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Corporate pension funding holds steady in April — 2 reports

The funded status of the largest U.S. corporate pension plans remained relatively level in April as strong market performance was offset by falling discount rates, said reports from Mercer and Legal & General Investment Management America.

According to Mercer’s report, the estimated aggregate funding ratio of pension plans sponsored by S&P 500 companies was 83% at the end of April, the same as the previous month.

The S&P 500 index gained 0.9% and the MSCI EAFE index returned 2.3% in April, while the typical discount rate fell by seven basis points to 3.94%.

“April was another month in which funded status failed to improve despite rising equity markets,” said Matt McDaniel, a partner in Mercer’s wealth business, in a news release. “Falling interest rates have now given back most of the ground they gained following the election. Sponsors who were hoping that recent rate increases signaled a long-term trend should re-evaluate their plans for dealing with a prolonged low-rate environment. Recent rate movements could also make lump-sum exercises look more attractive in 2017.”

Separately, LGIMA’s report showed that the funded status of a typical U.S. corporate pension plan with a 60% allocation to global equity and 40% to core fixed income fell by 20 basis points in April to 83.7% from 83.9%.

The gain of 0.8 percentage points due to global equity returns was offset by a 1-percentage-point fall due to drop in the 30-year U.S. Treasury rate to 2.84% from 2.95% the previous month.