Pension funding ratios in the United States fell 11% during the first quarter, according to UBS Global Asset Management.
Its U.S. Pension Fund Fitness Tracker finds that the typical pension fund ended the quarter with a funding ratio of approximately 90%, down from about 101% at the start of the year. The decrease was mostly due to an 8% drop in January.
This quarter’s funding ratio performance was driven by two factors: volatile equity markets that were weaker in Q1 and lower interest rates. These two themes have remained constant over the past three quarters and have been the primary cause of the steady decline in plan funded status.
“Market volatility was the dominant theme for the first quarter of 2008 as investors fretted over the U.S. credit crisis and the increasing probability of a U.S. recession,” explains Aaron Meder, UBS Global Asset Management’s head of asset liability investment solutions in the Americas. “Since mid-2007 corporate pension plans felt dramatic swings in the equity markets coupled with volatility in the fixed-income markets.”
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Investor risk aversion drove both equity markets and bond yields lower in the first quarter, which, in turn, drove funding ratios lower for corporate plan sponsors. The S&P 500 was down as much as 13% during the quarter, but recouped some of the losses in the last two weeks of March and finished the quarter down 10%.
Meder adds: “Investors reallocated assets out of equities and into fixed income in a flight to safety, based on fears of a possible recession in the U.S. and continued concerns over the credit crisis.”
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