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Pension Funds

U.S. corporate pension funding increases in April – 5 reports

The pension funding ratios of U.S. corporate pension plans inched up over the month of April, according to reports by Legal & General Investment Management America, Mercer, Wilshire Consulting, Conning and Northern Trust Asset Management.

LGIMA found that the pension funding ratio of a typical corporate pension plan increased in the month by 2 percentage points to 89.2%, primarily driven by an increase in Treasury rates and positive equity returns.

LGIMA estimates that Treasury rates increased by 14 basis points, while credit spreads remained largely unchanged, resulting in the average discount rate rising 14 basis points.

Liabilities for the typical plan were down 1.9%, while plan assets with a traditional 60% equity/40% bond asset allocation increased by 2%, LGIMA said.

According to Mercer, the estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies was 89% as of April, up 2 percentage points from the end of March due to a rising discount rate and gains in the equity markets.

The average discount rate increased by 21 basis points in April to 4.13%. The S&P 500 and MSCI EAFE indexes increased 1% and 1.5%, respectively.

The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $242 billion as of April 30, down $44 billion from the $286 billion measured at the end of March.

"April was friendly to pension plans with both favorable equity markets and increasing discount rates," said Scott Jarboe, a partner in Mercer's wealth business, in a news release about the results. "For those sponsors with glidepaths in place, conditions support systematic derisking to lock in gains, while we expect others are reviewing whether this is the tipping point for additional derisking and risk transfer."

Meanwhile, according to Wilshire, the aggregate estimated funding ratio for U.S. corporate pension plans sponsored by S&P 500 companies increased by 1.7 percentage points to end April at 88.9%, which is up 6 percentage points over the trailing 12 months.

The monthly change in funding resulted from a 2.2% decrease in liability values that was partially offset by a 0.3% decrease in asset values. The aggregate funding ratio is up 4.3 and 6 percentage points year-to-date April 30 and over the trailing 12 months, respectively.

Conning's pension funded status tracker model that follows the funding of the average corporate pension plan in the Russell 3000 universe found the funding ratio increased by 1 percentage point last month, reaching 86% in April from 85% in March. This was mainly driven by positive equity market returns and an increase in the average discount rate by 20 basis points.

As measured by Northern Trust, the average funding ratio for S&P 500 companies with corporate defined benefit plans rose 1.5 percentage points over the month to 88.5% at the end of April from 87% at the end of March, largely due to positive returns in return-seeking assets and higher interest rates.

Global equity markets were up about 1% during the month, while the average discount rate rose to 3.83% during the month from 3.66% at the end of March, Northern Trust said.