Corporate pension funding continues climb in June — 3 reports

The funded status of corporate pension plans in June reached levels not seen in years, according to reports from Mercer, BNY Mellon Investment Management and Legal & General Investment Management America.

The aggregate funded status of S&P 1500 companies' pension plans increased two percentage points to 88% in June, marking the highest level since October 2008, according to Mercer.

The funded status is up 14 percentage points year to date. The discount rate increased about 38 basis points to about 4.49% in June. The aggregate pension deficit decreased $47 billion to $222 billion, despite the S&P 500 index losing 1.5% for the month.

“With a pretty poor equity market return, the funded status still improved, showing the power of the discount rate,” said Jonathan Barry, a partner in Mercer's retirement business, in a telephone interview. He added the rise in rates “seems to be pretty highly correlated” with announcements from the Federal Reserve on easing its bond purchases.

A typical corporate pension plan saw its funded status increase 3.1 percentage points to 89.5% in June, according to BNY Mellon. It is the highest level since June 2011 when it was 91.4%.

According to LGIMA's quarterly Pension Fiscal Fitness Monitor, the typical corporate pension plan saw its funded status increase about five percentage points to the mid- to high 80s. Discount rates were up about 50 basis points for the quarter, while equities were relatively flat.

The discount rate is up nearly 100 basis points this year, Mr. Barry said, leading more plans to capitalize and lock in funded status improvements.

“This is what people have been thinking will happen, but it might be happening faster than they thought,” Mr. Barry said.

At the end of 2012, only 4% of plans were overfunded. Mercer now estimates that number at 15%, and Mr. Barry said it could increase to about 37% if discount rates were to increase another 100 basis points.

Estimated aggregate assets of the S&P 1500 plans were $1.64 trillion as of June 30, down about 3.5% from the end of May. Estimated aggregate liabilities were $1.86 trillion, down 5.6%, according to Mercer.