Pension Funding Index January 2018

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By Charles J. Clark, Zorast Wadia | 10 January 2018

During 2017, corporate pensions experienced strong investment returns paired with decreasing discount rates. While the 2017 PFI funded ratio increased by eighty basis points, there is only muted appreciation for this positive move because it was accompanied by a $2 billion deterioration in funded status. While asset returns during 2015 and 2016 were below expectations, assets outperformed expectations during 2017 with a gain of 11.47%. Depsite the overall $2 billion funded status decrease, the year-end 2017 funded ratio improved slightly to 84.1% from 83.3% at the end of 2016. During 2017, the cumulative investment return was 11.47% while the cumulative liability return was 10.04%.

In December, the funded status experienced its largest decline for the year, dropping $22 billion. The deficit ballooned to $281 billion from a deficit of $259 billion at the end of November. December’s funded status decrease resulted from a 14 basis point decline in the corporate bond interest rates that are the benchmarks used to value pension liabilities. As of December 31, the funded ratio fell to 84.1% from 85.1% at the end of November.