Defined Benefit Funding Levels, Contribution Relief, and Unintended Consequences
At the close of 2012, pension funding levels for a broad set of defined benefit plans sat in the high-seventies. Sponsors had weathered the massive equity losses of the 2008 global financial crisis (GFC), and subsequent plummeting interest rates, and they seemed poised to recoup their losses. The markets would be kind to investors over the next half-decade with the S&P 500 nearly doubling in price, generating a cumulative total return in excess of 100%, and outpacing long duration fixed income (a proxy for pension liabilities) substantially.
So how did sponsors fare? Not as well as one might expect, given the data above.