However, March’s 63.7% funding level represents a decline of 25 percentage points over the trailing twelve months, and stands as the second-worst figure ever seen in the data series, Towers Perrin said in its report. All equity classes moved up sharply in March, but the equity portfolio remains deep in negative territory since the market meltdown began, with a cumulative return of -38% over the trailing seven months.
The report said the funded ratio in March was driven by the following factors:
- The benchmark plan’s 60% equity/40% fixed income portfolio recorded a 5.5% return for March. The more conservative 40% equity portfolio came in at 4.1%, while the more aggressive 80% equity portfolio posted a 7% return for the month.
- Pension plan liabilities under FAS 87 are measured based on yields available on high quality corporate bonds as of the measurement date. Based on Towers Perrin’s methodology – which matches yields on high quality corporate bonds to projected cash flows – the discount rate for the benchmark plan increased 10 basis points for the month to 6.58%.
- 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) decreased by 0.6% in March, reflecting the net impact of interest accumulation and the increase in the discount rate.
The full report is here .