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Pension Funds

U.S. corporate pension funding ratios dip in March – 4 reports

U.S. corporate pension funding ratios dipped slightly to about 86% in March, according to reports from Mercer, Wilshire Consulting, Conning, and Aon Hewitt.

According to Mercer, the estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies was 87% as of March 31, down 1 percentage point from February on the back of negative equity market returns.

Discount rates decreased by 5 basis points in March to 3.92%. The S&P 500 and MSCI EAFE indexes decreased 2.7% and 2.2%, respectively.

The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $286 billion as of March 31, up $24 billion from the $262 billion measured at the end of February.

"March snapped a streak of funded status gains dating back to August 2017, as it fell back slightly," said Matt McDaniel, a partner in Mercer's wealth business, in a news release on the results. "During this period, interest rates and equity valuations have both risen markedly. Plan sponsors should look to see if their pension policies are aligned for current market conditions. While the drop in funded status for March was small, history has shown us it is a question of 'when' — not 'if' — funded status volatility will return."

According to Wilshire, the aggregate estimated funding ratio for U.S. corporate pension plans sponsored by S&P 500 companies decreased by 1.6 percentage points to end March at 86.8%, yet remains up 3.6 percentage points over the trailing 12 months.

The monthly change in funding resulted from the combination of a 1.1% increase in liability values and a 0.8% decrease in asset values. Despite March's decline, the aggregate funded ratio is up 2.2 and 3.6 percentage points, respectively, year-to-date and over the trailing 12 months.

"March was the second consecutive month that saw funded ratios driven lower by negative total asset returns," said Ned McGuire, managing director and a member of the pension risk solutions group at Wilshire Consulting, in a news release on the results. "March's 1.6-percentage-point decrease in funding was the largest drop in 21 months. The retracement in funding was led by a decline in global equities and a rise in liability values that resulted from a nearly 10-basis-points decrease in the bond yields used to value pension liabilities."

Meanwhile, Conning's pension funded status tracker model that follows the funding of the average corporate pension plan in the Russell 3000 universe found the funding ratio of the average Russell 3000 pension plan fell by 1 percentage point to 85% in March from 86% in February. This was mainly driven by a fall in global equity markets by around 2% due to global trade war concerns.

The average plan's liability also increased marginally as the effective discount rate fell by 10 basis points to 3.8% over March.

Year-to-date, the funded status is still up by 2 percentage points.

According to the Aon Pension Risk Tracker, the aggregate funding ratio for U.S. pension plans in the S&P 500 decreased to 86.5% in March from 87.7% at the end of February. Pension fund assets saw a -0.4% average return in March, according to Aon Hewitt.

Year-to-date through March 31, the funded status improved to 86.5% from 85.6% at the end of 2017. The funding deficit decreased by $31 billion this year, which was driven by a decrease in liabilities of $79 billion, offset by an asset decrease of $48 billion year-to-date.