NU Online News Service, March 25, 2:13 p.m. – Funding levels at defined-benefit pension plans fell 10% to 15% worldwide last year, mainly because of the downturn in capital markets, according to a new analysis by Towers Perrin, Valhalla, N.Y.
The benefits consulting firm found the second straight year of poor results for pension plans in the countries studied.
Benchmark plans in the United States, United Kingdom, Japan and part of Europe fell about 25% in funding levels over the last two years, while Canada and Australia had losses of about 15% during that time. Australia had the best performing benchmark plan in 2001, with an equity return of 10%. Increased liabilities, however, caused Australian plan funding levels to drop 2%.
Although most nations’ stock market returns and interest rates fell in 2001, increasing liabilities also played a role in weakening funding levels in many plans outside Australia, Towers Perrin says.
The effect of the most recent results on pension plans’ financial soundness was eased by the plans’ exceptional investment performance during the bull market in the late 1990s, notes Massimo Borghello, a senior actuary atTowers Perrin. The good years let plans build up surpluses that are helping them through the recent lean times.
The consulting firm advises multinational employers with defined-benefit plans to review the funding of their plans, along with local contribution requirements and key actuarial assumptions, such as assumptions for plan expenses. It also urges employers to take a fresh look at their plans’ investment strategies.