The funding ratio of corporate U.S. defined benefit pension plans improved for the eighth consecutive month in April, according to two reports released Thursday.
The typical U.S. corporate defined benefit pension plan’s funding ratio improved 0.7 percentage points to 89.2% in April, according to BNY Mellon Asset Management. The funding ratio has improved 4.9 percentage points since Dec. 31.
Assets rose 2.6% for the month, a result of rising global stock markets, according to the report. This offset a 1.8% increase in liabilities, attributed to the Aa corporate discount rate declining to 5.5% in April, down from 5.61% a month earlier.
Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management, said in a telephone interview that a 90% funding ratio triggers a reassessment of many clients’ asset allocations.
Many will be determining “whether derisking is right,” Mr. Austin said.
“If funding levels meet or exceed 90% in the coming months, those sponsors with a view that interest rates are rising may defer reallocation to less risky asset classes such as bonds,” he said.
Separately, Mercer reported that S&P 1500 companies’ plans had an aggregate funding ratio of 88% as of April 30, up one percentage point from a month earlier. The funding ratio was 81% as of Dec. 31, according to a news release from the company.
The overall deficit of the S&P 1500 plans was $209 billion for the month, down $4 billion from a month earlier.
The estimated aggregate value of S&P 1500 pension plan assets was $1.48 trillion as of the end of April, while combined liabilities were $1.68 trillion.
Kevin Armant, principal and a member of Mercer’s financial strategy group, said in a telephone interview that “with the continued improvement of funded status, plans can now start thinking about taking risk off the table.”
Jonathan Barry, a partner with Mercer’s Retirement Risk and Finance group, said in the release that “a fairly modest dip in rates almost wiped out a very robust month of investment gains.”
“In addition, plan sponsors should be careful not to assume that equity markets will always go up,” he said. “The investment strategies employed by many sponsors continue to expose plan sponsors to the risk of negative equity investments and interest rate mismatches.”
