The funded status of the largest U.S. corporate pension plans remained relatively unchanged in 2016, said reports from Mercer, Wilshire Consulting and Legal & General Investment Management America.
According to Mercer, the estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies was 81.9% at the end of 2016, relatively unchanged from 81.8% at the end of 2015.
“In 2016, we saw positive returns across nearly every major asset class, and yet pension funded status didn't improve at all.” said Matt McDaniel, a partner in Mercer's retirement business, in a news release. “The impact of falling rates early in the year was so strong that it took a huge funded status improvement in November and December just to get us back to where we started the year.”
The estimated aggregate value of pension fund assets of S&P 1500 companies totaled $1.81 trillion as of Dec. 31, up 0.56% year-over-year, while estimated aggregate liabilities totaled $2.21 trillion, up 0.45% from Dec. 31, 2015. The aggregate deficit rose by $4 billion to $408 billion as of Dec. 31.
Interest rates declined 20 basis points over the year to 4.04%. The S&P 500 and MSCI EAFE indexes returned 12% and 1.5%, respectively.
According to Wilshire, the aggregate funding ratio for S&P 500 companies with corporate pension plans rose 10 basis points over the year to 81.5% as of Dec. 31.
“December marked the sixth consecutive month of either flat or rising funded ratios, which has contributed to 2016 year-end funded ratios recovering to be slightly above 2015 levels,” said Ned McGuire, vice president and a member of the pension risk solutions group of Wilshire Consulting, in a news release about the results. “This month's increase was primarily driven by the continued post-election bounce in equity markets increasing the Wilshire 5000 Total Market index by more than 2% during December.”
Asset values rose 1.3% in December, outpacing a 0.5% rise in liabilities, according to Wilshire.
According to LGIMA's Pension Fiscal Fitness Monitor, the funded status of a typical U.S. corporate pension plan with a 60% allocation to global equity and 40% to core fixed income fell 1.8 percentage points over the year to an estimated 81.3%. LGIMA also found that plan discount rates fell 28 basis points over the year to 4.08%.
