Global Pension Funding Levels Edged Higher in 2010

Global pension funding levels were up to 87% at year-end 2010, according to analysis released Friday by Aon Hewitt, the global human resource consulting and outsourcing business of Aon Corp. Funded status is up slightly from 86% at the beginning of the year.

Additionally, global pension assets increased 8% through the year, and liabilities increased 7%.

Cecil Hemingway, global retirement practice leader at Aon Hewitt warned that the increase hasn't fully assuaged executives' fears.

"While the net result of the past year was a modest improvement in funded position of pensions globally, the interim volatility continues to attract the attention and concern of CFOs," Hemingway said in a press release.

"As we look to 2011 and beyond, organizations will increasingly strive for balance between funding and investment strategies in dealing with pension deficits," Ari Jacobs, Aon Hewitt's Retirement Solutions leader, added. "Many employers will consider risk management programs that combine de-risking plan investments with strategic funding."

In the United States, pension funded status remained steady, ending 2010 at 88%. Negative returns from the second quarter, as well as a drop in interest rates, were offset by three quarters of positive asset returns, according to Aon Hewitt.

In the fourth quarter of 2010, U.S. pension funded status increased from 82% to 88% on strong equity returns and a 30-50 basis point recovery in corporate bond rates.

Aon's Pension Risk Tracker analyzes daily funding levels from companies in the United States, United Kingdom, Continental Europe and Canada.

The average funded ratio for the United Kingdom increased to 91% from 85% in the fourth quarter. Asset values experienced double-digit growth throughout the year.

Asset values remained flat in Europe, and average funded ratios fell from 75% to 71%. The region experienced significant volatility throughout the year; in August, funding levels fell to 64% before reaching a peak of 73% in December.

In Canada, assets increased by 4% in the fourth quarter, and liabilities fell 2%. The funded ratio increased from 88% at the start of the quarter to 94% by Dec. 31.