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Pension Funds

Corporate pension funding ratios rise in January – 4 reports

Funding ratios for U.S. corporate pension plans rose in January, according to reports from Legal & General Investment Management America, Northern Trust Asset Management, Wilshire Consulting and Mercer.

LGIMA found the funding ratio of a typical corporate pension plan increased 2.1 percentage points to 86.5%, primarily driven by positive global equity returns offset by a decrease in Treasury rates and tightening of credit spreads over the month.

LGIMA estimates Treasury rates decreased by 3 basis points, while credit spreads decreased 14 basis points, resulting in the average discount rate dropping 17 basis points in total.

Liabilities for the typical plan increased 3%, while plan assets with a traditional 60% equity/40% bond asset allocation increased 5.2%, LGIMA said.

As measured by Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans rose to 85.9% in January from 83.8% the month before.

Global equity markets were up about 8% during the month, while the average discount rate decreased to 3.75% from 3.91% during the period.

"After the sharp decline in growth assets during Q4 2018, we saw a nice rebound in January led by the equity markets," said Dan Kutliroff, head of outsourced CIO business strategy at Northern Trust, in a news release announcing the results. "Continued strong economic fundamentals in the U.S. and the Fed's dovish tone contributed to the recovery."

According to Wilshire, the aggregate estimated funding ratio for U.S. pension plans sponsored by S&P 500 companies increased 2.8 percentage points to end the month of January at 87.3%, which is up 6.9 percentage points over the trailing 12 months.

The monthly change in funding resulted from an increase in asset values of 5.5 percentage points partially offset by an increase in liability values of 2.2 percentage points. The aggregate funding ratio was down 1.6 percentage points over the trailing 12 months.

"January's bounce back in funded ratios was propelled by the best monthly percentage increase for the Wilshire 5000 in more than seven years," said Ned McGuire, Wilshire Consulting managing director and member of its pension risk solutions group, in a news release. "January's 2.8-percentage-point increase in funding was the largest monthly increase over the past 12 months and follows December's 6-percentage-point decline."

According to Mercer, the estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies increased by 3 percentage points in the month to 88% as of Jan. 31 due to an increase in U.S. equity markets.

Discount rates decreased by 15 basis points to 4.04% in the month.

The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $262 billion as of Jan. 31, down $50 billion from the end of December.

"We saw an uptick in funded status at the end of January as equities bounced back after a tough fourth quarter to end 2018," said Matt McDaniel, a partner in Mercer's wealth business, in a news release. "Even though January was a solid improvement in equities, there is still much uncertainty in the market as evidenced by persisting volatility. We expect plan sponsors will continue to keep a close eye on markets and look for opportunities to lock in gains as opportunities arise."