The typical U.S. corporate defined benefit plan's funding ratio rose to about 83% in the first quarter, from about 76% at the start of the year, according to Legal & General Investment Management America's quarterly Pension Fiscal Fitness Monitor.
The increase was spurred by positive equity returns and higher discount rates in the quarter, boosting the funded status of a corporate plan with a traditional 60% global equity/40% aggregate fixed-income strategy by about 6.5 percentage points. Global equities were up about 6.5%, while discount rates were up 32 basis points. Treasury rates and credit spreads rose 21 and 11 basis points, respectively, in the first quarter, leading to the significant rise in discount rates over the quarter.
“It really was the perfect storm,” said Gary Veerman, head of LDI strategy at LGIMA, in a telephone interview.
Mr. Veerman said signs generally are positive that improvement in funded status could continue, but political uncertainty, notably in Cyprus and the Korean peninsula, could lead to “systemic shocks to the market” that could stem those gains.
The Pension Fiscal Fitness Monitor incorporates data from LGIMA research, Bank of America Merrill Lynch and Bloomberg.