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Pension Funds

4 consultants report small moves in both directions for corporate pension funding in February

U.S. corporate pension funding ratios saw modest movement in February, according to monthly reports from Mercer, Wilshire Consulting, Milliman and Aon Hewitt.

The aggregate funded status of defined benefit plans sponsored by S&P 1500 companies increased by 1 percentage point in February to 88%, a monthly report by Mercer said.

This increase was due to "a significant increase in discount rates, which more than offset losses in the equity markets," the report said.

The estimated aggregate deficit was $262 billion as of Feb. 28, compared to $291 billion as of Jan. 31, according to Mercer.

The S&P 500 index decreased 3.9% and the MSCI EAFE index decreased 4.7% in February. Typical discount rates for pension plans as measured by the Mercer yield curve increased by 23 basis points to 3.97%.

"Volatility continued in February, and equities ended down by around 4% for the month — which marked the first significant month-over-month decrease in over a year." said Scott Jarboe, a partner in Mercer's U.S. wealth business, in a news release. "Aggregate funded status still saw some improvement due to an increase in discount rates by over 20 basis points."

Mr. Jarboe added: "Clients are beginning to look carefully at plans in 2018, and we expect to see some evolution in the context of tax reform and market volatility."

Meanwhile, according to Wilshire, the aggregate funding ratio for S&P 500 companies with corporate pension plans decreased by 70 basis points over the month to 88.2%.

Asset values decreased 4.1% over the month, while liabilities decreased 3.3%, Wilshire said. However, in the past 12 months through Feb. 28, the aggregate funding ratio is up 6.1 percentage points.

"February's month-end funded ratio is the second highest in over four years despite the decline," said Ned McGuire, managing director and a member of the pension risk solutions group of Wilshire Consulting, in a news release. "February's decrease in funding was driven by the decline in nearly all asset classes, especially global equities, offsetting the decline in liability values caused by an over 20-basis-points increase in bond yields used to value pension liabilities."

The funded status of the 100 largest U.S. corporate pension plans inched up to 87.7% in February from 87.3% in January, the Milliman 100 Pension Funding index showed Wednesday.

Despite the market volatility in February, these pension funds experienced a $13 billion improvement in funded status thanks to an increase in the corporate bond rates used to measure pension liabilities. While the market value of assets for these pensions lost $32 billion in February, plan liabilities also shrunk, narrowing the deficit from $219 billion at the end of January to $206 billion as of Feb. 28, according to Milliman.

According to the Aon Pension Risk Tracker, the aggregate funding ratio for U.S. pension plans in the S&P 500 dropped to 83.5% in February from 84.2% at the end of January. February saw a drop at one point in funding ratio to below 82% from 84% in the span of a few days. Pension fund assets saw a -2.9% average return in February, according to Aon Hewitt.

Year-to-date through Feb. 28, the funded status is up from 81.8% at the end of 2017. The funding deficit decreased by $54 billion this year, which was driven by a liability decrease of $92 billion, partially offset by an asset decrease of $38 billion year-to-date.