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Pension Funds

U.S. corporate pension funding sees upward or no movement over month of June — 4 reports

The pension funding ratios of U.S. corporate pension plans saw either increases or no movement over the month of June, according to reports from Mercer, Northern Trust Asset Management, Milliman and Aon Hewitt.

Mercer reported that the estimated aggregate funding level of pension plans sponsored by S&P 1500 companies remained unchanged at 89% at the end of June, due to an increase in discount rates, which was offset by losses in international equity markets.

The average discount rate increased by 8 basis points in June to 4.14%. The S&P 500 index increased 2.2%, while the MSCI EAFE index decreased 1.4% in June.

The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $229 billion as of June 30, down $16 billion from May 31. The estimated aggregate value of pension plan assets of the S&P 1500 companies as of June 30 was $1.93 trillion, compared with the estimated aggregate liabilities of $2.16 trillion.

"Funded status was stable in June with a slight increase in discount rates offset by a small decline in equities," said Scott Jarboe, a partner in Mercer's U.S. wealth business, in a news release about the results. "Discount rates are up over 50 basis points year-to-date, which may have made the cost of derisking strategies, such as an annuity buyout, more appealing to plan sponsors. In addition, we expect many plan sponsors are reviewing discretionary contributions while they can still deduct at the higher corporate tax rates in many cases by Sept. 15, 2018."

As measured by Northern Trust, the average funding ratio for S&P 500 companies with corporate defined benefit plans increased by 60 basis points over the month to 89%, largely due to negative returns in the equity markets and higher interest rates.

The average discount rate increased to 3.87% from 3.77% during the month, Northern Trust said. Meanwhile, global equity markets were down about 0.5% during the month. Non-U.S. equities fell just less than 2%, but this decline was muted by an increase in U.S. equities.

The funded status of the 100 largest U.S. corporate pension plans jumped to 92.8% as of June 30 from 91.6% as of May 31, the Milliman 100 Pension Funding index showed Monday.

In June, these pension plans experienced a $23 billion increase in funded status, with the deficit of the Milliman 100 PFI plans falling to $118 billion as of June 30 from $141 billion at the end of May. The improvement was due to an increase in the benchmark corporate bond interest rates used to value pension liabilities, which saw discount rates increase by 13 basis points to 4.12% over the same period. The funding ratio increase for the Milliman 100 PFI for the month would have been higher if it weren't for the poor investment returns of -0.09% in June, Milliman said in a report about the index.

According to Aon's Pension Risk Tracker, the aggregate funding ratio for U.S. pension plans in the S&P 500 increased to 88.4% as of June 30 from 87.8% as of May 31.

Year-to-date through June 30, the funded status is up from 85.6% at the beginning of 2018. The funded status deficit decreased by $76 billion, which was driven by a liability decrease of $134 billion, partially offset by a decline of $58 billion in assets year-to-date, according to Aon Hewitt.