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Funded Status Deficit for U.S. Pension Plans Decreased by $10 Billion in Q3
Aon Hewitt expects increase in de-risking actions in fourth quarter of 2016 as U.S. pension plan sponsors face uncertainty


LINCOLNSHIRE, Ill. (October 11, 2016) – The funded status deficit for U.S. pension plans decreased by $10 billion during the third quarter of 2016 to $491.9 billion. According to Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), the change was driven by asset gains of $25 billion offset by a liability increase of $15 billion. Compared to the first two quarters of 2016, the third quarter is the only to show an improvement in funded status for the year.

Data from the Aon Hewitt Pension Risk Tracker, which evaluates daily funded status for S&P 500 companies with defined benefit pension plans, reveal the aggregate funded ratio increased from 76.8 percent to 77.4 percent in the third quarter.

“Between the elections, anticipated interest rate increases and continued debate around mortality tables, U.S. pension plan sponsors face a great deal of uncertainty in the fourth quarter and beyond,” said Ari Jacobs, Global Retirement Solutions leader at Aon Hewitt. “We expect more plan sponsors will initiate settlement strategies in the fourth quarter to benefit from accounting rules and as they continue to proactively manage risk in the ‘lower for longer’ interest rate environment.”

Third Quarter Findings:

  • Pension liabilities increased by 0.68 percent. Ten-year Treasury rates were up by 11 basis points over the quarter and credit spreads narrowed by 17 basis points, resulting in a 6 basis point decrease in the discount rate over the quarter for an average pension plan.
  • Return-seeking assets were strong throughout the quarter:
    • The Russell 3000 Index returning 4.4 percent
    • Equities outperformed bonds during the quarter, with the Barclay’s Long Gov/Credit Index returning 1.2 percent
    • Overall pension assets returned 2.6 percent over the quarter

September Findings:

In September, the S&P 500 aggregate pension funded status increased from 76.7 percent to 77.4 percent.

  • For the month of September, pension asset returns were volatile ending the month with a -0.1 percent return.
  • The month-end 10-yr Treasury rate increased 2 basis points similar to the August month-end rate. Credit spreads widened by 10 basis points. This combination resulted in a decrease in the interest rates used to value pension liabilities from 3.35 percent to 3.47 percent over the month.


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