The financial health of corporate pension plans, as indicated by the aggregate funding ratio of S&P 500 Index company pensions, increased by nearly five percentage points in fiscal 2017, according to Wilshire Consulting’s latest survey of 267 companies in the S&P 500 Index.
Specifically, the report shows that the aggregate ratio of pension assets-to-liabilities, or funded ratio, for S&P 500 companies sponsoring corporate defined benefit pension plans increased by 4.9 per cent to 85.8 per cent at the end of fiscal 2017 from 80.9 per cent at the end of fiscal 2016, according to the 2018 Wilshire Consulting Report on Corporate Pension Funding Levels.
“Robust investment returns and contributions drove asset values higher in 2017,” says Ned McGuire (pictured), Managing Director and a member of the Pension Risk Solutions Group of Wilshire Consulting. “Wilshire estimates that aggregate assets increased to USD1,433.1 billion as of fiscal year end 2017, an increase of nearly 6.5 per cent from USD1,346.0 billion as of fiscal year end 2016. Concurrently, contributions increased asset value by 4.48 per cent for the year, almost all coming from plan sponsors.”
“As interest rates fall, companies are forced to lower their discount rates, thereby increasing the accounting value of total pension liabilities. The median discount rate decreased by 48 basis points to 3.66 per cent from 4.14 per cent, which is the primary reason for the aggregate actuarial loss of USD92.5 billion. Liabilities, in turn, increased by USD5.2 billion, or 0.3 per cent, in 2017,” he adds.
Of the plans studied, 17.7 per cent had pension assets that equal or exceed liabilities as of fiscal year-end 2017, compared to 10.6 per cent at year-end 2016. It’s important to note that at fiscal year-end 2007, five years into a recovery from the 2000-2002 bear market, 42 per cent of S&P 500 defined benefit plans were at a fully-funded or surplus status.
The aggregate pension expense for the S&P 500 Index companies in our study was USD25.4 billion for 2017, down from USD30.0 billion a year ago.
“The expected rate of return for pension assets has been declining in recent years,” says McGuire. “The median expected return was 9.50 per cent at the end of 2000 and fell to 6.90 per cent at the end of 2017.”
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