The crisis of corporate pensions fund deficits was a hot news topic of last year, but a Towers Perrin analysis has found that a year-end rally in the equity markets actually led to an increase in the funded status of benchmark pension plans in most major retirement markets around the world in the fourth quarter.
The only exceptions were Canada, where funded status declined slightly, and the Euro-zone, which saw a drop of more than four percentage points.
For 2004, the overall funded status of benchmark plans in major markets was mixed. The benchmark plan in the Euro-zone saw a large decline in funded status; the status of plans in Canada and the U.S. showed little change, and gains were recorded in Australia, Brazil, Japan and the U.K.
Falling oil prices, a decisive U.S. Presidential election, increasing corporate M&A activity and healthy corporate earnings all helped boost equity markets in the fourth quarter. Positive capital market returns, however, were largely offset by increasing pension liabilities as longer-term nominal bond yields fell in most markets, reducing benchmark discount rates and increasing future obligations for pension plans.
"Even with two consecutive years of outstanding returns in the equity markets, the overall effect of capital market movements on the funded status of pension plans has been only marginally positive," said Leon Potgieter, a Towers Perrin principal and head of the firm's HR Services business Global Consulting Group.