The funded status of U.S. corporate defined benefit plans continued rising in November, reaching levels not seen in five years, according to monthly reports from Mercer and BNY Mellon Investment Management's investment strategy and solutions group.
S&P 1500 pension funds, as studied by Mercer, saw their funding ratios increase two percentage points to 93%, the highest since October 2008. The estimated aggregate plan assets as of Nov. 30 were $1.84 trillion, compared to estimated aggregate liabilities of $1.98 trillion. The deficit decreased to $138 billion from $185 billion in October. The funded status is up 19 percentage points year to date.
The November funding increase was aided by the discount rate used to calculate liabilities increasing 14 basis points to 4.59% and positive asset returns led by strong equity markets.
The BNY Mellon Institutional Scorecard reported an even higher funded status for a typical corporate pension plan at 93.9%, up 2.1 percentage points from October and the highest since September 2008. Assets increased 0.4% for the month while liabilities were down 1.8% as the discount rate increased 15 basis points to 4.85%. Strong domestic and private equity returns outpaced negative bond and emerging markets equity returns for the month.
Year to date, assets are up 9.25%, while liabilities are down 10.23% for a typical corporate pension fund.
“The last six months has been an excellent time period to improve the funded status of plans,” said Jeffrey Saef, managing director and head of the investment strategy and solutions group. Mr Saef said the most interesting part of the month was positive feedback on Janet Yellen's confirmation process to become the next chairwoman of the Federal Reserve, which produced a “nice rally to continue returns.”
The typical public defined benefit plan did not have any excess return for the month as it hit its annualized 0.6% return target. Year to date, assets have returned 12.8%, above the 7.5% yearly return target.
The typical endowment and foundation had 0.2 percentage points of real return with its 0.7% asset growth outpacing the 0.5% spending plus inflation monthly target. Plan assets are up 13.6% over the past year, passing the spending and inflation target by 7.4 percentage points.