The funding ratio of the typical U.S. corporate defined benefit plan rose 0.5 percentage points to 88.5% in March, a result of a slight increase in the Aa corporate discount rate, according to BNY Mellon Asset Management.
Assets for the typical plan were unchanged in March, with a 0.5% gain in U.S. equities offset by a 2.2% decline in international developed markets, in part because of the earthquake and tsunami in Japan, according to BNY Mellon’s monthly funded status report.
Liabilities decreased 0.5% in March, a result of the corporate discount rate increasing seven basis points to 5.61%.
The funding ratio has improved 4.2 percentage points since the beginning of the year.
“The Japanese market has taken a dive and hasn’t returned; it was a contributor to the decline in (Europe, Australasia, Far East),” Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management, said in a telephone interview. “Some months (U.S. and international equity market) returns are correlated and some months they are not. The important message is asset levels were essentially flat but liabilities declined. It’s another example of how movements in interest rates themselves can impact the funded status of plans.”
He said many plan executives are considering implementing risk-reduction strategies by investing more in fixed income to reduce volatility vs. seeking higher returns through equities and alternatives to further improve funded status.