Even though equities continued to turn in impressive returns in May, the shift came as a result of the 7.86% growth in liabilities fueled by the positive performance of long bonds (especially Treasuries). Such high monthly positive growth for both equities and liabilities has not been seen since July 1997, when the S&P improved 7.96% and liabilities grew 8.53% , according to data from Ryan Labs.
Since December 1999 though, the asset-to-liability growth rate difference (pension deficit) is now 70.73%, suggesting funding ratios below 60% for most pensions. Ryan said that moving the funding ratio 71% to the left would cause many pension plans to fall into a deep deficit position. Higher contributions, earnings drag, Pension Benefit Guaranty Corporation (PBGC) premium penalties and even solvency issues will confront America’s pensions over the next few years, Ryan said.
Ryan’s data is based on roughly $200 billion in assets tracked in its Custom Liability Index system. The first liability index was put together by Ryan in 1991.