GLOBAL – Funding levels of benchmark defined benefit schemes around the globe reported declines of between 12% and 21% in 2002, according to a study by consultants Towers Perrin - with the euro-zone at the wrong end of the scale.

Benchmark plans in the euro-zone saw funding levels decline 20% in 2002 - a 42% decline over the last three years. Funded status rose 1% in the fourth quarter, however, as bond and equity markets experienced positive returns in the euro-zone.

Short-term bond yields decreased by 44 basis points over the fourth quarter, following the European Central Bank’s interest rate cut. Long-term bond yields continued their decline over the fourth quarter, leading to an additional decrease in the benchmark plan discount rate and an increase in liability, says the report.

Japan, the US and UK benchmark plans experienced similar declines in funded status over 2002 and the three year period. Australian and Canadian plans, however, were more robust. Benchmark plans in those countries saw their funded status decline by 12% and 13% respectively over 2002, and by 26% and 25% respectively over a three-year period.

Declines in funding levels should not be a reason to panic, however, adds Steve Kerstein, managing director for Towers Perrin’s global retirement consulting practice.

“While there’s no question that many companies have experienced declines in the funding level of their pension plan, it’s also useful to keep events in perspective,” he said. “We’ve seen plan funding levels in this range in the past. The decline in most financial market indexes in the last three years was preceded by several years of especially strong performance in capital markets, which was a great help to pension plans.”

Commented Leon Potgieter, principal and head of Towers Perrin’s global consulting group: “Companies are responding to the situation by resuming their plan contributions or by taking other measures, depending on their own business and financial objectives.”

Further details of the results can be found in the report: Towers Perrin Global Capital Market Update: Fourth Quarter 2002 Results for Defined Benefit Pension Plans.