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Pension Funds

Corporate plan funding ratios up in July – 4 reports

The funding ratios for U.S. corporate plans increased in the month ended July 31, said reports from Legal & General Investment Management America, Wilshire Consulting, Northern Trust Asset Management and Mercer.

LGIMA found the funding ratio of a typical corporate pension plan increased over the month by 80 basis points to 90.5%, primarily driven by strong global equity markets offsetting a slight decrease in the discount rate.

LGIMA estimates Treasury rates increased by 11 basis points, while credit spreads decreased by 15 basis points, resulting in the average discount rate falling 4 basis points.

Liabilities for the typical plan were up 0.9%, while plan assets with a traditional 60% equity/40% bond asset allocation increased 1.8%, LGIMA said.

Meanwhile, according to Wilshire, the aggregate estimated funding ratio for U.S. pension plans sponsored by S&P 500 companies increased 1.5 percentage points to end the month of July at 91%, which is up 7.5 percentage points over the trailing 12 months.

The monthly change in funding resulted from a 0.1 percentage point decrease in liability values and a 1.5 percentage point increase in asset values. The aggregate funded ratio is up 6.4 and 7.5 percentage points for the year-to-date and trailing 12 months, respectively.

"July saw funded ratios increase due to positive market returns for most asset classes," said Ned McGuire, managing director and a member of the pension risk solutions group of Wilshire Consulting in a news release announcing the results. "July's 1.5 percentage point increase in funding brings the aggregate funded ratio to a high point for the year and over 90% funded for the first time since the end of November 2013."

As measured by Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans rose to 90.2% in July from 89% the month before.

Global equity markets rising approximately 3% during the month drove the change, while the discount rate remained flat at 3.87% during the month, a Northern Trust report said.

According to Mercer, the estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies was 91% as of July 31, up 2 percentage points point from the end of June because of the gains in equity markets.

Discount rates increased by one basis point to 4.15%.

The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $193 billion as of July 31, down $36 billion from the end of June.

"Interest rates held steady in July, letting equity markets do the work in running up gains," said Matt McDaniel, a partner in Mercer's wealth business, in a news release on the results. "This improvement drove funded status to a five-year high in July. Plan sponsors are now faced with a tough choice: do they continue to ride an equity bull market that is approaching 10 years long or do they move to lock in gains through derisking?"