Pension Funding Ticks Down in Q2

July 14, 2011 ( - During Q2 2011, the funded status of the model plan analyzed by Sibson and Segal Advisors declined from 87% to 86%.

The firms’ Prism publication says this was driven by both the decline in interest rates and the modest growth in assets.  

The report said overall, domestic equities posted slightly negative returns while international equities ended positive in Q2 2011. This marked the first negative results for domestic equities since Q2 2010, while international equities posted gains for the fourth consecutive quarter. In a reversal from the prior quarter, large-capitalization stocks outperformed small-capitalization stocks. Within international equities, emerging markets underperformed developed markets for the second consecutive quarter. Global bonds, as measured by the Citigroup World Government Bond Index (WGBI), experienced strong results, posting a 3.3% gain for the quarter.  

According to the report, the modest decrease in the yield curve level during 2011 resulted in a decrease in the model plan’s effective interest rate of about six basis points, which led to a very slight increase in liabilities. The modest changes to the shape of the yield curve (especially at the very short end) and the decrease in rates will have different effects for plans with different maturities – with less mature plans (higher liability durations) experiencing a slightly less pronounced increase (and possibly even a decrease) in liabilities, and more mature plans experiencing a liability increase slightly more than a typical plan.  

Prism examines the effect of changes in the assets and liabilities of a model defined benefit plan on its funded ratio over the four most recent quarters, viewing such changes through a marked-to-market lens.