The typical U.S. corporate defined benefit plan was expected to end 2012 with a funding radio around 75%, up from about 70% three months prior, according to Legal & General Investment Management America's quarterly Pension Fiscal Fitness Monitor released Wednesday.
Funding ratios fell about one percentage point during the year ended Dec. 31, Gary Veerman, pension solution strategist at LGIMA, said in a telephone interview.
Equity investment gains and higher discount rates benefited funding in the last quarter. Global equities were up about 3% while discount rates were up four basis points, leading to reduced pension liabilities
However, the rise in the S&P 500 in 2012, hasn't translated into improved pension funding, Mr. Veerman said.
“The 20% increase in the S&P hasn't really changed funding ratios, which really blows the minds of (pension funds') investment committee members investing for the long term who expect to see some funding benefit,” he said, adding many pension funds are making a “huge short-term-rate bet” amid tightening credit spreads.
The Pension Fiscal Fitness Monitor is based on pension funds' use of a 60% global equity/40% aggregate bond investment strategy, and incorporates data from LGIMA research, Bank of America Merrill Lynch and Bloomberg.