Pension Funded Status Declined 2% in Q2

July 8, 2011 ( - The UBS Global Asset Management US Pension Fund Fitness Tracker found that the typical pension plan’s funding ratio decreased by slightly less than 2% during the second quarter.

UBS said this result was primarily driven by two factors: 

  • Increased liability values resulted from a strong rally in U.S. Treasury yields. This decrease in interest rates, which was only marginally offset by a widening of credit spreads, led to a lower corporate bond yield curve and pension discount rate. 
  • Performance was mixed across asset classes, with a slight increase in global equities and sizable increases in fixed income assets, leading to somewhat positive returns on pension assets. 


According to a press release, for the second quarter, a typical plan’s asset pool returned approximately 1.5%, based on the average corporate plan’s reported asset allocation weightings and publicly available benchmark information. Following a healthy April, risky asset markets weakened during the remainder of the second quarter in the face of generally poor economic data and sovereign debt concerns.  

However, in late June, news of the Greek parliament approving legislation to implement austerity measures, and presumably avoiding default, resulted in a rally in global equities leading into the close of the quarter. The S&P 500 Total Return Index finished the quarter up approximately 0.1%, underperforming other developed markets, with the MSCI EAFE index finishing up approximately 1.6%.  

Bond markets rallied throughout the second quarter, as growing concerns in global macroeconomic conditions and sovereign debt drove increasing demand for fixed income placing downward pressure on bond yields. The 10-year US Treasury yield decreased by 31 basis points, finishing the quarter at 3.16% as compared to the March 31st yield of 3.47%. High-quality corporate bond credit spreads, as measured by the Barclays Capital Long Credit A+ option adjusted spread, ended the quarter approximately 2 basis points wider.   

As a result, pension discount rates (which are based on the yield of high-quality investment grade corporate bonds) decreased by roughly 15 basis points during the quarter. For the quarter, liabilities for a typical pension plan increased by approximately 3%.  

Francois Pellerin, Head of Asset Liability Investment Solutions, said in the press release: “For many sponsors, Q2’s adverse performance has erased more than half of Q1’s funded status improvements. Although funded positions are still well ahead of where they were at this time last year, sponsors who have adopted a pension risk management framework have experienced higher funded status protection during Q2.”