The aggregate funded ratio for S&P 500 companies’ corporate defined benefit pension plans increased to 85.8% at the end of fiscal 2017 from 80.9% at the end of fiscal 2016, according to a report from Wilshire Consulting.
“Robust investment returns and contributions drove asset values higher in 2017,” Ned McGuire, managing director of Wilshire Consulting, said in a release. “As interest rates fall, companies are forced to lower their discount rates, thereby increasing the accounting value of total pension liabilities.”
Wilshire estimates that aggregate assets increased to $1.433 trillion as of fiscal year-end 2017, an increase of nearly 6.5% from $1.346 trillion as of fiscal year-end 2016. It said robust investment returns and contributions drove asset values higher for the year, and that contributions increased the aggregate asset value by 4.48% for the year, almost all coming from plan sponsors. Investment income increased the asset value by more than 13% for the year, while benefit payments are estimated to have decreased the asset value by nearly 7%.
The median discount rate decreased to 3.66% from 4.14%, which McGuire said is the primary reason for the aggregate actuarial loss of $92.5 billion. Liabilities increased by $5.2 billion, or 0.3%, in 2017, he added. At the same time, the aggregate pension deficit decreased to $236.5 billion at the end of 2017 from $318.3 billion at the end of 2016.
“The expected rate of return for pension assets has been declining in recent years,” said McGuire. “The median expected return was 9.50% at the end of 2000 and fell to 6.90% at the end of 2017.”
Of the plans studied, 17.7% had pension assets that equal or exceed liabilities as of fiscal year-end 2017, compared to 10.6% at year-end 2016. By comparison, at fiscal year-end 2007, 42% of S&P 500 defined benefit plans were at a fully-funded or surplus status.
For the report, Wilshire Consulting collected data on US pensions from 10-K filings for companies in the S&P 500 Index at fiscal year-end. All data for 2017 is based on S&P 500 Index constituents as of year-end 2017 and therefore may differ slightly from the list of companies represented in earlier years, said Wilshire.