Pensions: great returns in '03, but do they translate?

• Author: Marshall, Jeffrey
• Position: BusinessBriefs - Defined-benefit pension plans

In its annual survey of 100 of the nation's largest defined-benefit (DB) pension plans, pension consultant Milliman found that the resounding returns of 2003 had clearly helped, but not as much as might appear at first blush. The average actual return on assets for 2003 was 19.6 percent, more than double the expected return, Milliman found. But the funded status of these plans improved only slightly, as the asset gains were offset by liability increases caused by lower interest rates.

"By any measure, this was a banner year for DB asset returns, but with continued declines in interest rates, the plans' funded status have not recovered significantly," said John Ehrhardt, Milliman consulting actuary and principal. "We have only regained 12 percent of the surplus assets lost over the past three years, so plan sponsors will have to continue to focus on their asset allocation and funding strategies."

The aggregate pension deficit for the 100 plans decreased by $43 billion, regaining 12 percent of the $371 billion in surplus assets lost over the previous three years. Some 19 out of the 100 companies were in a surplus position in 2003, with assets exceeding pension liabilities, compared to 12 the previous year. This is still significantly fewer than the 40 companies that reported surplus assets at the end of 2001 and the 80 in a...