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Pension Funds

Corporate pension funding remains above 90% in August – 4 reports

Funding ratios for U.S. corporate pension plans saw little movement during the month of August, according to 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 remained unchanged at 90.5%, primarily driven by a drop in Treasury rates offset by widening credit spreads and positive global equity returns during the month.

LGIMA estimates Treasury rates decreased by 9 basis points, while credit spreads increased by 6 basis points, resulting in the average discount rate falling 3 basis points.

Liabilities for the typical plan were up 0.8%, while plan assets with a traditional 60% equity/40% bond asset allocation also increased 0.8%, LGIMA said.

According to Wilshire, the aggregate estimated funding ratio for U.S. pension plans sponsored by S&P 500 companies increased 30 basis points to end August at 90.7%, which is up 7.9 percentage points over the trailing 12 months.

The monthly change in funding resulted from a 0.4 percentage point increase in liability values and a 0.8 percentage point increase in asset values. The aggregate funding ratio is up 6.1 percentage points year-to-date.

"August 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. "August's 0.3 percentage point increase in funding brings the aggregate funded ratio to a high point for the year for the second consecutive month and remains over 90% funded for the second 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 remained unchanged at 90.2% in August from the month before.

Global equity markets rising approximately 0.8% during the month drove the change, while the discount rate decreased to 3.82% from 3.87% during the month.

"August continued the positive pension trend for 2018. A combination of rising interest rates and positive equity markets improved the funded status from 85% to 90%," said Dan Kutliroff, head of OCIO business strategy at Northern Trust, in a news release announcing the results. "This may present a good opportunity for plan sponsors to consider moving to preserve some of those gains by moving some of their assets from equity-like vehicles to fixed-income assets that behave more like the liabilities."

According to Mercer, the estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies remained unchanged at 91% as of Aug. 31 because gains in equity markets were offset by a decrease in discount rates.

Discount rates decreased by 7 basis points to 4.08% in the month.

The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $192 billion as of Aug. 31, down $1 billion from the end of July.