UBS Pension Data Shows Q209 Funding Ratio Decline

July 6, 2009 ( - The typical U.S. pension fund started the second quarter with a funding ratio of approximately 85% and ended with a funding ratio of 81%, according to UBS Global Asset Management.

A UBS news release about its latest US Pension Fund Fitness Tracker said that for the quarter, a typical plan’s asset pool increased by approximately 9%. Overall, the 14% increase in liabilities more than offset the 9% increase in assets which led to a decrease in a typical plan’s funding ratio for the quarter.

The UBS data showed pension funding ratios increased by 6% in the prior quarter (see  Pension Funds Make Up Some Funding Ground in Q108 ).

UBS said second-quarter funding ratio performance was driven by two factors:

  • Stronger equity markets that finished the quarter significantly higher, which increased the value of the asset pool from which plan participants’ benefits are paid.
  • Lower discount rates, which led to a higher present value of pension liabilities.

Corporate credit spreads also narrowed significantly, more than offsetting the rise in interest rates, which led to a lower corporate bond yield curve and pension discount rate.

Yield curves steepened throughout most of the quarter on the back of Treasury supply concerns and increasing inflation expectations.  The 10-year Treasury sold off over 80 basis points for the quarter, sparked by mounting concerns over future inflation as a result of the massive fiscal and monetary stimulus introduced by U.S. policy makers.

“Positive surprises on the economic front provided momentum for equity markets throughout the second quarter,” said Aaron Meder, UBS Global Asset Management’s Head of Asset Liability Investment Solutions in the Americas, in the news release. “The S&P 500 Index finished the quarter significantly higher, up approximately 15%.”