Corporate pension funding continues improvement in October — 3 reports

The funded status of U.S. corporations with defined benefit pension plans continued to improve in October, according to three new reports.

The typical U.S. corporate pension plan's funded status reached 91.8% on Oct. 31, an increase of 80 basis points from the previous month, according to the BNY Mellon Institutional Scorecard.

Strong equity and fixed-income returns for the month contributed to a rise in assets of 2.6 percentage points, topping a rise in liabilities of 1.7 percentage points.

The stock market bounce following the reopening of the federal government was greater than expected, said Jeffrey B. Saef, managing director and head of the investment strategy and solutions group, in a telephone interview.

Investors have since had a chance to step back and “sort of measure the impact of the shutdown,” Mr. Saef said, andit turns out there's little that has actually changed.

The corporate discount rate fell 11 basis points to 4.7% from the end of September.

Typical foundation and endowment assets increased 1.9% in October. Assets are up 13.4% for the year ended Oct. 31, topping the spending-plus-inflation target by 730 basis points.

In a separate report from Mercer, the funding ratio of defined benefit pension plans at S&P 1500 companies held steady at 91% in October, the same as the previous month.

The estimated aggregate plan assets as of Oct. 31 were $1.83 trillion, compared to estimated aggregate liabilities of $2.01 trillion, according to Mercer. The ratio is an improvement over the 74% level registered as of Dec. 31.

“We are seeing many sponsors take advantage of this improvement as they plan to lessen the risk in their plan either through (derisking) strategies, said Jonathan Barry, a partner in Mercer's retirement business, in a news release. “We expect to see significant activity in these areas in 2014.”

According to Aon Hewitt, the aggregate funding ratio of S&P 500 companies with defined benefit pension plans improved to 89% from 88% the previous month. Pension assets returned about 2.9% over the month, while interest rates dropped about 11 basis points due to falling U.S. Treasury rates along with narrowing credit spreads.

Aon Hewitt tracks the daily funded status of the defined benefit pension plans of 359 S&P 500 companies.