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Pension Funds

Corporate pension funding saw modest increase in November – 3 reports

Funding ratios for U.S. corporate pension plans saw modest increases in November, according to reports from Legal & General Investment Management America, Northern Trust Asset Management and Mercer.

LGIMA found the funding ratio of a typical corporate pension plan increased slightly by 0.7 percentage points to 90.3%, primarily driven by widening credit spreads and positive global equity returns offset by a drop in Treasury rates in the month.

LGIMA estimates Treasury rates decreased by 11 basis points, while credit spreads increased 12 basis points, resulting in the average discount rate rising 1 basis point.

Liabilities for the typical plan decreased 0.3%, while plan assets with a traditional 60% equity/40% bond asset allocation increased 1.1%, LGIMA said.

As measured by Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans essentially held steady, inching up to 88.7% in November from 88.6% the month before.

Global equity markets rising about 1.5% during the month drove the change, while the discount rate fell to 4.13% from 4.16% during the month.

"Even though the equity markets were up in November, the funded ratio remained flat due to a slight decline in discount rates. Credit spreads widened while Treasury rates declined resulting in a net 3-basis-points lower discount rate," said Dan Kutliroff, head of OCIO business strategy at Northern Trust, in a news release announcing the results. "From an asset return perspective, lower credit quality bonds underperformed higher credit quality bonds and Treasuries," he said. "Pension plans with a distinct allocation to long government bonds would have benefited from the 1.8% return in November."

According to Mercer, the estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies increased by 1 percentage point to 91% as of Nov. 30 due to an increase in U.S. equity markets.

Discount rates decreased by one basis point to 4.42% in the month.

The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $197 billion as of Nov. 30, down $11 billion from the end of October.

"We saw a slight increase in pension funded status thanks to a rise in equity markets at the end of November," said Matt McDaniel, a partner in Mercer's wealth business, in a news release. "We continue to see volatility in equity markets, which is a concern for plan sponsors. Many plan sponsors with glidepaths in place were able to lock in gains earlier this year while others may be in a tough position as market volatility has continued."