Products April 28, 2011

UBS Offers ETN Linked to Business Development Company Index

April 28, 2011 (PLANSPONSOR.com) - UBS Investment Bank announced that it has added to its suite of E-TRACS Exchange Traded Notes (ETNs) an E-TRACS linked to the Wells Fargo Business Development Company (BDC) Index.
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The new ETN began trading on NYSE Arca under the ticker symbol BDCS.  

UBS explained in a press release that BDCs are public vehicles that invest in private equity and debt and were created to increase financing available to small businesses. They function much like private equity funds, although BDCs allow various investors, regardless of size, to participate. A BDC lends to small and midsized companies at high yield equivalent rates and often takes equity stakes in these companies.   

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The Wells Fargo Business Development Company Index is comprised of 26 BDCs and is a float adjusted, capitalization-weighted index that is intended to measure the performance of BDCs that are publicly listed, satisfying specified market capitalization and other eligibility requirements.  

More information is at http://www.ubs.com/e-tracs.
Administration April 28, 2011

Low Interest Rates Hold Back Pension Funding Levels

April 28, 2011 (PLANSPONSOR.com) - Pension funding levels at large U.S. companies improved modestly at the end of last year, largely due to the moderate stock market gains and employer contributions.
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However, lower interest rates increased pension liabilities and continued to suppress funding levels to well below those in 2007, when the average pension plan was fully funded, according to new analysis by Towers Watson.  

The TW 100, an analysis of pension data for the 100 publicly traded domestic organizations with the largest U.S. pension obligations, found the average pension funded status has increased by three percentage points — from 80% at the end of 2009 to 83% at the end of 2010. The companies contributed slightly over $40 billion to their pension plans in 2010, significantly more than the $30 billion they contributed in 2009.   

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Aggregate asset values for these plans grew from $843 billion at year-end 2009 to $926 billion at year-end 2010, roughly a 10% gain. While the aggregate funding status increased over the last year, funding status has still declined by $267 billion since the end of 2007, when the average pension plan was fully funded, according to a press release.   

The TW 100 companies had a 46-basis-point decline in discount rates from year-end 2009 to year-end 2010. In addition, corporate bond yields, which are important in calculating contribution requirements and financial statement costs related to pension plans, have declined significantly over time. For example, the Merrill Lynch 10+ High Quality Index yield, a benchmark for high-quality long duration corporate bond yields, declined from 9.39% at the end of 1990 to 5.34% at the end of 2010.   

“Sponsors are recognizing that changes in interest rates influence the level of benefits paid from their plans in unintended ways and are starting to address these issues. Employers are also revisiting other facets of their overall strategy, from accounting methods and assumption-setting processes to the implementation approach for liability-driven investment strategies,” said Mark Ruloff, director of asset allocation at Towers Watson Investment Services, in the announcement.  

Additional TW100 findings include: 

  • Returns for 2010 were not as strong as those realized in 2009, but sponsors have experienced two solid years of investment gains after the financial crisis in 2008. In 2009, the average investment return was 17.8%, and in 2010, it was 13.0%. 
  • From 2008 to 2009, on average, discount rates fell by 47 basis points (from 6.39% to 5.92%). Over the last year, interest rates fell an additional 46 basis points so that by the end of 2010, the average discount rate was 5.46%. 

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