The Pension Outlook: Finally Some Good News

Q: How did US corporate Defined Benefit (DB) pension funds fare in 2016?
A: 2016 was an up and down year for many DB plans. Early in the year, long-term interest rates and equities fell simultaneously, contributing to a decline in funded levels. By our estimate, aggregate funded status at one point fell by as much as 5% during 2016, leaving plans trying to recover over the course of the rest of the year. The subsequent rise in interest rates and US equities post the US presidential election helped to increase funded levels, but we estimate that in aggregate, US DB plans within the S&P 500 index are about 82% funded on a GAAP PBO basis, essentially right where they began the year. While the recent rise in funded levels is welcomed, many plans have only clawed back the decline in funded status they saw earlier this year. Obviously, the results of individual plans will vary based on such factors as asset allocation, contribution activity and whether the plan is still accruing new benefits.