It’s good news for some defined benefit(DB)pension plans. According to estimates from Towers Perrin, Fortune 100 companies are just over 100% funded in aggregate at year-end.
This increased from the 91% aggregate funded level at year-end 2005. The firm estimates that the 79 Fortune 100 companies that have DB plans hold an aggregate pension funding surplus of about $23 billion as of year-end 2006.
Similarly, UBS Global Asset Management’s pension fund tracker indicated that a typical pension fund starting in 2006 with a funding ratio of approximately 90% finished the year with a ratio of almost 103%.
Driving this surge, according to both UBS and Towers Perrin, was investment returns and a slight increase in interest rates in 2006. Towers Perrin also acknowledges pension contribution as a factor, too, indicating that the average Fortune 100 company’s pension contribution increased to about $470 million in 2006 from roughly $80 million in 1999.
Despite positive numbers, though, UBS indicates that funding ratio volatility(due to fluctuating interest rates)and pension plans’ heavy reliance on equity market risk will certainly concern pension plan managers.
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