The typical U.S. corporate pension plan’s funding ratio increased to 74.1% last month, from 72.4% at the end of December, according to BNY Mellon’s Pension Summary Report.
The increase was driven by a strong month for equity markets. Assets for a typical plan increased 3.4%, helping offset a 1.1% increase in liabilities. The discount rate fell to 4.3% from 4.36% at the end of December, a new historic low, said Jeffrey B. Saef, managing director at BNY Mellon Asset Management and head of the investment strategy and solutions group.
However, Mr. Saef added, pension funds shouldn’t read too much into a strong January as funding ratios remain low and the Federal Reserve recently announced interest rates will remain near zero into 2014.
“The concept of ‘slower for longer’ is becoming a reality in the marketplace,” Mr. Saef said in a telephone interview. “A nice scenario would be stability in rates and positive rallies in the public and private markets.”
Fixed-income returns remained relatively flat for the month, but equities received a boost from strong returns in international markets. Emerging markets equities returned about 11% for the month; developed international markets, 5%; U.S. large caps, 4.5% to 5%; and small caps, 5%.