July Brought Slight Funding Drop for Pensions

U.S. corporate pension plans saw a minor decrease in funded status last month.

The aggregate funded ratio for U.S. corporate pension plans decreased to 86.1% for the month of July 2015, according to Wilshire Consulting, the institutional investment advisory and outsourced chief investment officer (OCIO) business unit of Wilshire Associates Incorporated.

While the month saw a slight decline, the 86.1% level heading into August “is exactly in line with Wilshire’s July 2014 funding estimate,” the firm notes. “The decrease in funding was the result of a larger increase in liability values compared to the increase in asset values.”

During July, the sample plan funded status decreased by 0.7%, from 86.8% in June. Ned McGuire, vice president and member of the Pension Risk Solutions Group of Wilshire Consulting, suggested the decline in funding levels “was driven by a 1.8% increase in liability values versus a 1% increase in asset values.”

“The asset result is due to positive returns for most asset classes,” he explains, “while liability values rose due to a decrease in corporate bond yields.”

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 2015 corporate funding study. The most current month end liability growth is estimated using the Barclays Long Aa+ U.S. Corporate Index.