The estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies remained at 77% in August as a slight increase in discount rates was offset by weak equity market returns, according to Mercer.
The typical discount rate measured by the Mercer yield curve rose three basis points to 3.38% in June, while the S&P 500 index and the MSCI EAFE index returned -0.1% and -0.2%, respectively.
The estimated aggregate value of pension fund assets of S&P 1500 companies totaled $1.87 trillion as of Aug. 31, down 0.53% from July 31, while estimated aggregate liabilities totaled $2.44 trillion, similar to July 31, said Mercer.
According to the Aon Hewitt Pension Risk Tracker on Thursday, the aggregate funded status for defined benefit plans sponsored by S&P 500 companies dropped 60 basis points to 76.7% from 77.3% at the end of July.
Assets declined 0.28% to $1.69 trillion in August and liabilities rose 0.53% to $2.2 trillion, the result of five-basis-point drop in the discount rate to 3.35%, Aon Hewitt said.
Separately, the Milliman 100 Pension Funding index showed Thursday that the funded status of the 100 largest U.S. corporate pension plans fell 10 basis points to 75.7% in August.
Liabilities increased 0.16% over the month to $1.871 trillion, the result of a one-basis-point drop in the discount rate to 3.32%, the lowest monthly discount rate in the 16-year history of Milliman's study. Asset values remained at $1.416 trillion during the period as investments returned only 0.35% over the month.
If the pension funds achieve a median 7.2% asset return and the discount rate remains at 3.32%, the funding ratio would increase to 76.2% by the of 2016 and 78.2% by the end of 2017, Milliman predicts.
“We've seen lots of volatility in 2016, but August was a very quiet month, with both interest rates and equities trading in narrow bands,” said Matt McDaniel, a partner in Mercer's retirement business, in a news release on the results. “However, it did bring us one month closer to the end of the year without any appreciable recovery. Unless financial conditions improve, many plan sponsors will see materially higher deficits on their balance sheet at the end of the year and a negative impact to earnings per share in 2017.”