The funded status for U.S. corporate pension plans rose between three and four percentage points in October, reports from Mercer and Wilshire Consulting show.
The estimated aggregate funding ratio of pension plans sponsored by S&P 1500 companies rose four percentage points to 83% in October, according to Mercer. Equity market gains drove the funding increase. The S&P 500 index and MSCI EAFE index returned 8.3% and 7.7%, respectively in October, compared to -2.6% and -5.3% in September.
Meanwhile, the typical discount rate measured by the Mercer yield curve remained stable at 4.14%.
“October was a welcome relief after three straight months of declines,” said Matt McDaniel, a partner in Mercer’s retirement business, in a news release on the results. “Equity markets rallied, returning to positive territory year-to-date. Still, the outlook for pension plan sponsors is cloudy, with the new federal budget deal set to significantly increase PBGC premiums. Sponsors should look to take advantage of these gains and execute on strategies to avoid these increased costs.”
Wilshire Consulting found the aggregate funding ratio for U.S. corporate pension plans rose 3.2 percentage points over the month to 84.1% due to a 4% increase in asset values and no liability change.
Positive returns for most asset classes drove the increase, said Wilshire Consulting, the institutional investment consulting and outsourced CIO unit of Wilshire Associates. Wilshire's figures are the result of estimates of combined assets and liabilities of companies in the S&P 500 index that have defined benefit plans.
The estimated asset allocation was 32% domestic equity, 27% long-duration fixed income, 21% international equity, 18% core fixed income and 2% real estate.