Latest figures from RiskFirst highlight that the number of US pension plans with a funded status of at least 95% has risen sharply, as market factors present favourable conditions to de-risk.
The number of US pension plans with assets equal to or exceeding 95% of their liabilities on an accounting basis has risen to 37%, nearly doubling from 20% at the end of 2017, according to RiskFirst data.
Analysis by fintech company RiskFirst of the data from approximately 500 plans, with total assets exceeding $100bn, reveals that, in Q3 2018, alone there has been almost a 25% increase in plans within this funding level band – which arguably makes a buyout or significant risk-transfer deal a feasible option. This sharp increase reflects the favorable conditions in the market to de-risk.
Michael Carse, DB Pensions Product Manager, RiskFirst, says:
“The 2017 plan year is the last opportunity to maximize a pension plan’s tax deduction before the lower corporate tax rate comes into force. For the majority of US corporate plans, the final deadline for plan sponsors to make contributions for the 2017 plan year was September 15th 2018, and this been reflected in our Q3 2018 analysis, with a number of plans putting in sizeable contributions before the deadline, thereby improving plans’ funded positions further since June 30th.”
Accounting reforms, increased PBGC premiums, and a favorable quarter for market movements – with liability discount rates increasing slightly (resulting in liabilities decreasing), and positive asset returns – are additional factors that could have contributed.
Matthew Seymour, CEO, RiskFirst, comments:
“As pension plans look to de-risk, it is all the more important that they are positioned with the right tools to manage risk effectively. By carrying out detailed analysis on both assets and liabilities and regularly and accurately monitoring their funding levels, plans can make truly informed decisions on how to optimize their strategy and harness opportunities in the market.”