Towers Perrin Sees a New Low Funded Ratio of Pension Plans

January 8, 2009 ( - In the latest capital market update from Towers Perrin the funded ratio for Towers Perrin's benchmark pension plan showed a 6.9 percentage point decline for December and a 19.8 percentage point decline for the fourth quarter of 2008.

The resulting year-end funded ratio of 66% is the lowest level recorded in the firm’s data series, initiated in 1990, Towers Perrin said in a press release. The benchmark plan’s funded level at the start of the year was 92.7%.

The announcement said the funded ratio result is driven by the following factors:

  • The benchmark plan’s 60% equity/40% fixed income portfolio recorded a positive 2.9% return for December, but still posted a negative return of minus 22.8% for the year.
  • The plan’s discount rate declined by 1.2% in December to 6.1%.  The large yield declines over the last two months have pushed the discount rate down 17 basis points below its level at the start of the year.

Mike Archer, Towers Perrin chief actuary, pointed out that similar to bond prices, values for pension obligations move in the opposite direction of interest rates Towers Perrin’s liability index (based on projected benefit obligations) increased 14.3% for December, reflecting the combined impact of interest accumulation and the decrease in the discount rate.