SANTA MONICA, Calif.--(BUSINESS WIRE)--The financial health of corporate pension plans, as indicated by the aggregate funding ratio of S&P 500 Index company pensions, increased by nearly five percentage points in fiscal 2017, according to Wilshire Consulting’s latest survey of 267 companies in the S&P 500 Index that maintain defined benefit plans. Specifically, the report shows that the aggregate ratio of pension assets-to-liabilities, or funded ratio, for S&P 500 companies sponsoring corporate defined benefit pension plans increased by 4.9% to 85.8% at the end of fiscal 2017 from 80.9% at the end of fiscal 2016, according to the 2018 Wilshire Consulting Report on Corporate Pension Funding Levels.
“Robust investment returns and contributions drove asset values higher in 2017,” stated Ned McGuire, Managing Director and a member of the Pension Risk Solutions Group of Wilshire Consulting. “Wilshire estimates that aggregate assets increased to $1,433.1 billion as of fiscal year end 2017, an increase of nearly 6.5% from $1,346.0 billion as of fiscal year end 2016. Concurrently, contributions increased asset value by 4.48% for the year, almost all coming from plan sponsors.”
“As interest rates fall, companies are forced to lower their discount rates, thereby increasing the accounting value of total pension liabilities. The median discount rate decreased by 48 basis points to 3.66% from 4.14%, which is the primary reason for the aggregate actuarial loss of $92.5 billion. Liabilities, in turn, increased by $5.2 billion, or 0.3%, in 2017,” he added.
Of the plans studied, 17.7% had pension assets that equal or exceed liabilities as of fiscal year-end 2017, compared to 10.6% at year-end 2016. It’s important to note that at fiscal year-end 2007, five years into a recovery from the 2000-2002 bear market, 42% of S&P 500 defined benefit plans were at a fully-funded or surplus status.
The aggregate pension expense for the S&P 500 Index companies in our study was $25.4 billion for 2017, down from $30.0 billion a year ago.
“The expected rate of return for pension assets has been declining in recent years,” McGuire commented. “The median expected return was 9.50% at the end of 2000 and fell to 6.90% at the end of 2017.”
This is the eighteenth corporate funding report issued by Wilshire Consulting, the institutional investment advisory and outsourced-CIO business unit of Wilshire Associates Incorporated (Wilshire®), a diversified global financial services firm. Wilshire Consulting assists in ensuring secure and safe retirements for millions of Americans including those participating in some of the nation’s largest corporate and public retirement plans.
To prepare the report, Wilshire Consulting collects data on U.S. pensions from 10-K filings for companies in the S&P 500 Index at fiscal year-end. All data for fiscal year 2017 is based on S&P 500 Index constituents as of year-end 2017 and, therefore, may differ slightly from the list of companies represented in earlier years.
About Wilshire Consulting
Through its investment consulting services to public and corporate clients, Wilshire Consulting assists in ensuring secure and safe retirements for millions of Americans including those participating in some of the nation’s largest public and corporate retirement plans. Combined with its endowment, foundation and major insurance company clients, it consults on combined total assets of nearly $1 trillion.
As the institutional investment advisory and outsourced-CIO (OCIO) business unit of Wilshire Associates, Wilshire Consulting has provided custom investment consulting solutions to plan sponsors for 35 years. Wilshire consultants provide strategic advice on critical strategic advice including asset allocation, risk management, investment policy development, asset class structuring, investment manager evaluation and monitoring, and actuarial services.
Wilshire Consulting’s outsourced chief investment officer practice (OCIO), offers clients a holistic option that is built on our culture of risk management and our expertise in all areas of investment strategy. Wilshire Consulting's customized OCIO services include full discretionary services or implemented services where plans outsource their back office.
Built on Wilshire Associates’ foundation in investment analytics, Wilshire Consulting offers clients access to and use of innovative and proprietary risk management consulting, which provides us a meaningful competitive advantage. Consulting clients can benefit from ex-ante, forwarding looking risk analysis at the manager, asset class and total fund levels. Wilshire’s global footprint and firm wide expertise in hedge funds, alternative risk premia and private markets allows our clients to effectively consider adding, expanding or modifying an alternatives investment program. Follow Wilshire Consulting on Twitter: @WilshireConsult.
About Wilshire Associates
Wilshire Associates, a leading global financial services firm, provides consulting services, analytics solutions and customized investment solutions to plan sponsors, investment managers and financial intermediaries. Its business units include, Wilshire Analytics, Wilshire Consulting, Wilshire Funds Management and Wilshire Private Markets. The firm was founded in 1972, providing revolutionary technology and acting as an early innovator in the application of investment analytics and research to investment managers in the institutional marketplace. Wilshire also is credited with helping to develop the field of quantitative investment analysis that uses mathematical tools to analyze market risks. All other business units evolved from Wilshire’s strong analytics foundation. Wilshire developed the Wilshire 5000 Total Market Index and became an early innovator in creating integrated asset/liability analysis/simulation models as well as practical models in risk budgeting through beta and active risk analysis. Wilshire has grown to a firm of approximately 275 employees serving the needs of investors around the world. Based in Santa Monica, California, Wilshire provides services to clients in more than 20 countries representing more than 500 organizations with assets totaling approximately US $8 trillion.* With ten offices worldwide, Wilshire Associates and its affiliates are dedicated to providing clients with the highest quality counsel, products and services. Wilshire® and Wilshire 5000® are registered service marks of Wilshire Associates Incorporated. Wilshire 5000 Total Market Index℠ is a service mark of Wilshire Associates Incorporated.
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*Client assets are as represented by Pensions & Investments (P&I),
detailed in P&I’s “Largest Retirement Funds” and P&I’s “Largest Money
Managers (U.S. institutional tax-exempt assets)” as of 9/30/17 and
12/31/17, and published 2/5/18 and 5/28/18, respectively.
The data in this release are copyrighted and owned by Wilshire Associates Incorporated.