Funded Ratio of U.S. Pension Plans Eroded Further in April

“Long-term interest rates continue to decline in 2014, taking away about half of the improvements that we saw in 2013,” Jim Ritchie, a principal in Mercer’s retirement business, said in a statement.

“While many plan sponsors and investment analysts expect interest rates to rise in the future, any decreases in long-term rates over a short period of time can be very disruptive to plan sponsors.”

Ritchie said the first few months of the year illustrated how quickly pension gains could be erased.

He noted that some plan sponsors were faring a lot better than others this year, in particular ones that have implemented risk management strategies such as risk transfer programs or “glide path policies,” whereby asset allocation becomes more conservative as the policy approaches a target date.

Mercer’s monthly US Pension Buyout Index, which allows plan sponsors to see the relative cost of a buyout by an insurer of retiree liabilities of a defined benefit plan and how that cost changes over time, increased from 108.4% to 108.6% in March. The economic cost of maintaining the liability remained level at 108.7% of the balance sheet liability.