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Pension Funds

Corporate pension funding ratios continue their ascent in September – 3 reports

Updated with correction

The estimated aggregate funding ratio of U.S. corporate pension plans rose slightly during September, according to new reports from Mercer, Northern Trust Asset Management and Wilshire Consulting.

According to Wilshire, the aggregate estimated funding ratio for U.S. pension plans sponsored by S&P 500 companies increased 90 basis points to end August at 91.5%, which is up 7.2 percentage points over the trailing 12 months.

The monthly change in funding resulted from a decrease in liability values of approximately 1.6 percentage points offset by a decrease in asset values of approximately 0.6 percentage points. The aggregate funding ratio is up 6.9 percentage points year-to-date.

"September saw funded ratios increase due to the decline in liability value resulting from the increase in bond yields used to value corporate pension liabilities," said Ned McGuire, Wilshire Consulting managing director and member of its pension risk solutions group, in a news release. "September's 0.9-percentage-point increase in funding brings the aggregate funded ratio to a high point for the year for the third consecutive month and is the second highest since the end of November 2013."

According to Mercer, the estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies rose a full percentage point to 92% as of Sept. 30 from 91% a month earlier due to an increase in discount rates as well as an increase in equity markets.

Discount rates increased by 9 basis points to 4.2% in the month.

The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $171 billion as of Sept. 30, down $18 billion from the end of August.

Northern Trust Asset Management, meanwhile, estimated the average funding ratio of U.S. pension plans sponsored by S&P 500 companies rose to 90.7% as of Sept. 30 from 90.2% a month earlier, citing an 0.4% return by global equity markets and an increase in the average discount rate to 3.92% from 3.82% during September.

Dan Kutliroff, Northern Trust's head of OCIO business strategy, said in a news release that the improved funding ratios provide sponsors a good opportunity to mitigate risks of future downward turns.

"It remains a good opportunity for plan sponsors to consider preserving some of those gains by moving some of their assets from equity-like vehicles to fixed-income assets that behave more like the liabilities. This could help prepare plan sponsors to mitigate downward movements of funded ratio if and when a market correction occurs," Mr. Kutliroff said.