Equity Markets in November Improve Pension Funding

December 9, 2009 (PLANSPONSOR.com) - The net result of strong equity returns and a decline in corporate bond yields in November was a 1.6% increase in the Towers Perrin Pension Index to 68.5, according to the firm’s latest Capital Market Update.

The index reflects the asset/liability performance of a hypothetical benchmark pension plan. With the increase in November, Towers Perrin’s Pension Index is now up 3.8% from its 66.0 value at the start of 2009, but down 6% from its November 30, 2008 level of 72.9, according to a press release. 

Additionally, the benchmark investment portfolio used in the index recorded a 3.5% return for November, which pushed up the year-to-date return to 18.1%. The index liability measure (based on projected benefit obligations) moved up 1.7% for the month, and has increased 12.5% for the year.

In its tracking of the aggregated pension financial results for a group of 300 large U.S. companies – the TP 300 – Towers Perrin estimates the aggregate unfunded amount at $320 billion as of November 30, 2009, better than the $342-billion unfunded amount reported for October (see Towers Perrin Pension Index Sees Uptick in October), and slightly less than the $339 billion unfunded that the companies reported at the close of their 2008 fiscal years. 

The updated funded status figure reflects the net impact of a number of offsetting factors: a significant decline in discount rates pushing up liability values, strong returns pushing up (the relatively smaller) asset amounts and a high rate of expected plan contributions, significantly in excess of the cost of benefits earned during the year, Towers Perrin said.

The latest Capital Market Update is here.