The funded status of corporate pension plans reached 90% at the end of September, according to a monthly report from Mercer and quarterly report from Legal & General Investment Management America.
According to Mercer, the funded status of S&P 1500 plans increased to 91% in September, up from 89%in August and the highest level since October 2008. Mercer estimates that 20% of U.S. pension plans are now fully funded.
The aggregate pension deficit for S&P 1500 plans decreased about $30 billion to $182 billion, Mercer said. The estimated aggregate fair value of pension plan assets of S&P 1500 companies as of Sept. 30 was $1.77 trillion, while estimated aggregate liabilities totaled $1.95 trillion.
“It was a really strong equity market rally that drove the funded status four percentage points higher,” Gary Veerman, head of liability-driven investing strategy at LGIMA, said in a telephone interview. LGIMA estimated the funded status of a hypothetical 60% equity/40% fixed-income plan increased to around 90% at the end of the third quarter, up from the mid-80s at the end of June.
While not quite at the same funding level as the reports from Mercer and LGIMA, Aon Hewitt reported Wednesday that the aggregate funded status of S&P 500 companies increased to 88% from 85.8% in September. Pension assets returned about 2.8% while liabilities were relatively even for the month. The aggregate deficit has improved by $222 billion year-to-date.
Global equity markets were up more than 5% for the quarter while the discount rate increased six basis points, according to LGIMA. The S&P 500 was up 3% in September, which more than offset a five-basis-point decline in the discount rate, according to Mercer.
Mr. Veerman said more plans are pursuing derisking strategies while existing clients are hitting funded status triggers to lock in gains. He expects more focus on downside protection to continue, especially for plans more than 100% funded. For fully funded plans, Mr. Veerman said a concept he calls “pension asymmetry” comes into play where funded status upside has diminishing marginal benefits.
Since mid-2012, global equity markets are up nearly 40% and discount rates have risen by more than 100 basis points, according to LGIMA.