The Pension Benefit Guarantee Corp., which insures defined benefit plans from insolvency, has been ratcheting up their guarantee fees.
"Effectively, U.S. plans were for the first time penalized for sitting on their hands and waiting for a better day through higher variable rate premiums," Bank of America Merrill Lynch rates strategist Shyam Rajan wrote in a research note.
By 2019, the fixed-rate part of the guarantee fee will go up to 8 percent of underfunded assets from just under 7 percent currently, while the variable-rate portion will climb to 4.2 percent from the current 3.4 percent.
Stock Correction
Pensions are on a healthier standing following Wall Street's bull run, but analysts worry a pullback may be in the offing, which would deal a blow for retirement plans.
Many of them have adopted a strategy, known as "derisking," where they raise their holdings of bonds and decrease their ownership of stocks once they achieve their desired funding level or bond yields rise to a certain level.
"If the market cooperates, more pension plans will immunize their liabilities," Jesse Fogarty, senior portfolio manager at Insight Investment.
While a booming stock market is an encouraging development, higher bond yields would spell a long-term relief for pension funds.
"Pension funds are well enough funded to meet their obligations in the short term, but they are still struggling to be well funded on a long term basis largely due to interest rates remaining at very low levels by historical comparison," Mercer's McDaniel said.
This article was provided by Reuters.