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Pension Funds

U.S. corporate funding levels up for quarter, month — 2 reports

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The funding ratios for U.S. corporate plans inched up over the quarter and month ended June 30, said two reports from Legal & General Investment Management America and Wilshire Consulting.

According to LGIMA's quarterly Pension Fiscal Fitness Monitor, the funding ratio of a typical U.S. corporate pension plan rose to 89.7% from 87.4% over the three months ended June 30.

Liabilities for the average plan fell 2.17% in the three months ended June 30, while plans with a traditional 60% global equity and 40% aggregate fixed-income asset allocation saw their assets increase 0.41% during the period.

Global equity markets increased by 0.79% over the quarter, while the S&P 500 increased 3.43%. Plan discount rates increased by 24 basis points as Treasury rates increased 4 basis points and credit spreads widened by 20 basis points.

"We estimate that funded ratio levels for the typical plan with a traditional asset allocation increased over the second quarter, as positive equity performance was coupled with a rising discount rate, largely due to weakness in credit spreads," Ciaran Carr, senior solutions strategist at LGIMA, said in a news release. "This is an optimal outcome for pension plans, as plan assets increased while liability values decreased."

Meanwhile, data from Wilshire Consulting show that the aggregate funding ratio for U.S. corporate pension plans on a monthly basis increased by 0.3 percentage points to end June at 88.7% and rose 6.1 percentage points over the trailing 12 months.

The monthly change in funding resulted from a 0.8% decrease in liability values partially offset by a 0.5% decrease in asset values. The aggregate funding ratio is up 1.5 percentage points and 4.1 points for the quarter and year-to-date, respectively.

"June saw funded ratios increase due to rising corporate bond yields and positive U.S. equity returns," Ned McGuire, managing director and a member of the pension risk solutions group of Wilshire Consulting, said in a separate news release. "June's 0.3 percentage-point increase in funding brings the aggregate funded ratio close to a high point for the year. The increase in funding was led by a decrease in liability values that resulted from an increase in the bond yields used to value pension liabilities."