The funded status of the 100 largest U.S. corporate pension plans rose 40 basis points to 85.2% in November, the Milliman 100 Pension Funding index showed Thursday.
Assets rose 0.5% over the month to $1.484 trillion, the result of a 0.82% investment return. Liability values, meanwhile, remained unchanged at $1.742 trillion as discount rates rose 1 basis point to 3.67%.
If the pension funds achieve a median 7% asset return and the discount rate remains at 3.67%, the funding ratio would increase to 88.1% by the end of 2018 and 91.1% by the end of 2019, Milliman predicted.
"Barring a calamity in the next month, 2017 has been a stellar year with strong double-digit investment returns for corporate pensions," said Zorast Wadia, principal, consulting actuary, and co-author of the corporate pension funding report, in a news release about the results. "If discount rates can hold and December investment returns mirror the past 11 months, the funded ratio for these plans will end higher than it was in 2016. Should discount rates end the year with a strong uptick, this will result in more funding optimism as we turn the corner into the new year." The funded status was 83.3% as of Dec. 31.
According to Mercer, the estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies rose 1 percentage point to 84% as of Nov. 30.
The S&P 500 and MSCI EAFE indexes returned 2.81% and 0.88% over the month, respectively, while discount rates rose 2 basis points to 3.69%.
The estimated aggregate value of pension fund assets of S&P 1500 companies totaled $1.94 trillion as of Nov. 30, down from $1.93 trillion as of Oct. 31, while estimated aggregate liabilities totaled $2.3 trillion, down from $2.32 trillion at the end of October.
"Equity markets continued to rise, leading to the highest pension funded status in over three years," said Matt McDaniel, a partner in Mercer's wealth business, in a news release. "Plan sponsors are looking at high equity valuations and rightfully asking themselves if now is the right time to dial back risk. At the same time, looming reductions in corporate tax rates provide a strong incentive to accelerate funding. If tax reform comes to pass, we expect many plan sponsors to accelerate funding while at the same time derisking using both investment policy and risk transfer."
As measured by Northern Trust, the average funding ratio for S&P 500 companies with corporate defined benefit plans rose 40 basis points over the month to 83.4%.
The funding increase was driven by a nearly 2% return from global equities, which offset a 3-basis-point-drop in the discount rate to 3.66% that drove up liabilities.
Year-to-date through Nov. 30, the funded status is up 3.4 percentage points, discount rates are down 34 basis points and global equities are up about 22%.
According to the Aon Hewitt Pension Risk Tracker, the aggregate funded status for DB plans sponsored by S&P 500 companies rose 70 basis points in November to 82.4%.
Asset values increased 0.82% over the month to $1.774 trillion, the result of investment returns of 1.2%. Meanwhile, liabilities rose 0.03% to $2.153 trillion, the result of 1-basis-point-drop in the discount rate to 3.49%.
Year-to-date through Nov. 30, the funded status is up 1.5 percentage points, according to Aon Hewitt.