U.S. corporate pension funding surpluses remained steady in October thanks to falling liability values offsetting negative investment returns for the period, according to two new reports.
First, Wilshire Advisors estimated the aggregate funding ratio of U.S. corporate plans reached 102.9% as of Oct. 31, an increase of 1.3 percentage points above the 101.6% funding ratio estimated by the firm as of Sept. 30.
"October’s increase in funded status resulted from the significant monthly rise in Treasury yields, marking the first month-over-month increase in the discount rate since April 2024," said Ned McGuire, managing director at Wilshire, in a news release Nov. 5. "Corporate bond yields, which are used to value corporate pension liabilities, are estimated to have increased by approximately 40 basis points in October."
McGuire said the increase in corporate bond yields caused estimated liabilities to go down, offsetting negative investment returns for the month.
“The FT Wilshire 5000 index recorded only its second down month of 2024, following its worst daily performance on the last trading day of October since September, ending a streak of five consecutive monthly increases," McGuire said. "Furthermore, most asset classes also experienced negative returns during the month, with international equities facing their largest monthly decline since September 2022.”
Wilshire's assumed asset allocation is 32% long-duration fixed income, 28% core fixed income, 24% domestic equity, 14% international equity and 2% real estate.
In another monthly report, Legal & General Investment Management America estimated the average funding ratio of the typical U.S. corporate pension plan was 110% as of Oct. 31, the same as a month earlier.
LGIMA's Pension Solutions Monitor said the MSCI ACWI Total Gross index and S&P 500 index returning -2.2% and -0.9%, respectively, during October.
LGIMA said the funding ratio avoided a drop because of an increase in discount rates of 40 basis points in the month ended Oct. 31, which caused liability values to fall. The increase in discount rates was driven by the Treasury component rising 45 basis points and the credit component tightening by 5 basis points.
The monitor assumes a typical liability profile using a duration of 12 years and an asset allocation of 50% MSCI ACWI index and 50% Bloomberg U.S. Long Government/Credit index.
LGIMA estimated that corporate plans with that profile would have seen asset values fall by 3.4 percentage points, offset by a 3.4-percentage-point fall in liability values.
