Funded Status of U.S. Pension Plans Falls in 1st Quarter, Aon Analysis Finds

LINCOLNSHIRE, Ill., April 9, 2015 /PRNewswire/ -- The funded status of U.S. pension plans dropped in the first quarter of 2015 as liabilities outpaced asset growth, according to a new analysis by Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON).

According to Aon Hewitt's Pension Risk Tracker[1], the funded deficit for U.S. pensions increased by $32 billion in the first quarter of 2015 and the aggregate funded ratio dropped to 82.0 percent in the first quarter of 2015, from 83.2 percent in the previous quarter.

"The first quarter saw variability in funded status from month to month, with February's improved funded status ultimately being offset by decreases in both January and March," explained Ari Jacobs, Global Retirement Solutions leader at Aon Hewitt. "Falling interest rates continue to drive liabilities higher, outpacing pension asset growth. As a result, we anticipate continued settlement activity throughout 2015. Additionally, in-year declines in interest rates may contribute to the attractiveness of lump sum programs, which often base lump sum rates on interest rate levels from the end of the previous year, resulting in potential accounting gains for plan sponsors."

Pension liabilities increased by 2.1 percent, or $44 billion in the first quarter, as interest rates fell. The drop in ten-year Treasury rates (-0.23 percent) and widening credit spreads (0.05 percent), resulted in a 0.18 percent drop in the discount rate over the quarter for the typical pension plan. 

This rise in pension liabilities overshadowed the 2.27 percent returns, or $12 billion of asset growth for the same period. Return-seeking assets in the Russell 3000 Index returned 1.80 percent, while bonds outperformed equities during the first quarter.

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[1] Aon Hewitt tracks the daily funded status of 361 S&P 500 companies with defined benefit pension plans. The above analysis reflects the roll-forward of the total defined benefit pension plan information from the FYE 2013 10-K disclosures.

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