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Pension funding ratios improve as liabilities drop

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A drop in liabilities has improved pension funding ratios for the second quarter of 2015.

That’s according to the UBS Global Asset Management US Pension Fund Fitness Tracker, which found that in Q2 2015 the funding ratio increased to 87 percent for the typical U.S. corporate pension plan.

The incorporation of new mortality tables at the end of last fiscal year saw the funding ratio fall by about six points, according to UBS. But a strong decrease in liabilities in the second quarter brought funding ratios up by about a point.

Read: Corporate pension funding improves in April

“It is worth noting that in the absence of the mortality adjustment, the average funding ratio would stand close to 92 percent, the same level it was in the last quarter of 2013,” Robert Guzman, head of pension risk management at UBS Global Asset Management, said in a statement.

He added, “Interest rates reversed their decline with the yield on the long end of the Treasury market increasing 58 basis points over the second quarter. We continue to advise our clients to adhere to their de-risking program as the timing/direction of movements in long-term interest rates is uncertain.”

Treasury yields rose strongly, and, combined with widening credit spreads, caused liability values to fall by about 7.3 percent in the second quarter of 2015.

Investment returns over the quarter were -0.6 percent. UBS said that those estimates are based on the average corporate plan’s reported asset allocation weightings from the UBS Global Asset Management Pension 500 Database and publicly available benchmark information.

Funding ratios measure a pension fund’s ability to meet future payout obligations to plan participants.

The main factors impacting the funding ratio of a typical U.S. defined benefit plan are equity market returns, which grow (or shrink) the asset pool from which plan participants’ benefits are paid, and liability returns, which move inversely to interest rates.


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