The funding ratios for U.S. corporate defined benefit plans fell in the second quarter of 2016, as liabilities rose faster than assets, said reports from Legal & General Investment Management America and Wilshire Consulting.
The funded status of a typical U.S. corporate pension plan declined 3.2 percentage points to 75.6% in the three months ended June 30, said LGIMA’s quarterly Pension Fiscal Fitness Monitor.
Liabilities for the average plan rose 6% over the second quarter, the result of a 34-basis-point drop in the discount rate to 3.6%.
Plans with a traditional 60% global equity and 40% aggregate fixed-income asset allocation saw their assets increase only 1.6% during the quarter.
Global equities and the S&P 500 rose 1.19% and 2.46%, respectively, during the second quarter.
Separately, Wilshire Consulting found the aggregate funding ratio for U.S. corporate pension plans declined to 76.1% as of June 30, down 1.8 percentage points from both March 31 and May 31.
The monthly decline resulted from a 3.5% increase in liability values vs. a 1.1% increase in asset values in June. The quarterly decline resulted from a 4.3% increase in liability values vs. a 1.9% increase in asset values.
The aggregate funding ratio is down 5.3 percentage points year-to-date June 30. Liabilities are up 10.9% from Dec. 31, while assets are only up 3.6%.
“Though non-U.S. stocks posted negative returns in June, assets were up overall as fixed-income assets posted their largest monthly gain since January 2015,” said Ned McGuire, vice president and a member of the pension risk solutions group of Wilshire Consulting, in a news release. “The Wilshire 5000 Total Market index gained 0.3 percentage points during the month recovering losses sustained after the British referendum vote to leave the European Union. Falling Treasury yields decreased the corporate bond yields used to value pension liabilities, which led to a 3.5% increase in liability values of which over 2.5 percentage points occurred after the British referendum vote.”