Pension Funded Status Sees Uptick in September

October 12, 2009 ( - The net impact of strong portfolio returns and a decline in corporate bond yields was a 0.6% increase in the Towers Perrin Pension Index, to 67.3, in September, according to the latest Capital Market Update.

The report said that the current index value is now up 2% from its 66.0 value at the start of 2009, but is down 21.6% from its September 30, 2008 level of 85.8. 

The benchmark investment portfolio used in the index realized a 2.8% return for September and has returned 15.7% through the first nine months of 2009, according to the report. Meanwhile, the index liability measure (based on projected benefit obligations) moved up 1.8% in September and has increased 12.4% for the year to date.

Towers Perrin also tracks the aggregated pension financial results for a group of 300 large U.S. companies, the TP 300, and estimates that there has been essentially no change in the aggregate funded status for the 300 companies since the close of the 2008 fiscal year, with the aggregate unfunded amount now estimated at $340 billion as of September 30, 2009.  The firm said changes in the aggregate funded status reflect the net impact of a number of offsetting factors, including a significant decline in discount rates pushing up liability values, strong returns pushing up (the relatively smaller) asset amounts, and a rate of expected plan contributions significantly in excess of the cost of benefits earned during the year.

According to the report, equity returns continued strong across the board in September, extending a stock market recovery that began in March. International equity remains the portfolio’s year-to-date return leader at 29%.Decreasing yields led to another month of strong returns on long maturity bonds, while returns on short-term securities remain near zero.

Yields on long corporate bonds dropped about 20 bps in September. This fifth straight monthly decline brought corporate yields roughly 130 bps below their April levels, the report said. In contrast, during this same time period, rates on Treasury securities and swaps have been relatively stable. This combination of results has brought the credit spread (the gap between government and high quality corporate bond yield) down to about 150 bps.

The September 2009 Capital Market Update is here .