S&P 500 Pension Deficit Increased in 2015

The aggregate funded ratio decreased from 81.3% to 80.0% for the year.

The Aon Hewitt Pension Risk Tracker, which tracks daily funded status for S&P 500 companies with defined benefit pension plans, found that the funded status deficit of U.S. pension plans increased by $9 billion during 2015.

The aggregate funded ratio decreased from 81.3% to 80.0% for the year. Aon Hewitt estimates this change was driven by a liability reduction of $92 billion, which was outpaced by asset declines of $101 billion for the year.

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“2015 was a rollercoaster year for pension plan sponsors as Congress provided another round of funding relief, but also increased PBGC premiums. At the same time, pension plan assets dipped despite continued contribution levels,” explains Ari Jacobs, senior vice president, Global Retirement Solutions leader at Aon Hewitt. “Looking ahead, we anticipate most plan sponsors will budget for additional pension contributions in 2016. This will help plan sponsors close the gap on pension funded status and minimize the impact of PBGC premiums.”

In Q4 2015, the aggregate funded ratio increased from 78.7% from the previous quarter-end to 80.0%. The funded status deficit decreased by $31 billion for the quarter. Asset gains of $14 billion along with a liability reduction of $17 billion largely fueled this change, according to Aon Hewitt.

As rates increased, pension liabilities decreased by 0.84%. Ten-year Treasury rates were up by 21 bps over the quarter and credit spreads narrowed by 13 bps, resulting in an 8 bps rise in the discount rate over the quarter for an average pension plan. Return-seeking assets were relatively prosperous throughout the quarter, with the Russell 3000 Index returning 6.3%. Bonds were outperformed by equities during the quarter, with the Barclay’s Long Gov/Credit Index returning -0.9% over this timeframe. Overall pension assets returned 2.1% over the quarter.

S&P 500 aggregate pension funded status decreased slightly in December 2015 from 80.5% to 80.0%. December month-to-date pension asset returns were mostly negative before settling at a 1.20% return for the month. The month-end 10-yr Treasury rate increased 6 bps relative to the November month-end rate while credit spreads widened by 4 bps. This combination resulted in an increase in the interest rates used to value pension liabilities from 4.13% to 4.23% over the month. Increasing rates decreased pension liabilities to partially offset the negative effects from asset returns on pension funded status.

(b)lines Ask the Experts – Is the Form 5500 Extension Deadline Extended?

“I heard that there was an additional month added to the extended deadline for Form 5500 filings, so that calendar year returns are now due November 15th instead of October 15th for calendar year plans that request an extension. Is this true?”

Michael A. Webb, vice president, Cammack Retirement Group, answers:     

No, this is not true, but the Experts can certainly understand any confusion in this regard, as there has been a flurry of activity in this area in the past year.

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On July 31, 2015, President Obama signed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015. Among other provisions, this law changed tax filing deadlines for certain types of returns, including Form 5500s. Specifically, it moved the extension deadline by one month so that the maximum extension was 3-1/2 months, and not 2-1/2 months. The extension was to have taken effect beginning with the filing of 2016 5500s, so that returns for such plans, normally due on July 31, 2017, could be filed as late as November 15, 2017.

However, as referenced in an article in the December 2015 Issue of PLANSPONSOR magazine, apparently the Department of Labor (DOL) was not asked about this deadline change, and lobbied to reverse it and restore the old deadline extension of 2-1/2 months (October 15th for calendar-year plans). Sure enough, on  December 4th, President Obama signed the Fixing America’s Surface Transportation  (FAST) Act of 2015, which repealed the extended filing deadline passed less than five months earlier and restored the law that was previously in effect with regard to 5500 filings.

So essentially, this is a story of a deadline change that never was.

Thank you for your question!

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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