The funded status of a typical U.S. corporate pension plan fell in the third quarter because of rising liabilities and declining asset values, said two new reports from Legal & General Investment Management America and UBS Global Asset Management.
According to LGIMA’s quarterly Pension Fiscal Fitness Monitor, the funding ratio of a typical U.S. corporate defined benefit plan fell 6.5 percentage points to 81.2% in the quarter ended Sept. 30. Liabilities rose 2.4% in the period, the result of a nine-basis-point drop in the discount rate to 4.3%.
Plans with a 60% global equity and 40% aggregate fixed-income asset allocation saw their assets decline 5.2%, the result of negative equity returns. Global equities and the S&P 500 fell 9.3% and 6.4%, respectively, in the quarter.
The third quarter was almost a “mirror image” of the second quarter, said Don Andrews, head of solutions strategy at LGIMA, in a telephone interview. Higher equity returns and discount rates in the second quarter drove the funded status up from the first quarter.
Given the volatility in the third quarter, Mr. Andrews said he has seen in uptake in demand for custom liability-driven investment strategies. Plans with liability benchmarking and/or completion management strategies fared better than the traditional 60/40 plan in the quarter, with only a 2.9-percentage-point drop in funded status, he said.
Separately, UBS Global Asset Management found the funding ratio of a typical U.S. corporate pension fund fell about five percentage points to 82% in the quarter.
Liabilities rose 2.5% because of falling discount rates, UBS said.
Investment returns were -3.1%.