The funded status of the typical U.S. corporate defined benefit pension plan enjoyed a healthy March, rising 1.9 percentage points, thanks to strong equity returns, according to BNY Mellon Investment Management's latest pension summary.
During March, the typical U.S. corporate plan's funding ratio totaled 82.6%, up from February's ratio of 80.7%.
The increase was driven by U.S. equity markets returning 3.9% in March, while Aa corporate spreads increased by two basis points, making the Aa corporate discount rate increase to 4.09%.
The funding ratio of the typical corporate pension plan has risen 6.3 percentage points since the end of 2012, when the funding ratio was 76.3%.
Jeffrey B. Saef, managing director and head of the investment strategy and solutions group, said in a telephone interview that the numbers for the first three months of the year make some sense.
“It's like a puzzle. The various pieces work together,” Mr. Saef said. While in the summer of 2012, equity markets dropped, rates dropped and spreads dropped, “now we're seeing just the exact opposite. Equity markets are rallying, rates are rising, spreads are rising.”
In contrast to the strong first quarters evidenced in the last couple of years that were followed by drops in the second and third quarters in those years, Mr. Saef said the global macroeconomic tone is better now with strong housing, auto, durables and employment sectors.
“The tone is certainly better,” Mr. Saef said. “Looking forward on (first-quarter) earnings, you'd hope that would continue along with stable and rising rates.”
“The only caveat I'd put is that the first quarter was really good for equities, maybe a little too good to be true.”
