Funding ratios for corporate pension plans fell slightly in July as market returns could not keep pace with an increase in liabilities, according to reports from Northern Trust Asset Management and Mercer.
According to Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans fell to 79.1% in July from 80% the month before. Global equity market returns were up about 5.3% during the month, while the discount rate decreased to 1.94% from 2.28% for the month ended July 31, leading to higher liabilities.
"This divergence in asset vs. funded ratio performance reinforces the importance to monitor both asset and liability growth," said Jessica K. Hart, senior vice president and head of the outsourced CIO retirement practice at Northern Trust Asset Management, in a news release.
Meanwhile, Mercer said the estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by 1 percentage point to 79% in the month ended July 31 because of a decrease in discount rates to 2.2% from 2.57% that was partially offset by an increase in equity markets.
The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $557 billion as of July 31, up $64 billion from the end of June.
"With rates continuing to drop, additional pension funding relief is looking even more attractive to plan sponsors faced with large increases in contributions over the next few years," said Scott Jarboe, a partner in Mercer's wealth business, in a separate news release. "Unfortunately, debate continues in Congress over the next round of COVID-19 relief legislation and at this point there's no guarantee pension funding relief will be included this round."
