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Pension Funds

U.S. corporate pension funding ratios little changed in May – 4 reports

The pension funding ratios of U.S. corporate pension plans saw only slight movement over the month of May, according to reports from Mercer, Legal & General Investment Management America, Wilshire Consulting and Northern Trust Asset Management.

Mercer reported that the estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased by 1 percentage point to 89% at the end of May, due to gains in the equity markets, which more than offset a decrease in discount rates.

The average discount rate decreased by 3 basis points in May to 4.06%. The S&P 500 index increased 2.2%, while the MSCI EAFE index decreased 2.8% in May.

The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $245 billion as of May 31, down $9 billion from the $254 billion measured at the end of April. The estimated aggregate value of pension plan assets of the S&P 1500 companies as of May 31 was $1.95 trillion, compared with the estimated aggregate liabilities of $2.19 trillion.

"The pattern of improvement paused last month owing to a dip in discount rates, but aggregate funded status remains near a four-year high as the long bull market continues to persist," said Matt McDaniel, a partner in Mercer's U.S. wealth business, in a news release about the results. "At the same time, plan sponsors are making discretionary contributions to their plans at rapid clip to take advantage of tax reform and reduce PBGC premiums. Funded status improvements driven by contributions are just as important as those caused by market movements, so those who put in cash should simultaneously be taking steps to manage risk."

LGIMA found that the pension funding ratio of a typical corporate pension plan decreased over the month by 30 basis points to 89.1%, primarily driven by a slight decrease in the discount rate.

LGIMA estimates that Treasury rates decreased by 11 basis points, while credit spreads increased by 8 basis points, resulting in the average discount rate falling 3 basis points.

Liabilities for the typical plan were up 0.8%, while plan assets with a traditional 60% equity/40% bond asset allocation increased by 0.4%, LGIMA said.

Meanwhile, according to Wilshire, the aggregate estimated funding ratio for U.S. corporate pension plans sponsored by S&P 500 companies decreased by 20 basis points to end the month of May at 88.4%, which is up 5.8 percentage points over the trailing 12 months.

The monthly change in funding resulted from a 0.8% increase in liability values, partially offset by a 0.7% increase in asset values. The aggregate funded ratio is up 3.8 percentage points year-to-date through May 31.

As measured by Northern Trust, the average funding ratio for S&P 500 companies with corporate defined benefit plans declined by 10 basis points over the month to 88.4%, largely due to slightly positive returns in return-seeking assets and lower interest rates.

Global equity markets were up about 0.1% during the month, while the average discount rate dropped to 3.77% during the month from 3.83% at the end of April, Northern Trust said.