Prism, a Review of Funded Status: Second Quarter 2011 Pension Plan Experience
Prism examines the effect of changes in the assets and liabilities of a model single-employer, private sector defined benefit (DB) plan on its funded ratio over the four most recent quarters, viewing such changes through a marked-to-market lens. The primary focus is to understand the combined impact of asset movement and interest rate shifts on perhaps the most important financial metric to plan sponsors: the funded status of the plan.
During the second quarter of 2011, the funded status of the model plan declined by one percentage point: from 87 percent to 86 percent. This was driven by both the decline in interest rates and modest growth in assets.
Plan sponsors should examine changes in their own DB plans' assets, liabilities and funded ratios both from the vantage point of accounting and funding metrics.