets were mixed, with moderate increases across credit bonds, large increases in the U.S. government bond markets and negative returns across international government bonds. Cumulatively, aggregate performance of the capital markets led to a decline of more than 1% on a typical U.S. pension plan’s assets.
Liability values sharply increased over the quarter. U.S. Treasury yields plummeted while credit spreads widened considerably, with the decrease in interest rates overwhelming the widening in credit spreads. For the quarter, pension discount rates are estimated to have decreased by approximately 40 basis points (bps), resulting in a large increase in pension obligations.