The average U.S. corporate pension plan funding ratio inched above 90% during the third quarter thanks to market gains, two reports estimate.
Legal & General Investment Management America's Pension Fiscal Fitness Monitor estimates the average U.S. corporate pension plan funding ratio as of Sept. 30 was 91.5%, up from 89.7% three months earlier. LGIMA's report cited the S&P 500's 7.71% gain during the quarter and the global equity markets' gain of 4.4% during the quarter. Liability values also decreased as plan discount rates, meanwhile, increased by four basis points during the quarter to 4.36% from 4.32%, and credit spreads tightened by 18 basis points, to 1.17% from 1.35%.
The estimate assumes a traditional asset allocation of 60% equities benchmarked to the MSCI AC World index and 40% fixed income benchmarked to the Bloomberg Barclays Aggregate index.
"We continue to see an uptick in demand for more customized strategies to help hedge interest rate risk and lock in funding ratio gains," Ciaran Carr, senior solutions strategist at LGIMA, said in a news release. "Completion management and multiasset hedging strategies remain in high demand. More customized credit strategies have also continued to be popular this year as plans derisking objectives have evolved further."
Meanwhile, money manager Barrow, Hanley, Mewhinney & Strauss estimates the average U.S. corporate pension plan funding ratio rose to 90.5% as of Sept. 30 from 88.4% three months earlier. Barrow Hanley's report cited market gains and unchanged liabilities for the increase in the funding ratio.
The estimate was calculated using the most recent 10-K filings from Russell 3000 companies and estimating the funding ratios using the following asset allocation with asset classes' associated indexes: 29% long-duration fixed income, 28% domestic equities, 15% international equities, 10% core fixed income, 6% hedge funds, 5% private equity, 3% each, cash and commodities and 2% real estate investment trusts.
By industry, Barrow Hanley said the average funding ratio as of Sept. 30 was highest among financial companies at 101.9% and lowest among communication services at 83.1%.