Increase in Liabilities Brings Pension Funding Down in January

The aggregate funded ratio for U.S. corporate pension plans declined to 74.3% for the month of January, according to Wilshire Consulting.

The decrease in funding was the result of a greater increase in liability value versus a smaller increase in asset value.

“We estimate that overall the funded ratio for the sample plan decreased by 3.5% from 77.8% to 74.3% in January. This decrease was driven by the larger increase in liability value of 5.7% versus the 0.9% increase in asset value. The asset result is due to positive returns for fixed-income assets, while the liability value increased due to falling corporate bond yields,” says Ned McGuire, vice president and member of the Pension Risk Solutions Group of Wilshire Consulting.

The funded ratio is down from 85.8% as of January 31, 2014, according to Wilshire data.

The aggregate figures represent an estimate of the combined assets and liabilities of corporate pension plans sponsored by S&P 500 companies with a duration in-line with the Citi Group Pension Liability Index – Intermediate. The Funded Ratio is based on the CPLI – Intermediate liability, with service cost, benefit payments and contributions in-line with Wilshire’s 2014 corporate funding study. The most current month end liability growth is estimated using the Barclays Long Aa+ U.S. Corporate Index.

The assumed asset allocation for the sample plan is 33% U.S. equity, 22% non-U.S. equity, 17% core fixed income, 26% long-duration fixed income, and 2% real estate.