As the economic effect from the coronavirus continues to reverberate through markets, the funded ratios for corporate pension plans in the US slid 4 percentage points in February from the month before, dropping them to their lowest levels since 2016.
On average, company pension systems ended the month with an 82% funded ratio, as both asset values in portfolios fell 1.8%, while liabilities rose 2.8%, according to a monthly report from investment advisory firm Wilshire Consulting.
“February’s decrease in funded ratio was driven by a perfect storm of economic forces for corporate defined benefit pension plans,” Ned McGuire, managing director at Wilshire, said in a statement.
A significant decline in risk assets is among the factors driving the decrease. Meanwhile, liabilities jumped thanks to a 40 basis point decrease in Treasury returns, despite an increase in credit spreads.
That means year-to-date, and for the past 12 months, the funded ratio dropped roughly 6.9 and 8.8 percentage points, respectively.
The lower returns are a concern for individual state pension plans, such as the New York State Common Retirement Fund, which has its fiscal year end coming up this month immediately after the historic market beating from the coronavirus.
“As our fiscal year end approaches, we’re closely monitoring markets and cautiously optimistic that we meet our investment target this year,” a spokesman for the New York fund said in a statement this week.
Other retirement systems are worrying about how the disease will affect their first fiscal quarters for the year. About 70% of pension plans end their fiscal years in June, while another 30% end in December, according to the Center for Retirement Research at Boston College. A small number, including the Common Retirement Fund, end in March.