Funding ratios for corporate pension plans increased in August, according to reports from Wilshire Consulting, Legal & General Investment Management America and Northern Trust Asset Management.
Wilshire’s monthly report noted that the aggregate funding ratio for U.S. corporate plans increased by 4.4 percentage points to 84.7% as of Aug. 31 from July 31. The monthly change in funding resulted from a 4.6-percentage-point decrease in liability values and a 0.5-percentage-point increase in asset values.
“August’s increase in funded ratio was primarily driven by the decrease in liability values as corporate bond yields used to value corporate pension liabilities increased by over 20 basis points,” 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, adding that the increase “was also driven by the best August performance for the Wilshire 5000 since 1984, which helped propel the funded ratio to the largest increase since February 2015 and second largest increase since 2013.”
LGIMA found the funding ratio of a typical corporate pension plan increased by 5.6 percentage points to 79.1%, primarily driven by strong performance in global equities and a higher discount rate. LGIMA estimated U.S. Treasury rates rose by 24 basis points while credit spreads widened by 4 basis points, resulting in the average discount rate increasing by 28 basis points.
Liabilities for the typical plan decreased by roughly 4%, while plan assets with a traditional 60% equity/40% bond asset allocation increased by roughly 3.4%, LGIMA said.
As measured by Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans increased to 83.5% in August from 79.1% the month before.
Global equity markets rose about 6.1% during the month and drove the change, while the discount rate increased to 2.23% from 1.94% during the month.
“While the average funded ratio is just 3 percentage points away from fully recovering year-end levels, plan sponsors that opted to defer contributions may be further away from their end of 2019 starting point,” said Jessica K. Hart, senior vice president and head of the OCIO retirement practice at Northern Trust Asset Management, in a news release announcing the results.
Ms. Hart added: “The CARES Act permitted plan sponsors to defer any required quarterly contributions until next year. For these pension plans, maintaining the return-seeking allocation may help improve funded ratio over time while being aware of the commensurate risks with this approach.”
