Aggregate pension funded level lower at 2015 endNews added by Benefits Pro on February 5, 2016

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By Marlene Y. Satter

Two reports indicate that pension funding levels have decreased, with S&P 1500 companies falling by 3 percent as of the end of January and U.S. institutional pension fund assets overall coming in at $21.7 trillion at year-end 2015 (compared with 2014’s $22.1 trillion).

The drop in S&P 1500 companies’ estimated aggregate funding levels was reported by consulting firm Mercer, which said that negative equity markets and a decrease in rates caused the 3 percent drop to a level of 79 percent.

As of January 31, the report said, , the estimated aggregate deficit of $472 billion increased by $68 billion as compared to the $404 billion deficit measured at the end of 2015.

The S&P 500 index dropped 5.1 percent and the MSCI EAFE index dropped 7.3 percent in January, the report said, adding that the typical discount rates for pension plans as measured by the Mercer Yield Curve decreased to 4.13 percent.

“In just one month of 2016, we have seen the entire improvement in funded status for 2015 disappear,” Jim Ritchie, a principal in Mercer’s retirement business, said in a statement.

Ritchie added that 2015 “may have been the end of the latest bull market, causing a great deal of stress on corporate pension plans. While many plan sponsors have taken steps to derisk their pension plans, 2016 will be a test on how much risk pension plans still retain.”

Willis Towers Watson’s “Global Pension Assets Study” pointed to the growth in alternative assets and globalization in equities as solid trends — although the latter is not as popular in the U.S. as it is in other countries.

Allocations to alternative assets, the report said — especially real estate, and to a lesser extent hedge funds, private equity and commodities — have increased in the U.S. from 17 percent to 27 percent.

When it comes to globalization in equities, U.S. pension plans have retained the highest bias for domestic equities; in 2015 domestic, not international, equities made up 63 percent of portfolios.

In fixed-income investment, only Canada outdoes the U.S. in the strength of its home bias — 98 percent for Canada and 87 percent for the 2015 — compared with other countries, where Swiss funds, for example, have cut their exposure to domestic bonds by 34 percent since 1998.

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