Funding ratios for corporate pension plans increased in November, according to reports from Legal & General Investment Management America, Wilshire Consulting and Northern Trust Asset Management.
LGIMA found the funding ratio of a typical corporate pension plan rose by 2.4 percentage points in the month, to 79.8%, with strong equity performance outpacing plan liabilities. LGIMA estimates U.S. Treasury rates decreased by 5 basis points, while credit spreads tightened by 22 basis points, resulting in the average discount rate decreasing by 27 basis points.
Liabilities for the average plan increased 4.5%, while plan assets with a traditional 60/40 asset allocation rose by roughly 7.8%, LGIMA said.
Wilshire’s monthly report noted that the aggregate funding ratio for U.S. corporate plans increased by 1.3 percentage to 84% as of Nov. 30. The increase resulted from a 6.3-percentage-point increase in asset values that were partially offset by a 4.6-percentage-point increase in liability values.
“November’s funded ratio increase was primarily driven by double-digit U.S. and non-U.S. public equity and real estate monthly returns, with the Wilshire 5000 Total Market index posting multiple record highs stemming from optimism around a COVID-19 vaccine,” said Ned McGuire, managing director and a member of the investment management and research group of Wilshire Consulting, in a news release announcing the results. “November’s funded ratio increase reverses two consecutive monthly declines in funded ratio.”
As measured by Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans increased to 84.5% in November from 82.1% the month before.
Global equity markets rose about 12.3% during the month and drove the funding increase, while the discount rate decreased to 2.08% from 2.37%.
“Funded ratios improved in November as equity markets rallied. Despite the double-digit returns in the equity markets, the average funded ratio remains two percentage points below where it was at the start of the year,” said Jessica K. Hart, senior vice president and head of the outsourced CIO retirement practice at Northern Trust Asset Management, in a news release announcing the results.
“Pension plans invested in long duration bonds have experienced gains to help offset the higher liabilities from the decline in rates,” Ms. Hart added.
