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Corporate pension funding starts 2017 on the right foot — 3 reports

The funded status of the largest U.S. corporate pension plans remained the same or rose slightly in January, said reports from Mercer, Wilshire Consulting and Legal & General Investment Management America.

According to Mercer, the estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies was approximately 82% at the end of January, unchanged from the end of 2016.

The estimated aggregate value of pension fund assets of S&P 1500 companies totaled $1.81 trillion as of Jan. 31, unchanged from Dec. 31, while estimated aggregate liabilities totaled $2.21 trillion, unchanged from the end of December, according to Mercer.

The S&P 500 index and MSCI EAFE index returned 1.8% and 2.9%, respectively, in January, while the typical discount rates remained level at 4.04%.

According to Wilshire, the aggregate funding ratio for S&P 500 companies with corporate pension plans was 83.2% as of Jan. 31, up 1.2 percentage points from Dec. 31.

Asset values rose 1.2% in January, outpacing a 0.3% decrease in liability values, according to Wilshire.

Positive returns for most asset classes drove the asset increase, while rising corporate bond yields drove the liability decline.

“January marked the fifth consecutive month of rising funded ratios, which has contributed to January month-end funded ratios being the highest since November 2015,” said Ned McGuire, vice president and a member of the pension risk solutions group of Wilshire Consulting, in a news release “This month’s increase was primarily driven by the continued post-election increase in equity markets increasing the Wilshire 5000 Total Market index by nearly 1.8% during January.”

According to LGIMA's Pension Fiscal Fitness Monitor, the funded status of a typical U.S. corporate pension plan with a 60% allocation to global equity and 40% to core fixed income rose 1.3 percentage points in January to an estimated 82.6%. Assets rose 1.7% over the month on the back of global equity returns of 2.8%. Despite a two-basis-point increase in the discount rate, liabilities for the traditional plan were up 0.1%.

Separately, in a quarterly report, Milliman found that the funded status of the 100 largest U.S. corporate pension plans fell 1 percentage point in the fourth quarter to 70.1% as of Dec. 31.

Assets fell 0.46% over the quarter to $3.267 trillion as benefits paid out exceeded contributions. Investments returned an aggregate 0.45% in the fourth quarter. Meanwhile, liabilities rose 0.84% over the three months ended Dec. 31 to an estimated $4.659 trillion.