Filed Under:Markets, Employee Benefits

Sibson: Model pension plan increases by 2% in Q4

Ending 2012 on a positive note, the funded status of a model pension plan increased by two percentage points during the four quarter, according to a new report.

Sibson Consulting, a division of the Segal Company, New York, arrives at this conclusion in the latest edition Prism, a quarterly review of pension funded status.

The report shows that the funded status of Sibson’s model pension plan rose to 75 percent from 73 percent in the fourth quarter. Accounting for the increase was a liability decrease of two percent.

The report adds that, after consistent declines in interest rates for most of 2012, the fourth quarter saw a slight rise in high-quality corporate bond yields. The increase in high-quality corporate yields that quarter was a result of about a 10 basis-point increase in Treasury yields and approximately a 5 basis-point tightening of credit spreads.

“Over the course of 2012, Treasuries were down modestly and credit spreads were down significantly, resulting in a more pronounced drop in the high quality corporate yield curve,” the report states. “The increase in the yield curve level during Q4 resulted in an increase in the effective interest rate and, consequently, decreased the model pension plan’s liability by two percent.

In contrast, the report adds, the effective interest rate was down about 65 basis points during 2012, which led to a 10 percent increase in the plan’s liability for the year.

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