Corporate Pension Funding at 95%

The funding ratio for corporate pension plans increased to 95% during the last quarter.

According to the UBS Global Asset Management U.S. Pension Fund Fitness Tracker, the funding ratio rose by about three percentage points during the fourth quarter of 2013. Tracker findings also reveal  2013 was a very strong year overall for corporate pension plans, with the average funding ratio rising by an estimated 17 percentage points.

Strong investment returns of 4.7% were the main contributor to the improvement in the funding ratio during the quarter, according to UBS. Liability values are estimated to have increased by 1.1%. These estimates are based on the average corporate plan’s reported asset allocation weightings from the UBS Global Asset Management Pension 500 Database and publicly available benchmark information.

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Research from UBS also shows the U.S. equity market finished 2013 with a final surge upwards, as the S&P 500 Index recorded a 10.5% total return over the quarter. In October 2013, the prospect of a U.S. default had virtually no impact on the equity markets, which continued their rally once a deal was reached, UBS says. The rest of the quarter was dominated by investors' bets on the timing of the U.S. Federal Reserve reduction of its quantitative easing program.

In the U.S., the economic outlook remains positive, with the Chicago PMI level strongly above consensus, while employment data showed moderate, but stable growth, according to UBS. In Europe, the European Central Bank responded to deflationary pressures by cutting rates by 25 basis points (bps) to 0.25%. In U.S. dollar (USD) terms, the Euro Stoxx Index was up 9.6% over the quarter. In the last three months of 2013, China’s economic data met expectations, and the MSCI Emerging Markets Index was up 1.9% in USD terms.

After a volatile fourth quarter, UBS research finds that the yield on 10-year U.S. Treasury bonds increased by 42 bps, ending at 3.03%. The yield on 30-year US Treasury bonds increased 29 bps, ending at 3.97%. High-quality corporate bond credit spreads, as measured by the Barclays Capital Long Credit A+ option-adjusted spread, ended the quarter 27 bps tighter. As a result, pension discount rates (which are based on the yield of high-quality investment grade corporate bonds) were flat. The passage of time caused liabilities for a typical pension plan to increase by about one percentage point over the quarter. Together, these effects caused liabilities to increase 1.1% for the fourth quarter.

The U.S. Pension Fund Fitness Tracker is the ratio of the asset index over the liability index. Assuming all other factors remain constant, according to UBS, it combines asset and liability returns and measures the impact of a typical investment strategy on the funding ratio of a model defined benefit plan in the U.S. due to interest rollup, change in interest rates and typical asset performance, but excludes unique plan factors, such as service cost and benefit payments. 

The UBS Global Asset Management Pension 500 Database is a proprietary database based on the analysis of 500 public companies sponsoring large defined benefit plans. The information was extracted from the companies' 10-K statements. The study may include figures for companies' nonqualified and foreign plans, both of which are not subject to the Employee Retirement Income Security Act.

BMO Releases Fund Family

Five target-date funds (TDFs) are among the nine funds launched by BMO Global Asset Management.

New TDFs include the following: 

  • BMO Target Retirement 2015 Fund;
  • BMO Target Retirement 2025 Fund;
  • BMO Target Retirement 2035 Fund;
  • BMO Target Retirement 2045 Fund; and
  • BMO Target Retirement 2055 Fund. 

BMO designed the TDFs to provide investors, usually retirement plan sponsors and their plan participants, with professionally managed retirement savings solutions that are easy to understand and implement.

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The firm also released four other funds taking a variety of positions. These include:

  • BMO Small-Cap Core Fund, which pursues capital appreciation by investing at least 80% of its assets in a broadly diversified portfolio of common stocks of small-cap U.S. companies similar in size to those within the Russell 2000 Index.
  • BMO Pyrford Global Equity Fund, which strives to provide capital appreciation by investing at least 80% of assets in equity securities of both U.S. and non-U.S. companies. The fund invests primarily in companies that are located in developed countries outside of North America and, at the time of purchase, have a minimum market capitalization of $2 billion.
  • BMO Multi-Asset Income Fund, which is designed to maximize total return consistent with current income by investing primarily in shares of different exchange-traded funds (ETFs) and mutual funds, including other BMO Funds. The fund may invest in equity securities of varying market capitalization and fixed income investments of varying credit quality.
  • BMO Global Natural Resources Fund, which seeks capital appreciation by investing at least 80% of its net assets in common stocks of U.S. and non-U.S. natural resources companies, defined as companies that own, produce, refine, process, transport and market natural resources—and companies that provide related services.

BMO designed the funds to help investors reduce risk while still increasing potential returns, says Barry McInerney, co-CEO of BMO Global Asset Management.

More information about BMO Global Asset Management and the new funds is available at www.bmogam.com.  

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