U.S. Pension Funding Ratios Fall in Third Quarter

October 4, 2011 (PLANSPONSOR.com) - Legal & General Investment Management America (LGIMA) announced that pension funding ratios fell approximately 22% in the third quarter of 2011. 

During the last two quarters funding ratios have dropped nearly 24%. LGIMA estimates the average funding ratio to be in the range of 70%-75% as of the end of the third quarter, approximately down 18% year-to-date.

LGIMA’s quarterly Pension Fiscal Fitness Monitor showed the decrease in funding ratios came from a combination of poor equity market performance and lower liability discount rates. Equity markets were down nearly 15% during the period on worse than expected economic news and elevated near-term uncertainly. This resulted in the traditional “60/40” investment strategy falling 8% in value. At the same time, bond yields fell resulting in pension discount rates decreasing 100 basis points from 5.7 to 4.7%, increasing the present value of a typical pension liability profile by approximately 14%.

LGIMA’s Head of US Pension Solutions, Aaron Meder said in a press release: “Plans using a traditional “60/40” investment strategy suffered the second largest quarterly funding ratio drawdown in the past 20 years. This likely represents more funding risk within their plans than they would have anticipated. As a result, we see the plan sponsor community taking a step back and evaluating when, not if, they will take some risk off the table.”