Pension Funded Status Improves in Q215

The funded status of U.S. pension plans improved in the second quarter of 2015, with the deficit declining by $81 billion for the quarter, according to an analysis by Aon Hewitt.

The Aon Hewitt Pension Risk Tracker, which evaluates daily funded status for S&P 500 companies with defined benefit pension plans, shows second quarter aggregate pension funded status reached 83.4%, up from 80.7% in the first quarter of 2015.

“As interest rates improved over the quarter, overall plan liabilities decreased, leading to better funded status for U.S. pension plans,” says Ari Jacobs, global retirement solutions leader at Aon Hewitt. “Moving into the second half of the year, pension plan sponsors will need to keep a watchful eye on changes to interest rates, which could cause volatility in funded status.”

Funded status gains were largely driven by an estimated asset reduction of $57 billion, which was outpaced by a $138 billion reduction in liabilities year-to-date. Aon Hewitt’s analysis also showed that 10-year Treasury notes were up over the quarter (0.41%) and credit spreads widened to 0.17%, resulting in a 0.58% increase in the discount rate for the quarter for the average pension plan.

The Aon Hewitt analysis also found return-seeking assets appreciated with the Russell 3000 Index returning 0.1%. Bonds were significantly outperformed by equities, with the Barclay’s Long Gov/Credit Index returning -7.6%. Pension assets returns were down 2.1% over the quarter.