LGIMA found the funding ratio of a typical corporate pension plan rose by 2.1 percentage points to 83.2%, primarily driven by the performance of global equities. LGIMA estimates Treasury rates increased by 17 basis points, while credit spreads tightened by 11 basis points, resulting in the average discount rate increasing 6 basis points.
Liabilities for the typical plan decreased 0.54%, while plan assets with a traditional 60% equity/40% bond asset allocation increased by roughly 2.11%, LGIMA said.
Wilshire's monthly report noted that the aggregate funding ratio for U.S. corporate plans increased by 1.6 percentage points as of Dec. 31 to 88.2% from Nov. 30. The monthly change in funding was due to a 0.8-percentage-point increase in asset values and a 1-percentage-point decrease in liability values.
"December's increase in funded ratio was driven by the decrease in liability value resulting from the increase in Treasury yields," said Ned McGuire, managing director and member of the investment management and research group at Wilshire Consulting, in a news release announcing the results. "December's 1.6-percentage-point increase in funded ratio is the fourth consecutive and eighth monthly increase this year."
As measured by Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans increased to 87.3% in December from 85.7% the month before.
Global equity markets rose about 3.5% during the month and drove the change, while the discount rate increased to 2.77% from 2.7% during the month.
"This is a remarkable improvement considering that the discount rates dropped by more than 100 basis points from 3.85% to 2.77% during the year," said Jessica K. Hart, senior vice president and head of the OCIO retirement practice at Northern Trust Asset Management, in a news release announcing the results.
"The exceptional performance from equity has more than made up for the headwinds from rising liabilities," Ms. Hart added. "Although discount rates have been slightly increasing in the past few months, a prolonged low-rate environment can continue to be challenging for pension plans."