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Pension Funds

Corporate pension funding slips below 90% in October – 2 reports

Funding ratios for U.S. corporate pension plans decreased during the month of October, according to reports from Legal & General Investment Management America and Northern Trust Asset Management.

LGIMA found the funding ratio of a typical corporate pension plan dipped to 89.6%, from 90.5%, primarily due to the negative returns in both U.S. and global equities markets, partially offset by the rise in Treasury rates and credit spreads.

LGIMA estimates Treasury rates increased by 18 basis points, while credit spreads increased by five basis points, resulting in the average discount rate increasing 23 basis points.

Liabilities for the typical plan decreased 2.7% while plan assets with a traditional 60% equity/40% bond asset allocation also decreased 4.8%, LGIMA said.

As measured by Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans declined to 88.6% in October from 90.7% the month before.

Global equity markets were down approximately 7.5% during the month drove the change, while the discount rate increased to 4.16% from 3.92% during the month.

"The market downturn in October is a reminder of the volatility facing pension plans. The improvement in funded ratio during the third quarter was completely offset by the 2% decline in October," said Dan Kutliroff, head of OCIO business strategy at Northern Trust, in a news release announcing the results. "Year-to-date, funded ratios have still improved because higher discount rates have more than compensated for the asset loss. Pension plans that have started a derisking path would have benefited from better matching their assets with their liabilities."